In this article, we will discuss 10 best undervalued dividend stocks to buy now. You can skip our detailed analysis of value stocks and their performance in the past, and go directly to read 5 Best Undervalued Dividend Stocks to Buy Now.
In the current market environment, value and defensive stocks are catching investors’ eyes. This year’s returns are putting value investing in the spotlight as the MSCI World Value Index is down by 18.05% as of September 30, compared with a 32.2% decline of the MSCI World Growth Index.
John Davi, the founder of Astoria Portfolio Advisors, told CNBC in October that investors should focus on high-quality stocks. He said that investing in value stocks with PE ratios between 10 to 11 is safe for investors in the current market environment. Inflation and continuous interest rates hike bode well for value stocks as they provide long-term investment opportunities. JPMorgan cited the data by Fama and French, which showed that value stocks cumulatively outplayed growth stocks for prolonged periods from July 1927 to January 2022.
According to Fidelity Investments, value stocks will continue to lead this year. The report also mentioned that value securities have surpassed the market two-thirds of the time from comparable relative valuations. In addition to value investing, dividend stocks are becoming appealing to investors because of their ability to produce regular income. Quality dividend companies with dividend growth histories and strong cash flow generation are increasingly becoming investors’ choices this year. Some of these stocks include AbbVie Inc. (NYSE:ABBV), Eli Lilly and Company (NYSE:LLY), and Becton, Dickinson and Company (NYSE:BDX). However, we will discuss undervalued dividend stocks to buy now in this article.
Photo by Nick Chong on Unsplash
Our Methodology:
The companies mentioned below have strong dividend policies 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. The stocks are ranked according to their P/E ratios.
10 Best Undervalued Dividend Stocks to Buy Now
10. Diamondback Energy, Inc. (NASDAQ:FANG)
P/E Ratio: 6.90
Diamondback Energy, Inc. (NASDAQ:FANG) is a Texas-based energy company that is involved in the exploration of hydrocarbons. In the second quarter of 2022, the company’s operating cash flow came in strong at $1.7 billion, compared with $1.2 billion in the prior-year quarter. Its free cash flow stood at $1.3 billion and it commits to pay at least 75% of FCF in shareholder return.
On August 1, Diamondback Energy, Inc. (NASDAQ:FANG) declared a 7.1% hike in its quarterly dividend to $0.75 per share. This was the company’s third consecutive quarter of dividend increase. Moreover, the company has been raising its dividends consistently for the past three years, which makes it one of the best dividend stocks on our list. As of October 24, the stock has a dividend yield of 1.96%.
In October, Piper Sandler raised its price target on Diamondback Energy, Inc. (NASDAQ:FANG) to $209 with an Overweight rating on the shares. The firm presented a positive stance on exploration and production companies.
At the end of Q2 2022, 54 hedge funds tracked by Insider Monkey owned stakes in Diamondback Energy, Inc. (NASDAQ:FANG), growing from 47 in the previous quarter. These stakes have a collective value of over $811.3 million. Citadel Investment Group was the company’s leading stakeholder in Q2.
In addition to some of the best dividend stocks like AbbVie Inc. (NYSE:ABBV), Eli Lilly and Company (NYSE:LLY), and Becton, Dickinson and Company (NYSE:BDX), Diamondback Energy, Inc. (NASDAQ:FANG) is also gaining investors’ attention.
9. Best Buy Co., Inc. (NYSE:BBY)
P/E Ratio: 8.56
Best Buy Co., Inc. (NYSE:BBY) is a Minnesota-based consumer electronics retailer. Recently, the company launched a new Upgrade+ program which will allow customers to upgrade their MacBooks easily and at affordable prices. Its announcement came just ahead of the holiday shopping season.
Best Buy Co., Inc. (NYSE:BBY) is one of the best dividend stocks on our list as the company has been raising its dividends consistently for the past nine years. Currently, it pays a quarterly dividend of $0.88 per share, with a dividend yield of 5.49%. In fiscal Q2 2023, Best Buy Co., Inc. (NYSE:BBY) returned $208 million to shareholders, $198 million of which represented dividend payments.
In September, Loop Capital raised its price target on Best Buy Co., Inc. (NYSE:BBY) to $110 with a Buy rating on the shares, appreciating the company’s extremely competitive prices. The firm also said that the company is attractively valued relative to other retailers.
According to Insider Monkey’s data, 26 hedge funds owned stakes in Best Buy Co., Inc. (NYSE:BBY) in Q2 2022, up from 25 in the previous quarter. The consolidated value of these stakes is over $406.8 million, compared with $251.4 million worth of stakes owned by hedge funds in the preceding quarter.
8. Truist Financial Corporation (NYSE:TFC)
P/E Ratio: 9.80
Truist Financial Corporation (NYSE:TFC) is a North Carolina-based bank holding company that provides corporate and investment banking services to its consumers. In October, RBC Capital maintained an Outperform rating on the stock with a $60 price target. The firm remained positive about the company’s diversified business model and its one of the best-positioned banking franchises in the US.
On July 26, Truist Financial Corporation (NYSE:TFC) declared an 8% growth in its quarterly dividend to $0.52 per share. This was the company’s second consecutive year of dividend growth after 2020 when it stopped raising dividends due to the pandemic. In Q3 2022, the company payout ratio stands at a healthy 45%.
In the third quarter of 2022, Truist Financial Corporation (NYSE:TFC) reported revenue of $5.88 billion, which showed a 4.4% growth from the same period last year. The company’s net income stood at $1.5 billion and its insurance holdings net income was $95 million.
As of the close of Q2 2022, 33 hedge funds in Insider Monkey’s database owned stakes in Truist Financial Corporation (NYSE:TFC), compared with 36 in the previous quarter. These stakes have a consolidated value of roughly $658 million. Among these hedge funds, Diamond Hill Capital owned the largest position in the company.
7. T. Rowe Price Group, Inc. (NASDAQ:TROW)
P/E Ratio: 10.10
T. Rowe Price Group, Inc. (NASDAQ:TROW) is a Maryland-based investment management company that offers a wide range of financial advisory services to its consumers.
T. Rowe Price Group, Inc. (NASDAQ:TROW) is added to our list of the best dividend stocks as it has been raising its payouts consistently for the past 36 years. It currently pays a quarterly dividend of $1.20 per share for a dividend yield of 4.61%. Moreover, in its recent quarterly earnings, the company reported strong cash generation. T. Rowe Price Group, Inc. (NASDAQ:TROW) paid $476.6 million to shareholders in dividends which takes its payout ratio to 43.9%.
As of the close of Q2 2022, 27 hedge funds tracked by Insider Monkey reported owning stakes in T. Rowe Price Group, Inc. (NASDAQ:TROW), compared with 33 in the previous quarter. These stakes have a collective value of over $262.1 million.
6. Lincoln National Corporation (NYSE:LNC)
P/E Ratio: 10.69
Another best dividend stock on our list is Lincoln National Corporation (NYSE:LNC), which is a multinational insurance company. The company remained a popular buy among elite funds in Q2 2022, with 34 hedge fund positions, up from 25 in the previous quarter. The stakes owned by these funds have a total value of $451.4 million.
In the second quarter of 2022, Lincoln National Corporation (NYSE:LNC) generated roughly $2 billion in operating cash flow, compared with $339 million during the same period last year. The company returned $177 million to shareholders, $77 million of which represented dividend payments. Its revenue for the quarter came in at $5.1 billion, up 4.1% from the prior-year quarter.
Lincoln National Corporation (NYSE:LNC) has an 11-year streak of dividend growth, which makes it one of the best dividend stocks. The company currently pays a quarterly dividend of $0.45 per share and has a dividend yield of 3.49%, as of October 24.
In October, JPMorgan maintained an Overweight rating on Lincoln National Corporation (NYSE:LNC) with a $68 price target. The firm mentioned that interest rates hike is positive for the insurance sector.
Due to its strong cash flow and dividend growth history, Lincoln National Corporation (NYSE:LNC) is a good option alongside AbbVie Inc. (NYSE:ABBV), Eli Lilly and Company (NYSE:LLY), and Becton, Dickinson and Company (NYSE:BDX).
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Disclosure. None. 10 Best Undervalued Dividend Stocks to Buy Now is originally published on Insider Monkey.