In this article, we discuss 10 best undervalued aristocrats to buy in September.
A dividend aristocrat is a company in the S&P 500 index that has raised its dividends consistently for over 25 years. Amid growing recession fears, investors are increasingly putting money in dividend stocks to stay afloat during these times. The Coca-Cola Company (NYSE:KO), Johnson & Johnson (NYSE:JNJ), and The Procter & Gamble Company (NYSE:PG) are some notable dividend stocks that investors are paying attention to because of their performance over the years. According to a report by American Equity, dividend stocks represented a 68.34% return of the S&P 500 from 2010 to 2020.
Matt Bartolini, head of SPDR Americas Research at State Street Global Advisors, talked to CNBC about dividend stocks, mentioning that companies that have raised their dividends for over 30 years have endured market conditions more severe than what we are confronted with today. He further mentioned that returns of dividend stocks are still expected to grow this year irrespective of market situations.
In addition to dividend stocks, value investing is also gaining traction this year as investors are increasingly avoiding high-risk, loss-making growth companies. Rob Arnott, a founder and chairman of Research Affiliates, said in his Bloomberg interview that high inflation is good for value stocks as they offer long-term investment opportunities. This is evident from this year’s returns, as Russell 1000 Value Index fell by 11.31%, compared with a 24.1% decline in the Russell 1000 Growth Index in 2022. Another report by T. Rowe Price also mentioned that value-oriented stocks could benefit from the current environment along with dividend stocks. Dividend aristocrats are good investment options in the S&P 500 index as they exhibit both value and growth characteristics. According to a report by Business Insider, the broad-based index has had a 57.55% average exposure to value and a 42.44% exposure to growth since 1999.
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Our Methodology:
The companies mentioned below have raised their dividends consistently for over 25 years and have P/E ratios of less than 15. We examined these stocks in light of analysts’ ratings and also measured hedge fund sentiment around each stock, according to Insider Monkey’s Q2 2022 data of 895 elite funds.
10 Best Undervalued Aristocrats to Buy in September
10. Nucor Corporation (NYSE:NUE)
P/E Ratio: 4.48
Nucor Corporation (NYSE:NUE) is a North Carolina-based producer of steel and related products and is one of the most profitable steel companies in the world. The company topped analysts’ estimates in Q2 2022, posting a GAAP EPS of $9.67, which surpassed consensus by $1.07. The company’s revenue for the quarter came in at $11.79 billion, up 34.1% from the same period last year. It generated over $1.7 billion in free cash flow during the quarter and paid $272 million in dividends.
Nucor Corporation (NYSE:NUE) has paid dividends consistently for the past 197 quarters and has raised its payouts for 49 years in a row. It currently pays a quarterly dividend of $0.50 per share and has a yield of 1.48%, as of September 7.
In July, Morgan Stanley reiterated its Equal Weight rating on Nucor Corporation (NYSE:NUE), as the firm expects the stock to reflect near-term demand headwinds.
At the end of Q2 2022, 32 hedge funds tracked by Insider Monkey reported owning stakes in Nucor Corporation (NYSE:NUE), growing from 22 in the previous quarter. The collective value of these stakes is over $375.8 million, compared with $260.6 million worth of stakes owned by hedge funds in the preceding quarter.
In addition to The Coca-Cola Company (NYSE:KO), Johnson & Johnson (NYSE:JNJ), and The Procter & Gamble Company (NYSE:PG), Nucor Corporation (NYSE:NUE) is another prominent dividend stock to consider in the current market turmoil.
9. Franklin Resources, Inc. (NYSE:BEN)
P/E Ratio: 7.71
Franklin Resources, Inc. (NYSE:BEN) is a California-based holding company and one of the largest investment managers in the US. In August, Deutsche bank raised its price target on the stock to $29 while maintaining a Hold rating on the shares. The firm highlighted the company’s relatively good fundamentals shown in its recent quarterly results and presented a positive outlook on alternative management firms.
Recently, Franklin Resources, Inc. (NYSE:BEN) reported that its assets under management in July rose to $1.43 trillion, from $1.38 trillion in the previous month. In Q2 2022, the company’s operating cash flow came in at $819.8 million, up from $104.1 million in the previous quarter. Its free cash flow also jumped to $806.7 million, from $78.3 million in the preceding quarter.
Franklin Resources, Inc. (NYSE:BEN) has been raising its dividends consistently for the past 40 years. The dividend aristocrat currently pays a quarterly dividend of $0.29 per share and has a yield of 4.45%, as recorded on September 7.
At the end of June 2022, 24 hedge funds in Insider Monkey’s database owned stakes in Franklin Resources, Inc. (NYSE:BEN), down from 30 in the previous quarter. The collective value of these stakes is over $217.2 million. AQR Capital Management was the company’s leading stakeholder in Q2, owning stakes worth over $31.1 million.
8. Aflac Incorporated (NYSE:AFL)
P/E Ratio: 9.15
Another company on our list of undervalued aristocrats is Aflac Incorporated (NYSE:AFL), which is an American insurance company that provides supplemental insurance in the country. At the end of Q2 2022, 32 hedge funds tracked by Insider Monkey had over $340.6 million invested in the company. In the previous quarter, 32 hedge funds owned $377.6 million worth of stakes in the company.
In Q2 2022, Aflac Incorporated (NYSE:AFL) reported $121.4 billion in cash and total investments while its total assets amounted to $135.6 billion. The company’s cash position also remained strong during the quarter, as it generated $510 million in free cash flow. Its revenue stood at $5.4 billion in Q2.
On August 1, Aflac Incorporated (NYSE:AFL) declared a quarterly dividend of $0.40 per share, consistent with its previous dividend. The company has been raising its payouts consistently for the past 39 years. The stock’s dividend yield came in at 2.63% on September 7.
In July, JPMorgan raised its price target on Aflac Incorporated (NYSE:AFL) to $62 with a Neutral rating on the shares, presenting a positive stance on the life insurance sector post-pandemic.
7. Exxon Mobil Corporation (NYSE:XOM)
P/E Ratio: 10.27
An American multinational oil and gas company, Exxon Mobil Corporation (NYSE:XOM) has raised its dividends consistently for the past 39 years at an annual average rate of 6%. In addition to this, the company has paid dividends for 100 years in a row. The company pays a quarterly dividend of $0.88 per share and has a yield of 3.74%, as recorded on September 7.
In Q2 2022, Exxon Mobil Corporation (NYSE:XOM) reported cash from operating activities of $20 billion and generated earnings of $17.9 billion. Its revenue for the quarter came in at $115.6 billion, up 70.8% from the same period last year. The company’s cash flow increased due to aggressive cost control.
In September, Morgan Stanley raised its price target on Exxon Mobil Corporation (NYSE:XOM) to $113 with an Overweight rating on the shares, believing that the company is well-positioned to benefit from lower carbon business.
As per Insider Monkey’s Q2 2022 database, 72 hedge funds tracked by Insider Monkey owned stakes in Exxon Mobil Corporation (NYSE:XOM), falling from 83 in the previous quarter. These stakes hold a collective value of over $7.4 billion. With over $4 billion worth of stakes, GQG Partners held the largest position in the company in Q2.
First Eagle Investments mentioned Exxon Mobil Corporation (NYSE:XOM) in its Q2 2022 investor letter. Here is what the firm has to say:
“Integrated oil and gas giant Exxon Mobil performed well in the second quarter as continued high prices for energy products supported the stock. As the largest refiner in the US, the company has benefitted from wide “crack spreads,” or the margin between the cost of crude oil and the petroleum products extracted from it. Exxon continues to invest in refining capacity in the US, which industrywide has been in steady decline since 2019. We are pleased that Exxon has been using its strong cash flows to reduce debt and to return cash to shareholders through dividends and stock repurchases.”
6. Chevron Corporation (NYSE:CVX)
P/E Ratio: 10.31
Chevron Corporation (NYSE:CVX) is a California-based energy industry company that specializes in the exploration of oil and natural gas. The company generated stable cash in Q2 2022, with its operating cash flow standing at $13.7 billion, compared with $8 billion in the previous quarter. Its free cash flow for the quarter also grew to $10.6 billion, from $6 billion in the preceding quarter. The company’s dividends for the quarter amounted to $2.8 billion, reflecting stronger FCF.
One of the most prominent undervalued aristocrats, Chevron Corporation (NYSE:CVX) had a dividend yield of 3.65%, as recorded on September 7. The company pays a quarterly dividend of $1.42 per share. It holds a 35-year track record of consistent dividend growth. It can be a good addition to dividend portfolios among other dividend stocks like The Coca-Cola Company (NYSE:KO), Johnson & Johnson (NYSE:JNJ), and The Procter & Gamble Company (NYSE:PG).
In August, BMO Capital raised its price target on Chevron Corporation (NYSE:CVX) to $180 with an Outperform rating on the shares, highlighting the company’s strong operational performance, asset base, and financial strength.
Warren Buffett’s Berkshire Hathaway owned stakes worth over $23.3 billion in Chevron Corporation (NYSE:CVX), becoming the company’s leading stakeholder in Q2 2022. Overall, 59 hedge funds in Insider Monkey’s database owned stakes in the energy company in Q2, up from 53 in the previous quarter. These stakes hold a collective value of over $26 billion.
Diamond Hill Capital mentioned Chevron Corporation (NYSE:CVX) in its Q1 2022 investor letter. Here is what the firm had to say:
“Other top contributors in Q1 included multinational energy company Chevron Corp. (NYSE:CVX). The company benefited from increased energy demand as COVID-related economic restrictions eased in tandem with concerns regarding supply interruptions related to Russia’s invasion of Ukraine.”
5. Expeditors International of Washington, Inc. (NASDAQ:EXPD)
P/E Ratio: 11.1
Expeditors International of Washington, Inc. (NASDAQ:EXPD) is a Washington-based logistics and freight forwarding company. In Q2 2022, 28 hedge funds tracked by Insider Monkey owned stakes in the company, down from 38 in the previous quarter. These stakes hold a collective value of $348.8 million, compared with $615 million worth of stakes owned by hedge funds in the preceding quarter.
At the end of Q2 2022, Expeditors International of Washington, Inc. (NASDAQ:EXPD) reported cash and cash equivalents of $1.9 billion, up from $1.7 billion at the end of December. Its revenue for the quarter came in at $4.6 billion, which showed a 27.8% year-over-year growth. Moreover, its operating income grew by 23% to $506 million.
In May, Expeditors International of Washington, Inc. (NASDAQ:EXPD) declared a 15.5% hike in its quarterly dividend to $0.67 per share. This was the company’s 28th consecutive year of dividend growth. As of September 7, the stock’s dividend yield came in at 1.13%.
4. Chubb Limited (NYSE:CB)
P/E Ratio: 11.63
Chubb Limited (NYSE:CB) is a Switzerland-based insurance company that provides insurance services related to property and casualty, accidental and health, and reinsurance. On August 11, the company declared a quarterly dividend of $0.83 per share, consistent with its previous dividend. As of September 7, the stock’s dividend yield came in at 1.71%. The company has been raising its dividends consistently for the past 29 years.
In Q2 2022, Chubb Limited (NYSE:CB) reported an operating cash flow of $2.72 billion. The company’s operating income grew to $1.79 billion, up from $1.62 billion in the previous quarter. Its net income for the quarter came in at $1.22 billion and its revenue stood at $9.5 billion. The company returned $1.48 billion to shareholders during the quarter, $348 million of which represented dividend payments.
In July, Jefferies maintained its Buy rating on Chubb Limited (NYSE:CB) with a $244 price target, highlighting the company’s pricing power and innovative business model.
The number of hedge funds tracked by Insider Monkey owning stakes in Chubb Limited (NYSE:CB) stood at 35 in Q2 2022, growing from 31 in the previous quarter. These stakes are collectively valued at over $1.68 billion. Viking Global owned the largest position in the company in Q2.
Aristotle Capital Management mentioned Chubb Limited (NYSE:CB) in its Q1 2022 investor letter. Here is what the firm has to say:
“Our investment in Chubb began in the fourth quarter of 2015, shortly after ACE Limited announced it would acquire the Chubb Corporation, creating the largest global property and casualty insurance company by underwriting income. During our nearly seven-year holding period, the company’s combination progressed leading to the realization of main catalysts we had identified. These included cost savings, broadened product offerings and an expanded customer base, as well as enhanced distribution capabilities and improved pricing due to scale. In addition, Chubb successfully grew its profitable high-net-worth personal lines. While we still consider Chubb to be a high-quality business, few catalysts remain after what was, in our opinion, a remarkable run of successful business execution. As such, we decided to step aside in favor of what we believe to be a more optimal investment in Blackstone.”
3. Pentair plc (NYSE:PNR)
P/E Ratio: 13.24
Up next on our list of undervalued aristocrats is Pentair plc (NYSE:PNR), an American water treatment company that provides related services to its consumers. In July, Cowen reiterated its Outperform rating on the stock with a $65 price target, appreciating the company’s guidance, which was above investors’ expectations. The firm also highlighted the company’s pool business and its future prospects.
In Q2 2022, Pentair plc (NYSE:PNR) reported revenue of $1.02 billion, which showed an 8.4% year-over-year growth. The company’s operating cash flow for the quarter came in at $308 million and its free cash flow stood at $288 million. It paid $69.5 million in dividends during the quarter.
Pentair plc (NYSE:PNR) has been raising its dividends consistently for the past 46 years. The company currently pays a quarterly dividend of $0.21 per share and has a dividend yield of 1.86%, as of September 7.
At the end of June 2022, 31 hedge funds tracked by Insider Monkey owned stakes in Pentair plc (NYSE:PNR), compared with 38 in the previous quarter. The consolidated value of these stakes is roughly $947 million. Impax Asset Management was the company’s leading stakeholder in Q2, owning over 12.3 million shares.
2. Archer-Daniels-Midland Company (NYSE:ADM)
P/E Ratio: 13.63
Archer-Daniels-Midland Company (NYSE:ADM) is an American food processing company that is also a global leader in human and animal nutrition. The company ended the quarter with $906 million available in cash and cash equivalents, up from $869 million in the same period last year. Its operating cash flow for the quarter came in at $531 million while it generated $248 million in free cash flow.
Archer-Daniels-Midland Company (NYSE:ADM) has been making uninterrupted dividends for the past 90 years and maintains a 47-year streak of dividend growth. The company currently pays a quarterly dividend of $0.40 per share, with a dividend yield of 1.83%, as of September 7.
In August, Wolfe Research initiated its coverage of Archer-Daniels-Midland Company (NYSE:ADM) with an Outperform rating and a $117 price target, highlighting the company’s competitive dividend growth, which is generated through its Nutrition segment alone.
At the end of Q2 2022, 42 hedge funds in Insider Monkey’s database owned stakes in Archer-Daniels-Midland Company (NYSE:ADM), the same as in the previous quarter. These stakes hold a collective value of nearly $659 million, compared with $625.6 million worth of stakes owned by hedge funds in the preceding quarter.
Diamond Hill Capital mentioned Archer-Daniels-Midland Company (NYSE:ADM) in its Q1 2022 investor letter. Here is what the firm has to say:
“ADM is a leading agricultural processor that also operates a global nutrition business focused on the development of ingredients and flavors for food and beverages, supplements and more. The company’s recent operating results have benefited (unfortunately) from the war in Ukraine as grain prices and agricultural markets globally experienced strong price increases. ADM is positioned well to benefit from the volatility due to its stable North American agricultural base.”
1. Caterpillar Inc. (NYSE:CAT)
P/E Ratio: 14.42
Caterpillar Inc. (NYSE:CAT) is an Illinois-based construction machinery and equipment company that also deals in insurance and financial services for its consumers. On June 8, the company announced an 8.1% hike in its quarterly dividend to $1.20 per share. The company has been raising its dividends consistently for the past 28 years. As of September 7, the stock’s dividend yield came in at 2.65%.
In Q2 2022, Caterpillar Inc. (NYSE:CAT) reported revenue of $14.2 billion, which showed an 11% growth from the same period last year. In the first half of the year, the company’s operating cash flow stood at $2.5 billion, and paid $600 million in dividends. This shows that the company’s cash position is stable to finance its shareholder returns.
In August, Credit Suisse raised its price target on the stock to $236 with an ‘Outperform’ rating on the shares as the firm sees strong demand across all segments of the company.
At the end of Q2, 45 of the hedge funds tracked by Insider Monkey’s database owned stakes in Caterpillar Inc. (NYSE:CAT), compared with 54 in the previous quarter. The collective value of those 45 stakes was over $3.25 billion. With a position worth over $1.3 billion, Fisher Asset Management owned the largest position in the company on June 30.
Diamond Hill Capital mentioned Caterpillar Inc. (NYSE:CAT) in its Q1 2022 investor letter. Here is what the firm had to say:
“We also initiated a position in Caterpillar (NYSE:CAT), one of the world’s leading manufacturers of construction and mining equipment. It’s a company we know well, as we have owned it in our large cap portfolio for quite some time. Recent share price weakness provided an opportunity for us to add it to our large cap concentrated portfolio at an attractive discount to our estimate of intrinsic value. We believe Caterpillar stands to benefit from increased capital investment supported by a healthier/recovering end market environment, particularly in construction and mining.”
You can also take a look at 10 Small-Cap Stocks that Pay Dividends and 10 Safe Dividend Stocks with Over 4% Yield
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Disclosure. None. 10 Best Undervalued Aristocrats to Buy in September is originally published on Insider Monkey.
