5 Best Undervalued Dividend Stocks to Buy Now

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In this article, we discuss the 5 best undervalued dividend stocks to buy now. If you want to read our detailed analysis of dividend investing, go directly to the 10 Best Undervalued Dividend Stocks to Buy Now.

5. Fidelity National Financial, Inc. (NYSE: FNF)

Number of Hedge Fund Holders: 40

PE Ratio: 6.4   

Fidelity National Financial, Inc. (NYSE: FNF) is a Florida-based company that provides insurance and settlement services to the real estate industry. It is placed fifth on our list of 10 best undervalued dividend stocks to buy now and was founded in 1847. Fidelity stock has returned more than 72% to investors in the past year. In addition to insurance products, the firm also offers technology and transaction services to the real estate and mortgage security sectors of the United States economy. 

In quarterly earnings for the first three months of 2021, posted earlier this month, Fidelity National Financial, Inc. (NYSE: FNF) reported a revenue of over $3 billion and earnings per share of $1.56. The revenue figure beat market estimates by $280 million. 

Out of the hedge funds being tracked by Insider Monkey, Houston-based investment firm Windacre Partnership is a leading shareholder in Fidelity National Financial, Inc. (NYSE: FNF) with 11 million shares worth more than $455 million. 

In its Q1 2021 investor letter, Merion Road Capital Management, an asset management firm, highlighted a few stocks and Fidelity National Financial, Inc. (NYSE: FNF) was one of them. Here is what the fund said:

“During the period I added to our position in Fidelity National Financial (“FNF”). FNF is the nation’s largest title insurer with 33% market share. It was built over the last 30 years by Bill Foley, who revolutionized the industry with his emphasis on eliminating bureaucracy, utilizing technology to streamline operations, and maximizing customer service. He is well-regarded as a savvy investor and consummate deal-maker having acquired and divested multiple entities both in title and ancillary fields. He continues to serve as the chairman of FNF with a personal stake in the company worth hundreds of millions.

While title insurance is technically insurance, it is a bit of a unique animal. Being that the insurer writes a policy based on past events, not unknowns in the future, losses are relatively small and predictable. The more data an insurer can analyze, the less likely they are to experience a claim; and the more efficiently they can analyze the data and process the application, the lower their costs will be. FNF has invested in automating its work stream through their ownership of NextAce (automated search), SoftPro (document production and closing), and multiple other cloud-based platforms. Due to these investments, FNF boasts industry leading margins and is able to attract more third party agents who can leverage their service offering.

Last year FNF acquired the outstanding interest in FGL Holdings (“F&G”), a fixed indexed and fixed rate annuity provider. Though this appears to be a financial rather than strategic acquisition, there should be some opportunities to grow the combined business. Notably, the acquisition afforded F&G an improved credit profile which has led to ratings upgrades. These upgrades allow F&G to address new distribution lines, such as in the bank market where FNF has strong relationships through their title and escrow business. The company announced that since launching in July 1st it had already achieved $500mm of sales in this channel (vs. full year sales of ~$4bn).

FNF is likely over-earning right now based on the recent spike in mortgage activity. Looking out to 2022 I estimate that earnings should step down to something a little shy of $5.00/sh. At current prices we are collecting a double digit earnings yield for a business with strong market positioning and a superb capital allocator. Last year they repurchased a bunch of stock in Q1 at depressed prices and have announced their intent to acquire another $500mm over the next 12 months.”

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