In this article, we discuss 11 best undervalued dividend stocks to buy now.
Undervalued stocks trade at a price lower than their intrinsic or true value. These stocks can potentially be a good investment option for investors who are looking to purchase stocks at a discount and hold them for the long term. If an investor can identify a stock that is undervalued due to temporary factors, such as a downturn in the industry or a negative news event, they may be able to purchase the stock at a lower price and benefit from the potential upside when the temporary factors subside.
Growth stocks have outperformed value equities in the past as they offer the potential for higher returns and capital appreciation. However, the consistent changes in monetary policies and growing inflation have turned investors’ attention toward value stocks. According to a report by UBS, value stocks surpassed growth equities by 18 percentage points in the first 10 months of 2022. The report mentioned that inflation above 3% has generally fared well for value stocks historically. In addition to this, tight monetary policies also favor value stocks relative to their growth counterparts. The UBS report revealed that value has historically outperformed growth by an average of 4 percentage points, in the 12 months following the bank’s last rate hike in a cycle.
Readers can also have a look at 11 Undervalued Dividend Aristocrats to Buy to know more about value investing.
Investors consider value stocks because of their solid long-term returns. This has been proven over the years as value has delivered strong returns to shareholders when compared with growth stocks. Since 1926, value investing returned 1,344,600%, compared with a 626,000% return for growth stocks, as reported by Bank of America. However, growth stocks reasserted their dominance in the recent past when interest rates were low. Investors are often advised to maintain a diversified portfolio, with both value and growth stocks, as it can help them manage risk and achieve their investment goals over the long term.
In addition to value stocks, dividend stocks are also becoming popular among investors this year. The Coca-Cola Company (NYSE:KO), Johnson & Johnson (NYSE:JNJ), and The Procter & Gamble Company (NYSE:PG) are some of the best dividend stocks as they have decades-long dividend growth streaks.
Image by Sergei Tokmakov Terms.Law from Pixabay
Our Methodology:
For this list, we scanned Insider Monkey’s database of 943 hedge funds as of the fourth quarter of 2022 and selected at least 25 stocks that have raised their dividends for at least 10 years and have P/E ratios below 20, as of April 17. From the resultant list, we picked 11 stocks with the highest number of hedge fund investors. The stocks are ranked in ascending order of hedge funds having stakes in them.
11 Best Undervalued Dividend Stocks to Buy Now
11. Polaris Inc. (NYSE:PII)
Number of Hedge Fund Holders: 20
P/E Ratio (TTM) as of April 17: 10.7
Polaris Inc. (NYSE:PII) is a Minnesota-based automotive industry company that offers some of the best brands in the industry. The company currently pays a quarterly dividend of $0.65 per share, having raised it by 1.6% in February this year. This was the company’s 28th consecutive year of dividend growth. The stock has a dividend yield of 2.40%, as of April 17.
Polaris Inc. can be added to dividend portfolios due to its long dividend growth streak alongside some of the best dividend stocks, such as The Coca-Cola Company, Johnson & Johnson, and The Procter & Gamble Company.
Polaris Inc. exhibited a strong cash position in FY22. The company’s operating cash flow for the year came in at $585 million, up from 287 million in 2021. Its free cash flow also grew from $22 million in 2021 to $199 million last year.
In March, RBC Capital raised its price target on Polaris Inc. to $155 with a Sector Perform rating on the shares. The firm mentioned that the company offers a leading market share position across its core markets.
The number of hedge funds tracked by Insider Monkey owning stakes in Polaris Inc. grew to 20 in Q4 2022, from 15 a quarter earlier. These stakes have a collective value of nearly $211.4 million.
Diamond Hill Capital made the following comment about Polaris Inc. in its Q3 2022 investor letter:
“Other top contributors included Polaris Inc., BOK Financial and Webster Financial. Polaris, a market leader in off-road vehicles, benefited from a restocking opportunity — inventory at dealers remains depleted, which can serve to offset near-term macroeconomic headwinds. The company also is perceived to be somewhat recession-resilient given its strong financial performance during and after the 2008 financial crisis. We took the opportunity to conclude our investment as we have increased concerns over rising competition, supply chain issues related to sourcing semiconductors and the business’s higher-than-perceived cyclicality.”
10. Franklin Resources, Inc. (NYSE:BEN)
Number of Hedge Fund Holders: 23
P/E Ratio (TTM) as of April 17: 13.7
Franklin Resources, Inc. (NYSE:BEN) is an American multinational holding company that offers services in investment management. In March, the company reported an increase in its assets under management (AUM) at $1.422 trillion, compared with $1.41 trillion at the end of February. The increase was mainly due to the impact of positive markets.
On February 7, Franklin Resources, Inc. declared a quarterly dividend of $0.30 per share, which was in line with its previous dividend. The company is one of the best dividend stocks on our list as it has raised its dividends for 42 years. The stock has a dividend yield of 4.47%, as of April 17.
In the fourth quarter of 2022, Franklin Resources, Inc. generated nearly $2 billion in revenues, up 1.5% from the same period last year. At the end of December 2022, the company had over $5.6 billion available in cash and cash equivalents and investments.
As of the close of Q4 2022, 23 hedge funds in Insider Monkey’s database owned stakes in Franklin Resources, Inc., compared with 25 in the previous quarter. The collective value of these stakes is over $158.6 million. With 1 million shares, Fairfax Financial Holdings was the company’s leading stakeholder in Q4.
9. Enterprise Products Partners L.P. (NYSE:EPD)
Number of Hedge Fund Holders: 24
P/E Ratio (TTM) as of April 17: 10.77
Enterprise Products Partners L.P. (NYSE:EPD) is a Texas-based energy company that specializes in refined products and petrochemicals. In March, Scotiabank initiated its coverage on the stock with an Outperform rating and a $31 price target. The firm presented a positive outlook on the sector.
In Q4 2022, Enterprise Products Partners L.P. reported revenue of $13.6 billion, which saw a 20.1% growth from the same period last year. The company’s distributable cash for FY22 stood at $7.8 billion, compared with $6.6 billion in 2021.
On April 6, Enterprise Products Partners L.P. declared a quarterly dividend of $0.49 per share, which was in line with its previous dividend. The company has been growing its dividends for the past 23 years, which makes it one of the best dividend stocks on our list. The stock’s dividend yield on April 17 came in at 7.28%.
At the end of December 2022, 24 hedge funds in Insider Monkey’s database owned stakes in Enterprise Products Partners L.P., up from 21 in the previous quarter. These stakes have a collective value of $242.4 million.
Legacy Ridge Capital Management, LLC mentioned Enterprise Products Partners L.P. in its Q4 2022 investor letter. Here is what the firm has to say:
“Enterprise Products Partners L.P. (NYSE:EPD) is still owned in the fund and remains one of our largest positions, as it has been since the partnership was founded. This has not been a great investment. Shares are down about 6% since I first wrote about it. However, we have received $8.93 per share in dividends, which is about 34% of the 2018 share price. So, with dividends included we’ve made 28% cumulatively over 5-years. Still not good, but not an impairment of capital either.
Since 2018, EPD’s dividend yield has gone from 6.5% to 8% with the annual per share payout growing from $1.72 to $1.96, +14%. The pace of dividend growth has recently increased from about 2% to 5%+. Additionally, Distributable Cash Flow per share (what could be paid to us if management wanted to) has increased 22%, from $2.73 to $3.33, while leverage has come down a little over ½ a turn. So, the balance sheet and cash flow metrics are in better shape than they were 5-years ago, and they were pretty good 5-years ago.
The competitive dominance of the asset base, industry leading low leverage, and a founding family with multiple billions of dollars invested alongside us keep it a core holding in the portfolio. We’ll continue to own this company unless the shares become meaningfully overvalued, and if it gets cheaper, we would be very comfortable owning more.”
8. T. Rowe Price Group, Inc. (NASDAQ:TROW)
Number of Hedge Fund Holders: 29
P/E Ratio (TTM) as of April 17: 16.9
T. Rowe Price Group, Inc. (NASDAQ:TROW) is a Maryland-based investment management company that offers related services to individuals and institutions. The company reported a 2.3% growth in its assets under management (AUM) in March to $1.34 trillion. Its US mutual funds AUM came in at $656 billion as of March 31, compared with $644 billion at the end of February.
Wells Fargo raised its price target on T. Rowe Price Group, Inc. in April to $115 with an Equal Weight rating on the shares, appreciating the company’s performance improvement this year.
T. Rowe Price Group, Inc., one of the best dividend stocks, currently pays a quarterly dividend of $1.22 per share. In February 2023, the company raised its dividend for the 37th consecutive year. The stock has a dividend yield of 4.29%, as of April 17.
At the end of Q4 2022, 29 hedge funds tracked by Insider Monkey reported owning stakes in T. Rowe Price Group, Inc., compared with 30 in the previous quarter. The collective value of these stakes is over $422.3 million. Among these hedge funds, Citadel Investment Group was the company’s leading stakeholder in Q4.
7. Best Buy Co., Inc. (NYSE:BBY)
Number of Hedge Fund Holders: 33
P/E Ratio (TTM) as of April 17: 11.66
Best Buy Co., Inc. (NYSE:BBY) is an American consumer electronics company, headquartered in Minnesota. On March 2, the company declared a 5% hike in its quarterly dividend to $0.92 per share. This was the company’s tenth consecutive year of dividend growth, which makes it one of the best dividend stocks on our list. As of April 17, the stock has a dividend yield of 5.02%.
In March, Truist raised its price target on Best Buy Co., Inc. to $88, from $80, following the company’s performance in its quarterly earnings. The firm also mentioned that the stock’s risk/reward profile remains balanced at current levels.
The number of hedge funds tracked by Insider Monkey owning stakes in Best Buy Co., Inc. stood at 33 in Q4 2022, growing from 31 in the previous quarter. The collective value of these stakes is over $611.8 million.
6. Nucor Corporation (NYSE:NUE)
Number of Hedge Fund Holders: 39
P/E Ratio (TTM) as of April 17: 5.13
Nucor Corporation (NYSE:NUE) specializes in the production of steel and other related products. The company currently pays a quarterly dividend of $0.51 per share and has a dividend yield of 1.38%, as of April 17. It is one of the best dividend stocks on our list as it maintains a 50-year streak of consistent dividend growth.
In addition to Nucor Corporation, The Coca-Cola Company, Johnson & Johnson, and The Procter & Gamble Company are some other best dividend stocks that hold decades-long dividend growth streak.
At the end of Q4 2022, 39 hedge funds tracked by Insider Monkey owned stakes in Nucor Corporation, with a collective value of over $551.3 million. Ken Griffin and Cliff Asness were some of the company’s leading stakeholders in Q4.
5. The Kroger Co. (NYSE:KR)
Number of Hedge Fund Holders: 42
P/E Ratio (TTM) as of April 17: 15.6
The Kroger Co. (NYSE:KR) is an Ohio-based retail company that operates supermarkets and multi-department stores throughout the country. In March, Northcoast upgraded the stock to Buy with a $60 price target and appreciated the company’s recent quarterly earnings. The company is one of the best dividend stocks on our list.
On March 9, The Kroger Co. declared a quarterly dividend of $0.26 per share, which was in line with its previous dividend. In 2022, the company stretched its dividend growth streak to 16 years. The stock’s dividend yield on April 17 came in at 2.18%.
As of the close of Q4 2022, 42 hedge funds tracked by Insider Monkey reported having stakes in The Kroger Co., compared with 49 in the previous quarter. The collective value of these stakes is over $4 billion. With 50 million shares, Berkshire Hathaway was the company’s leading stakeholder in Q4.
Oakmark Funds mentioned The Kroger Co. in its Q1 2023 investor letter. Here is what the firm has to say:
“The Kroger Co. (NYSE:KR is the second-largest grocery retailer in America, behind only Walmart. Although the grocery industry is highly competitive, Kroger’s scale advantages allow it to offer a more compelling value proposition than smaller peers and earn higher returns on capital. In recent years, the market has assigned Kroger a lower multiple due to concerns that e-commerce would disrupt traditional brick-and-mortar grocery businesses. However, we believe Kroger’s performance through the pandemic highlighted that its store footprint, distribution infrastructure, technology investments and strong brand all position the company well for a world with higher online grocery adoption. The stock trades for just 10x our estimate of next year’s EPS, which we believe is attractive given Kroger’s competitive positioning and earnings growth outlook. The pending merger with Albertsons has the potential to drive accelerated earnings growth and further scale advantages. If the merger is not approved, the company will have the capacity to return over 25% of its market cap to shareholders.”
4. Verizon Communications Inc. (NYSE:VZ)
Number of Hedge Fund Holders: 56
P/E Ratio (TTM) as of April 17: 7.80
Verizon Communications Inc. (NYSE:VZ) is an American multinational telecommunications company, based in New York. In Q4 2022, the company generated over $35.3 billion in revenues, up 3.5% from the same period last year. Its cash position remained stable during the year as its operating cash flow for FY22 came in at $37.1 billion and its free cash flow stood at $14.1 billion.
On March 2, Verizon Communications Inc. declared a quarterly dividend of $0.6525 per share, having raised it by 2% in September 2022. The company has been growing its dividends consistently for the past 16 years, which makes it one of the best dividend stocks on our list. The stock’s dividend yield came in at 6.61% on April 17.
At the end of December 2022, 56 hedge funds in Insider Monkey’s database owned stakes in Verizon Communications Inc.. These stakes have a total value of over $1.5 billion.
Mawer Investment Management mentioned Verizon Communications Inc. in its Q3 2022 investor letter. Here is what the firm has to say:
“There are a few other segments of our portfolios that displayed weakness in the quarter. Cable and telecommunication companies have been an area that has lagged the broader market as their worlds are increasingly colliding. Companies such as Verizon (NYSE:VZ) has been impacted as wireless operator is spending heavily to attract internet subscribers with fixed wired access and the cable companies are trying to build wireless businesses.”
3. Chevron Corporation (NYSE:CVX)
Number of Hedge Fund Holders: 57
P/E Ratio (TTM) as of April 17: 9.35
Chevron Corporation (NYSE:CVX) is a California-based energy and petroleum refineries company. In April, Scotiabank upgraded the stock to Buy and also lifted its price target on the stock to $200, highlighting the company’s overall performance.
Chevron Corporation currently offers a quarterly dividend of $1.51 per share for a dividend yield of 3.53%, as of April 17. The company is one of the best dividend stocks on our list as it has been raising its dividends for the past 36 years.
The number of hedge funds tracked by Insider Monkey owning stakes in Chevron Corporation stood at 57 in Q4 2022. These stakes have a collective value of over $32.2 billion.
Carillon Tower Advisers mentioned Chevron Corporation in its Q4 2022 investor letter. Here is what the firm has to say:
“Energy performed well during the fourth quarter, with the sector up about 23%. Investors returned to the sector after the Organization of the Petroleum Exporting Countries (OPEC) signaled it would reduce production. Chevron Corporation (NYSE:CVX) reported strong quarterly results while buying back stock, paying a healthy dividend, and maintaining a strong balance sheet.”
2. U.S. Bancorp (NYSE:USB)
Number of Hedge Fund Holders: 58
P/E Ratio (TTM) as of April 17: 9.64
U.S. Bancorp (NYSE:USB) is a bank holding company, headquartered in Minnesota, US. The company offers a wide range of financial services to its consumers. JPMorgan gave a neutral stance on the banking sector considering the inflationary environment. In view of this, the firm lowered its price target on the stock to $45 but maintained an Overweight rating on the shares.
U.S. Bancorp is one of the best dividend stocks on our list as it has raised its dividend payouts for 12 years straight. The company pays a per-share dividend of $0.48 every quarter and has a dividend yield of 5.39%, as recorded on April 17.
At the end of Q4 2022, 58 elite funds tracked by Insider Monkey were long U.S. Bancorp, compared with 52 in the previous quarter. The stakes owned by these funds have a consolidated value of $2.6 billion. Jean-Marie Eveillard, Ken Griffin, and Warren Buffett were some of the company’s most prominent stakeholders in Q4.
Madison Investments mentioned U.S. Bancorp in its Q1 2023 investor letter. Here is what the firm has to say:
“U.S. Bancorp (NYSE:USB) shares are ensnared in the bank-run panic that began late in the quarter. Two large banks failed in early March as depositors rushed to withdraw money on concerns that the banks would suffer from liquidity problems. That’s a self-fulfilling prophecy, of course, but in the case of the two banks, it was prompted by the revelations of utter mismanagement of their securities portfolio. Bank models are, essentially, to borrow short and lend long. This sounds dangerous of course, and it would be if not for the deposit guarantee provided by the FDIC. The history of the U.S. banking system can be divided into two eras – pre-FDIC, when bank runs were fairly common, and post-FDIC, when bank runs have been close to non-existent. However, FDIC protection has its limits, and it remains incumbent on management to properly manage its assets and liabilities. The two banks in question didn’t do that. By taking down the share prices of all banks, we think investors are shooting first and asking questions later; they are not distinguishing between the strong and the weak.
U.S. Bancorp, as one of the largest and best-managed banks in the country, appears to be a net beneficiary so far of the panic among some depositors, with a pick-up in net deposit inflows in recent weeks. We don’t dismiss the probability of industry contagion – in a true nationwide panic, the big banks will suffer along with the small banks, and the well-managed ones will suffer along with the badly-managed ones. But we think the odds of that are quite small, and recent steps by federal regulators confirm that they will do everything in their power to prevent such a scenario, given the calamitous impact that it would have on our economy. We tightly manage this risk by limiting our exposure to the banking sector.”
1. Pfizer Inc. (NYSE:PFE)
Number of Hedge Fund Holders: 75
P/E Ratio (TTM) as of April 17: 7.5
An American multinational biotech and pharmaceutical company, Pfizer Inc. (NYSE:PFE) ranks first on our list of the best dividend stocks. The company offers a quarterly dividend of $0.41 per share and has paid regular dividends to shareholders consistently for the past 337 quarters. Moreover, it has raised its payouts for 13 years straight. The stock has a dividend yield of 3.98%, as of April 17.
At the end of December 2022, 75 hedge funds in Insider Monkey’s database reported having stakes in Pfizer Inc., down from 77 in the previous quarter. These stakes have a collective value of over $2.5 billion.
Diamond Hill Capital mentioned Pfizer Inc. in its Q3 2022 investor letter. Here is what the firm has to say:
“Also among our bottom contributors were health care products manufacturer Abbott Labs, global pharmaceutical company Pfizer Inc. (NYSE:PFE), media and technology giant Alphabet, and insurance company American International Group (AIG). Although Pfizer continues to report strong performance of its core drugs, sales of its COVID vaccine and treatment have likely peaked and sales are expected to decline going forward. We remain optimistic about the company long term as we believe management is taking the company in the right direction, focusing R&D, and making strategic acquisitions with profits generated from COVID vaccine sales.”
You can also take a look at 10 Best Education Stocks To Buy In 2023 and 11 Best 5% Dividend Stocks To Buy According To Analysts
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Disclosure. None. 11 Best Undervalued Dividend Stocks to Buy Now is originally published in Insider Monkey.
