12 Undervalued Dividend Aristocrats To Buy According to Analysts

In this article, we discuss 12 undervalued dividend stocks to buy according to analysts. You can skip our detailed analysis of dividend stocks and their performance over the years, and go directly to read 5 Undervalued Dividend Aristocrats To Buy According to Analysts. 

Dividend aristocrats are the companies in the S&P 500 that have raised their dividends for 25 years or more. Value stocks trade at a lower price relative to their intrinsic value and typically have a lower price-to-earnings ratio. The concept of value investing, popularized by Benjamin Graham and Warren Buffett, revolves around the belief that the market occasionally misprices stocks, leading to opportunities for seasoned investors to buy them at a discount. This investment strategy has proven to be successful over the long haul, delivering a total return of 1,344,600% since 1926, compared with a 626,000% return on growth stocks, as reported by Bank of America.

Over the years, the performance of value and growth stocks has fluctuated as it was influenced by various factors, including economic conditions, market cycles, and investor sentiment. According to a report by Goldman Sachs, value stocks outperformed growth equities during periods of high inflation. The report mentioned that value stocks exceeded growth from January 1970 to February 2007 by 17 percentage points. During this period, inflation averaged 4.7%.

Last year’s high inflation and consistent interest rate hikes also resulted in the dominance of value stocks over growth equities. In our article 13 Value Stocks to Buy With High Dividend Yields, we reported that the MSCI World Value Index outperformed its growth counterpart by over 20 percentage points last year. The report also highlighted analysts’ outlook for value stocks, mentioning that value equities will outperform the market cumulatively by 11.8% over the next three years.

When investing in dividend stocks, many investors find undervalued dividend aristocrat stocks appealing because they offer the potential for both income generation and capital appreciation. Moreover, dividend aristocrats have outperformed the broader market during periods of market downturns. The S&P 500 Dividend Aristocrats delivered an annual average return of 12.13% from 1990 through 2018, compared with a 9.96% return from the broader market during the same period, as reported by Insider Monkey in 25 Things Every Dividend Investor Should Know. Some of the best dividend stocks that have raised their dividend for a long period of time include Medtronic plc (NYSE:MDT), NextEra Energy, Inc. (NYSE:NEE), and The Sherwin-Williams Company (NYSE:SHW). In this article, we will discuss undervalued dividend aristocrats to buy according to analysts.

Our Methodology:

For this list, we scanned the list of the S&P 500 Dividend Aristocrats– the stocks that have raised their payouts for 25 years or more– and considered stocks with P/E ratios below 20, as of May 7. From the resultant list, we shortlisted stocks with upside potential based on their current share price and their average price targets. The stocks are ranked in ascending order of the upside potential as of May 7.

12. Genuine Parts Company (NYSE:GPC)

Upside Potential as of May 7: 3.03%

P/E Ratio as of May 7: 19.67

Genuine Parts Company (NYSE:GPC) is a Georgia-based company that specializes in industrial supplies. On May 2, the company declared a quarterly dividend of $0.95 per share, which was in line with its previous dividend. The company is one of the best dividend aristocrat stocks on our list as it maintains a 66-year streak of consistent dividend growth. The stock has a dividend yield of 2.19%, as of May 7.

Medtronic plc (NYSE:MDT), NextEra Energy, Inc. (NYSE:NEE), and The Sherwin-Williams Company (NYSE:SHW) are some other dividend stocks to consider.

In the first quarter of 2023, Genuine Parts Company (NYSE:GPC) reported an operating cash flow of nearly $200 million and its free cash flow amounted to over $109 million. During the quarter, the company returned $126 million to shareholders in dividends. The stock has a P/E ratio of 19.67, as of May 7.

In April, Truist raised its price target on Genuine Parts Company (NYSE:GPC) to $195 and maintained a Buy rating on the shares, following the company’s quarterly earnings. The firm highlighted its Auto business and mentioned that the company’s international business remained strong.

At the end of December 2022, 35 hedge funds tracked by Insider Monkey reported having stakes in Genuine Parts Company (NYSE:GPC), compared with 36 a quarter earlier. These stakes have a collective value of over $628.2 million.

Carillon Tower Advisers mentioned Genuine Parts Company (NYSE:GPC) in its Q3 2022 investor letter. Here is what the firm has to say:

“Genuine Parts Company (NYSE:GPC) operates two global distribution businesses, one focused on automotive replacement parts and the other focused on industrial replacement parts. Both businesses experienced strong same store sales growth and margin expansion in the prior quarter, as demand continued to rebound from pandemic lows.”

11. 3M Company (NYSE:MMM)

Upside Potential as of May 7: 6.75%

P/E Ratio as of May 7: 10.68

An American multinational conglomerate, 3M Company (NYSE:MMM) has a price-to-earnings ratio of 10.68, as of May 7. In its first quarter 2023 earnings, the company posted an operating cash flow of $1.3 billion, which showed a 26% growth from the same period last year. The company’s free cash flow came in at $0.9 billion, up 24% from the prior-year quarter. Not only did the company’s cash generation remain strong, but it also returned $856 million to shareholders during the quarter, which makes it one of the best dividend aristocrat stocks on our list.

3M Company (NYSE:MMM) currently pays a quarterly dividend of $1.50 per share and has a dividend yield of 5.81%, as recorded on May 7. The company has been growing its dividends for 65 years straight.

The number of hedge funds tracked by Insider Monkey owning stakes in 3M Company (NYSE:MMM) grew to 52 in Q4 2022, from 49 in the previous quarter. These stakes have a collective value of over $1.57 billion. With over 2.4 million shares, Citadel Investment Group was the company’s leading stakeholder in Q4.

10. Nucor Corporation (NYSE:NUE)

Upside Potential as of May 7: 7.33%

P/E Ratio as of May 7: 5.57

Nucor Corporation (NYSE:NUE) is an American company that specializes in the production of steel and other related products. In March, Credit Suisse raised its price target on the stock to $156 and maintained an Outperform rating on the shares. The firm expects the company to experience strong earnings momentum in upcoming quarters.

In the first quarter of 2023, Nucor Corporation (NYSE:NUE) generated over $1.2 billion in operating cash flow. The company had over $4.7 billion available in cash and cash equivalents at the end of the quarter. It also paid over $130.5 million to shareholders in dividends. The stock currently trades at a P/E ratio of 5.57.

Nucor Corporation (NYSE:NUE), one of the best dividend aristocrat stocks, currently pays a quarterly dividend of $0.51 per share. The company has been rewarding shareholders with growing dividends for the past 50 years. Its dividend yield on May 7 came in at 1.43%.

At the end of Q4 2022, 39 hedge funds tracked by Insider Monkey owned stakes in Nucor Corporation (NYSE:NUE), with a collective value of over $551.3 million.

9. W.W. Grainger, Inc. (NYSE:GWW)

Upside Potential as of May 7: 8.81%

P/E Ratio as of May 7: 19.8

W.W. Grainger, Inc. (NYSE:GWW) is an Illinois-based company that specializes in the distribution of industrial supplies and other equipment. In the first quarter of 2023, the company generated over $454 million in operating cash flow and returned $229 million to shareholders in dividends and share repurchases. It is among the best dividend aristocrat stocks on our list with a P/E ratio of 19.8.

On April 26, W.W. Grainger, Inc. (NYSE:GWW) declared an 8% hike in its quarterly dividend to $1.86 per share. Through this increase, the company took its dividend growth streak to 53 years. The stock has a dividend yield of 1.10%, as of May 7.

In May, Loop Capital lifted its price target on W.W. Grainger, Inc. (NYSE:GWW) to $800 with a Buy rating on the shares, highlighting the company’s improvement in the supply chain backdrop. The firm also appreciated the company’s performance in its most recent quarter.

At the end of December 2022, 34 hedge funds tracked by Insider Monkey reported having stakes in W.W. Grainger, Inc. (NYSE:GWW), the same as in the previous quarter. These stakes have a collective value of $336.2 million.

ClearBridge Investments mentioned W.W. Grainger, Inc. (NYSE:GWW) in its Q4 2022 investor letter. Here is what the firm has to say:

“W.W. Grainger, Inc. (NYSE:GWW) also has a visible growth runway, with less than 10% market share in a highly fragmented maintenance, repair and operations business. The company cut catalog prices early in the pandemic to maintain revenues and is now benefiting from its Zoro online platform growing revenues at a high-double-digit rate.”

8. Pentair plc (NYSE:PNR)

Upside Potential as of May 7: 9.8%

P/E Ratio as of May 7: 19.3

An American water treatment company, Pentair plc (NYSE:PNR) is next on our list of the best dividend aristocrat stocks. The company pays a quarterly dividend of $0.22 per share for a dividend yield of 1.52%, as of May 7. It has raised its dividends for the past 47 years in a row.

In the first quarter of 2023, Pentair plc (NYSE:PNR) reported a strong cash position. Its operating cash flow for the quarter came in at $107 million and its free cash flow amounted to $123 million. During the quarter, the company returned $36.2 million to shareholders in dividends.

Barclays appreciated the margin performance of Pentair plc (NYSE:PNR) in its Q1 2023. Given this, the firm raised its price target on the stock in May to $66 with an Overweight rating on the shares.

Pentair plc (NYSE:PNR) was a part of 29 hedge fund portfolios at the end of Q4 2022, the same as in the previous quarter, as per Insider Monkey’s database. The stakes owned by these hedge funds have a collective value of over $1.15 billion.

7. Caterpillar Inc. (NYSE:CAT)

Upside Potential as of May 7: 11.1%

P/E Ratio as of May 7: 15.9     

Caterpillar Inc. (NYSE:CAT) is an American company, headquartered in Texas, that specializes in construction and mining equipment. In May, Stifel raised its price target on the stock to $275 with a Buy rating on the shares, appreciating the company’s strong pricing and volume in its recent quarterly earnings.

Caterpillar Inc. (NYSE:CAT) reported an operating cash flow of $1.6 billion in the first quarter of 2023. The company is among the best dividend aristocrat stocks on our list as it paid $600 million to shareholders in dividends during the quarter. It generated nearly $16 billion in revenues, which showed a 17% growth from the same period last year.

On April 12, Caterpillar Inc. (NYSE:CAT) declared a quarterly dividend of $1.20 per share, consistent with its previous dividend. The company’s current dividend growth streak stands at 28 years. The stock’s dividend yield on May 7 came in at 2.23%.

The number of hedge funds tracked by Insider Monkey owning stakes in Caterpillar Inc. (NYSE:CAT) grew to 50 in Q4 2022, from 43 in the previous quarter. These stakes have a total value of over $5 billion. With 7.3 million shares, Bill & Melinda Gates Foundation Trust was the company’s leading stakeholder in Q4.

Diamond Hill Capital mentioned Caterpillar Inc. (NYSE:CAT) in its Q4 2022 investor letter. Here is what the firm has to say:

“In the case of Caterpillar Inc. (NYSE:CAT), the company reported a better-than-expected Q3 as demand in mining, non-residential construction and energy remained healthy through the year even as recession fears grew. Caterpillar showed strong pricing power and operating efficiency in the face of supply chain constraints and labor shortages, which in turn contributed to better-than-expected share price performance.”

6. Dover Corporation (NYSE:DOV)

Upside Potential as of May 7: 13.87%

P/E Ratio as of May 7: 19.29

Dover Corporation (NYSE:DOV) is an American manufacturer of industrial products. On May 5, the company declared a quarterly dividend of $0.505 per share, which was in line with its previous dividend. The company holds one of the longest dividend growth track records of 67 years. The stock’s dividend yield came in at 1.40%, as of May 7. It is among the best dividend aristocrat stocks on our list, with a P/E ratio of 19.2.

Medtronic plc (NYSE:MDT), NextEra Energy, Inc. (NYSE:NEE), and The Sherwin-Williams Company (NYSE:SHW) are some other best dividend stocks to consider.

At the end of December 2022, 28 hedge funds tracked by Insider Monkey were long Dover Corporation (NYSE:DOV), up from 26 in the previous quarter. The collective value of stakes owned by these hedge funds is over $537.6 million.

Click to continue reading and see 5 Undervalued Dividend Aristocrats To Buy According to Analysts. 

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Disclosure. None. 12 Undervalued Dividend Aristocrats To Buy According to Analysts is originally published on Insider Monkey.