10 Best Undervalued Dividend Kings to Buy in September

In this article, we discuss 10 undervalued dividend stocks to buy in September. You can skip our detailed analysis of dividend and value stocks and go directly to read 5 Best Undervalued Dividend Kings to Buy in September

Dividend Kings are an elite group of companies that have raised their dividends for over 50 years consistently. These companies are favored by investors during financial storms because of their stable cash flows. Companies like The Coca-Cola Company (NYSE:KO), Exxon Mobil Corporation (NYSE:XOM), and Johnson & Johnson (NYSE:JNJ) are popular among investors because of their industry-leading dividend growth track records.

Considering the current economic outlook, investors are advised to pick out stocks with long-term growth prospects. In this regard, value stocks with consistent dividend payments are advised as they can provide a hedge against inflation. A value stock trades at a lower price relative to its fundamentals, like earnings and dividends. Dan Boardman-Weston, chief investment officer at BRI Wealth Management, told Bloomberg earlier this year that there will be an opportunity for value stocks this year due to strong monetary policies.

Analysts are also presenting a positive stance on dividend stocks due to their record payments in the first two quarters this year. Recently Janus Henderson upgraded its annual dividend forecasts, expecting the dividend payments to reach $1.56 trillion by the end of the year, compared with its previous forecast of $1.54 trillion. This reflects the headline growth of 5.8% year-over-year and an 8.5% increase on an underlying basis. Further evaluating these arguments, we will discuss some undervalued dividend kings to buy in September.

Our Methodology:

The dividend stocks mentioned below have P/E ratios below 20 and have been raising their dividends consistently for the past 50 years.

Best Undervalued Dividend Kings to Buy in September

10. Farmers & Merchants Bancorp, Inc. (OTCQX:FMCB)

P/E Ratio: 10.95

Founded in 1916, Farmers & Merchants Bancorp, Inc. (OTCQX:FMCB) operates 32 branches across California’s Central Valley and East Bay areas.

Farmers & Merchants Bancorp (OTCQX:FMCB) has raised its dividend consistently for the last 57 consecutive years.

The Board of Directors of Farmers & Merchants Bancorp, Inc. (FMAO), the holding company of The Farmers & Merchants State Bank, said in September that it approved a 16.7% year-over-year increase in the company’s quarterly cash dividend. The dividend is payable on October 20, 2022, to shareholders of record as of September 26, 2022.

9. National Fuel Gas Company (NYSE:NFG)

P/E Ratio: 13.03

National Fuel Gas Company (NYSE:NFG) is an American natural gas distribution company that also specializes in exploration and production. In July, Scotiabank assumed its coverage on the stock with an Outperform rating and an $89 price target, highlighting the company’s capital allocation and financial flexibility.

On June 15, National Fuel Gas Company (NYSE:NFG) raised its quarterly dividend by 4% to $0.475 per share. This marked the company’s 52nd consecutive year of dividend growth. In addition to this, the undervalued dividend king has been making dividend payments for the past 120 years. As of September 6, the stock’s dividend yield stood at 2.71%.

Though National Fuel Gas Company (NYSE:NFG) missed Street estimates on various accounts in Q2 2022, the company’s revenue of $502.6 million saw a 27.4% year-over-year growth. The company’s cash position also remained strong during the quarter, with its operating cash flow standing at $228.3 million. It generated $51.3 million in free cash flow and paid $43.4 million in dividends, which shows that its dividends are safe with its cash flow.

At the end of Q2 2022, 23 hedge funds in Insider Monkey’s database reported owning stakes in National Fuel Gas Company (NYSE:NFG), up from 21 in the previous quarter. The collective value of these stakes is over $180.6 million. With stakes worth over $78.7 million, GAMCO Investors held the largest position in the company in Q2.

8. Stanley Black & Decker, Inc. (NYSE:SWK)

P/E Ratio: 14.83

Stanley Black & Decker, Inc. (NYSE:SWK) manufactures industrial tools and household hardware. The company is also a leading provider of security products in the US. In the first six months of 2022, the company had $282.3 million in cash and cash equivalents, compared with $142.1 million at the end of December 2021. In Q2 2022, the company’s revenue came in at $4.4 billion, which showed a 16% year-over-year growth. Its operating margin of sales for the quarter was 8.1%.

On July 20, Stanley Black & Decker, Inc. (NYSE:SWK) hiked its quarterly dividend by 1.3% to $0.80 per share. The company has been making consistent dividend payments for the past 146 years while maintaining a 54-year streak of dividend growth. The company has an industry’s leading annual dividend payments record. As of September 6, the stock’s dividend yield was recorded at 3.75%.

In August, Morgan Stanley maintained its Overweight rating on Stanley Black & Decker, Inc. (NYSE:SWK) with a $110 price target, appreciating the company’s latest programs which would drive its EPS growth in the second half of FY22.

As per Insider Monkey’s Q2 2022 database, 32 hedge funds owned investments in Stanley Black & Decker, Inc. (NYSE:SWK), compared with 38 in the previous quarter. These investments hold a collective value of nearly $497 million, down from $922 million worth of stakes owned by hedge funds in the preceding quarter.

7. Lowe’s Companies, Inc. (NYSE:LOW)

P/E Ratio: 15.15

Lowe’s Companies, Inc. (NYSE:LOW) is a North Carolina-based retail company that specializes in products related to home improvement. The company was a part of 53 hedge fund public portfolios in Q2 2022, compared with 65 in the previous quarter. The stakes owned by hedge funds hold a combined value of roughly $5 billion. With over 10.2 million shares, Pershing Square was the company’s leading stakeholder in Q2.

In Q2 2022, Lowe’s Companies, Inc. (NYSE:LOW) reported a 0.2% growth in its comparable sales for the US improvement business. The company’s cash position came in strong as its operating cash flow grew to over $3 billion, from $2.9 billion in the previous quarter. It generated roughly $2.7 billion in free cash flow, up from $2.6 billion in the preceding quarter. The company’s dividend payments amounted to $524 million during the quarter, which takes its payout ratio to 27.08%.

On August 26, Lowe’s Companies, Inc. (NYSE:LOW) declared a quarterly dividend of $1.05 per share, consistent with its previous dividend. The company has been paying uninterrupted dividends since its IPO in 1961 and holds a 59-year track record of consistent dividend payments. The stock’s dividend yield came in at 2.18% on September 6.

In August, Truist raised its price target on Lowe’s Companies, Inc. (NYSE:LOW) to $263 and maintained a Buy rating on the shares. The firm mentioned that the company’s trends remained solid with its strong DIY sales.

Pershing Square Capital Management mentioned Lowe’s Companies, Inc. (NYSE:LOW) in its Q4 2021 investor letter. Here is what the firm has to say:

Lowe’s is a high-quality business with significant long-term earnings growth potential

Supportive macroeconomic backdrop

-Aging housing stock, lack of new inventory, robust home equity values, and unprecedented pro project backlog
-COVID-19 causing millennials to enter the housing market

Positioned to grow EPS largely independent of market conditions

-Idiosyncratic revenue opportunities driving share gains
-Self-help initiatives catalyzing operating margin expansion
-Buybacks representing ~8% of current market capitalization planned for 2022

Multi-year business transformation with substantial earnings upside

-Margin target of 13% has substantial upside; Home Depot at ~15.3% and increasing
-Potential to generate high-teens EPS growth over the next several years.

Lowe’s continues to trade at a significantly discounted P/E multiple relative to Home Depot despite materially higher prospective EPS growth. LOW’s share price including dividends increased 63% in 2021 and has decreased 10% year-to-date in 2022.”

6. Stepan Company (NYSE:SCL)

P/E Ratio: 15.16

Stepan Company (NYSE:SCL) is an American chemical manufacturing company that provides innovative chemical solutions to its consumers. The undervalued dividend king has been raising its dividends consistently for the past 54 years. It currently pays a quarterly dividend of $0.335 per share and has a yield of 1.36%, as recorded on September 6. The company has a healthy payout ratio of 20.09%.

In Q2 2022, Stepan Company (NYSE:SCL) reported revenue of $751.6 million, which showed a 26.2% year-over-year growth. Its operating cash flow for the quarter came in at over $59 million, up from $20.9 million in the previous quarter. It also generated over $10 million in free cash flow during the quarter and paid $7.5 million in dividends to shareholders.

In July, Stifel reiterated its Buy rating on Stepan Company (NYSE:SCL) with a $133 price target, highlighting the company’s strong Q2 results. However, the firm presented a conservative view of its margin expansions due to supply chain issues.

As of the close of Q2 2022, 10 hedge funds tracked by Insider Monkey owned stakes in Stepan Company (NYSE:SCL), down from 11 in the previous quarter. The consolidated value of these stakes is over $16.2 million. Citadel Investment Group was the company’s leading stakeholder in Q2, owning stakes worth over $3.8 million.

Stepan Company (NYSE:SCL) can be a good investment option for income investors among other dividend companies like The Coca-Cola Company (NYSE:KO), Exxon Mobil Corporation (NYSE:XOM), and Johnson & Johnson (NYSE:JNJ).

LRT Capital Management mentioned Stepan Company (NYSE:SCL) in its Q3 2021 investor letter. Here is what the firm has to say:

Stepan is an under-the-radar company with a market capitalization of approximately $3.0b.52 The company is engaged in the manufacturing of specialty chemicals, primarily for the cleaning industry. The company’s products are the principal ingredients in consumer and industrial cleaning products such as washing detergents, as well as shampoos, body washes, and fabric softeners. The company’s specialty products include emulsifiers, food stabilizers, flavorings, and nutritional supplements.

Don’t let the dullness of the company’s products fool you. While Stepan operates in a commoditized industry, the company has been an efficient operator and has been able to expand margins over time. What looks on the surface like a cyclical, commoditized business is in fact a very resilient provider of key inputs to daily necessities such as body and household cleaning products. Due to its resilience through different economic cycles, Stepan has been able to increase its annual dividend for 54 years in a row. What’s more, payouts to shareholders did not come at the expense of reinvesting in the business. The company has grown earnings-per-share by a factor of 5x over the last two decades while maintaining returns on invested capital in the mid-teens.”


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Disclosure. None. 10 Best Undervalued Dividend Kings to Buy in September is originally published on Insider Monkey.