Despite the overall market rallying in recent months, several dividend stocks have lagged behind, presenting unique opportunities for income-oriented investors. For those seeking value and steady payouts, these undervalued dividend stocks offer a rare chance to capitalize on robust performance.
In this article, I will present three dividend payers that Wall Street seems to be ignoring. Despite investors overlooking these stocks, which has led them to trade at below-average valuations, these companies have continued to perform well, posting increasing revenues, earnings, and dividends.
As my criteria for selecting these three stocks, I have ensured that they feature yields of at least 5%, providing meaningful levels of income in today’s interest rate environment. Also, all of these stocks trade below their 200-day average and have grown their dividends for at least 10 consecutive years, including this year. This last condition should confirm a proven track record of growth, leading us to more high-quality names.
Franklin Resources (BEN)
The first of the undervalued dividend stocks list is Franklin Resources (NYSE:BEN). The company is renowned in the global investment management space, even though its shares have suffered lately. In fact, despite a near decade-long descent in its stock price, Franklin remains a high-quality company with a strong growth record.
Evidently, the company has increased its dividend for 44 consecutive years, a testament to its ability to grow over the long-term growth while actively rewarding shareholders. With dividend increases persisting year after year against a declining share price, the yield has been pushed to 5.5% today. Therefore, BEN stock is offering an attractive entry point for investors in today’s market, even with lofty interest rates.
I’m further optimistic that Franklin will keep growing the dividend moving forward as payouts remain well-covered against its earnings prospects. Consensus estimates see earnings per share (EPS) of $2.45 this year, implying a payout ratio of just over 50%. Wall Street’s EPS estimate also implies that shares are now trading at just 9.1X, implying a wide margin of safety valuation-wise.
Northwest Natural Holding Company (NWN)
Second on the undervalued dividend stocks list is Northwest Natural Holding Company (NYSE:NWN). Wall Street has ignored this utility stock for years despite the strong results its natural gas distribution and storage services have produced decade after decade. NWN has experienced a downward trend in recent years, yet the company continues to see revenue, earnings, and dividend growth.
For example, Northwest Natural posted record revenues of $1.20 billion last year, up 15% year-over-year. The company also reported record EPS of $2.59, a 2% increase compared to the previous year. Further, Northwest Natural has continued its impressive dividend growth, now boasting 68 consecutive years of uninterrupted dividend hikes.
Literally, only a handful of companies worldwide claim an equally strong or lengthier track record of dividend growth, highlighting Northwest Natural’s commitment to shareholders with consistently growing returns across all types of economic cycles. Disregarded by Wall Street since 2019, with shares on a consistent decline since, NWN stock now offers a hefty dividend yield of 5.4% and trades at a rather cheap 15.4 times this year’s expected EPS.
Bank of Montreal (BMO)
I am wrapping up this list with the Bank of Montreal (NYSE:BMO). It’s one of the Big Six banks of Canada. Generally, Canadian banks are considered high-quality assets and some of the most durable in the global banking industry overall. For instance, during the Great Financial Crisis of 2007-2008, Canadian banks were amongst the few stocks in the industry that didn’t cut their dividend, Bank of Montreal included. The company kept its payouts stable during that period and now boasts 11 years of consecutive dividend hikes.
Precisely due to their strength and overall endurance, you will rarely see Canadian banks go on sale. Consequently, the current lack of investor interest in Bank of Montreal stock presents a compelling opportunity to acquire this quality company at a discounted price. BMO stock is currently trading at its 2021 levels despite operating in a highly favorable market environment where its revenues and profits are surging due to improved net interest spreads.
Indeed, shares are now trading at a forward price-to-earnings (P/E) ratio of just 10.6, a multiple I find quite attractive given that interest rate spreads should remain elevated for some time. Also, the stock now carries a hefty dividend yield of 5.4%, which is appealing given BMO’s dividend growth rate. Over 10 years, BMO has achieved a compound annual growth rate (CAGR) of about 9% in dividends. This CAGR is outpacing inflation and ensuring real growth in investors’ income.
On the date of publication, Nikolaos Sismanis did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.