In this article, we will take a look at the 12 most undervalued dividend stocks to buy according to analysts.
Many analysts now believe the market volatility and uncertainty that started in 2022 is far from over. The Federal Reserve is still in a wait and see mode when it comes to rate hikes. Investors are continuing to look over their shoulders for incoming data to gauge the state of the consumer in the country and whether inflation is really cooling as many optimistic corners of the market like to suggest. In this environment, dividend stocks remain relevant as history shows dividend equities always perform better during troubled times. Consider this, in just two weeks in February 2023, investors poured a whopping $272 million into U.S. mutual and exchange-traded funds that buy dividend-paying stocks, according to data from Refinitiv Lipper. These funds saw inflows of $48 billion in 2022. However, when 2023 started off with a bang thanks in part to the AI boom and rise of tech stocks, these funds saw an exodus of $835 million. But amid expectations of more rate hikes and recession in 2024, dividend stocks are expected to continue to gain relevance and traction.
While short-term volatility and market uncertainty is fueling dividend stocks’ attraction, the fact remains that having a long-term investment horizon boosts the returns of dividend investing. For example, the S&P 500 Dividend Aristocrats Index, which consists of S&P 500 companies with 25 consecutive years of dividend increases, has outperformed the S&P 500 Index by more than 75% since 1989. A T. Rowe Price report from March 2023 said that when a company is consistently raising its dividends, it’s evident that it’s handling its cash and business properly and its future prospects are bright. However, the report pointed to a pitfall of dividend investing. It’s easier for investors to get lured into high yields. But the report said that if a company has a low but growing dividend, it should be considered for the following reasons:
“Avoiding low‑yield stocks without a careful evaluation of the companies’ prospects comes with pitfalls. Low yet growing dividends may point to companies that are on a path of earnings expansion, with cash flows that are starting to exceed their capital expenditure needs. These stocks may ultimately generate sizable total returns through dividends and earnings growth combined. Understanding their commitment to shareholder returns and emphasis on dividends is especially important when assessing these companies.”
Image by Steve Buissinne from Pixabay
Our Methodology
For this article we first used a stock screener to identify stocks with dividend yields of 3%, average Buy ratings from Wall Street analysts and price targets 50% higher than their current prices. We got a long list of dividend stocks after these checks, from which we selected 12 stocks which have the most upside potential from the current price based on average analyst price targets. Some top names in the list include British American Tobacco p.l.c. (NYSE:BTI), RTX Corporation (NYSE:RTX), The PNC Financial Services Group, Inc. (NYSE:PNC) and NextEra Energy, Inc. (NYSE:NEE).
Most Undervalued Dividend Stocks To Buy According To Analysts
12. Grupo Aeroportuario del Sureste, S. A. B. de C. V. (NYSE:ASR)
Number of Hedge Fund Holders: 7
Average Analyst Price Estimate: $340
Mexican airport operator Grupo Aeroportuario del Sureste, S. A. B. de C. V. (NYSE:ASR) ranks 12th in our list of the most undervalued dividend stocks to buy according to Wall Street analysts. Grupo Aeroportuario del Sureste, S. A. B. de C. V. (NYSE:ASR)’s passenger traffic in September reached 4.9 million, up 0.8% on a YoY basis.
As of the end of the second quarter, 7 hedge funds tracked by Insider Monkey had stakes in Grupo Aeroportuario del Sureste, S. A. B. de C. V. (NYSE:ASR).
11. Deluxe Corporation (NYSE:DLX)
Number of Hedge Fund Holders: 9
Average Analyst Price Estimate: $43.5
Payments technology company Deluxe Corporation (NYSE:DLX) has a dividend yield of about 6.37% as of October 12. In August Deluxe Corporation (NYSE:DLX) posted second quarter results. Adjusted EPS in the period came in at $0.93. Revenue in the period jumped 1.5% year over year to $571 million.
Deluxe Corporation (NYSE:DLX) talked about shareholder returns and dividend policies in its Q2 earnings call and said
“Our priorities for capital allocation are clear: reducing our debt and net leverage to a level below three times, funding high-return internal investments and paying our dividend. We facilitate a rigorous annual planning process, ensuring all investments have a compelling business case and target returns above a 15% hurdle rate. We returned value to shareholders through our dividend, which is currently $0.30 per share per quarter and equates to a very attractive roughly 7% yield. We continue to review the dividend with our Board, and our current focus is to grow out of that high yield through improving business performance. Importantly, we remain focused on further accelerating our rate of debt paydown through continued improved EBITDA and free cash flow generation so that we can get back below three times levered.”
Read the full earnings call transcript here.
10. NexPoint Residential Trust, Inc. (NYSE:NXRT)
Number of Hedge Fund Holders: 10
Average Analyst Price Estimate: $56
Texas-based REIT NexPoint Residential Trust, Inc. (NYSE:NXRT) is one of the undervalued dividend stocks according to Wall Street analysts.
Out of the 910 hedge funds tracked by Insider Monkey, 10 hedge funds tracked by Insider Monkey had stakes in NexPoint Residential Trust, Inc. (NYSE:NXRT).
Here is what Baron Real Estate Income Fund has to say about NexPoint Residential Trust, Inc. (NYSE:NXRT) in its Q2 2022 investor letter:
“Despite strong quarterly results and an encouraging update from management, the shares of NexPoint Residential Trust, Inc., a sunbelt focused apartment REIT, declined in the most recent quarter alongside most other REITs. At its recent price of only $62, we believe the shares are valued at a significant discount to its private market value and remain optimistic about the company’s prospects.
NexPoint owns and operates approximately 15,000 apartment units across 10 geographic markets primarily geared toward workforce housing with average rents of $1,300 per month. The company has substantial insider ownership and has been one of the most successful apartment operators in terms of equity value creation among its peers.
We believe NexPoint will achieve above average organic growth and are optimistic about the prospects for the company due to: i) its favorable market exposure in the sunbelt (attractive job growth, household formation, net migration, and increasing cost of ownership); ii) a shortage of affordable housing broadly, which is more acute in the sunbelt; iii) relative affordability both to other apartment or single-family rental options and the cost of home ownership; and iv) its ability to deploy capital into attractive value-added opportunities such as kitchen upgrades and washer/dryer installations at high returns on capital (around 20%) to augment organic growth…”
9. Banner Corporation (NASDAQ:BANR)
Number of Hedge Fund Holders: 15
Average Analyst Price Estimate: $73
Banner Corporation (NASDAQ:BANR) is a Washington-based banking company.
As of the end of the second quarter of 2023, 15 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in Banner Corporation (NASDAQ:BANR). The biggest stakeholder of Banner Corporation (NASDAQ:BANR) was Israel Englander’s Millennium Management which owns a $34 million stake in the company.
8. Kemper Corporation (NYSE:KMPR)
Number of Hedge Fund Holders: 16
Average Analyst Price Estimate: $67
Earlier this month Piper Sandler upgraded insurance company Kemper Corporation (NYSE:KMPR) to Overweight from Neutral, citing valuation. Kemper Corporation (NYSE:KMPR) noted that the stock has declined significantly over the past six months, while Invesco KBW Property & Casualty Insurance ETF (KBWP) increased 1.6% and the S&P 500 rose 11%.
Piper Sandler analyst Paul Newsome said he expects Kemper Corporation (NYSE:KMPR) to benefit from rising prices in the auto insurance sector.
7. Dine Brands Global, Inc. (NYSE:DIN)
Number of Hedge Fund Holders: 17
Average Analyst Price Estimate: $70.62
California-based food and beverage company Dine Brands Global, Inc. (NYSE:DIN) is one of the undervalued dividend stocks to buy according to Wall Street analysts. Dine Brands Global, Inc. (NYSE:DIN) has a PE ratio of 9.53. In August Dine Brands Global, Inc. (NYSE:DIN) posted second quarter results. Adjusted EPS in the quarter came in at $1.82, beating estimates by $0.27. Revenue in the quarter came in at $208 million, missing estimates by $1.2 million.
Broyhill Asset Management made the following comment about British American Tobacco p.l.c. (NYSE:BTI) in its second quarter 2023 investor letter:
“In our year-end letter to investors, we explained why we had reduced our investment in Altria and reinvested the proceeds to increase our position in Philip Morris. This quarter, we exited the position completely, swapping our exposure for British American Tobacco p.l.c. (NYSE:BTI), as the valuation gap became too hard to ignore. Investors are rightly frustrated with the stock. In addition to the menthol ban, leadership change, and North Korea kerfuffle. BTI has mountains of debt piled on its balance sheet following the acquisition of Reynolds, which will limit options for capital allocation, namely more buybacks. While we’d love to see new management aggressively repurchasing stock at these prices – shares trade below 7x earnings – we don’t think buybacks are necessary for the investment to work from here.”
6. British American Tobacco p.l.c. (NYSE:BTI)
Number of Hedge Fund Holders: 22
Average Analyst Price Estimate: $49.8
Out of the 910 hedge funds tracked by Insider Monkey, 22 hedge funds reported owning stakes in British American Tobacco p.l.c. (NYSE:BTI).
Analysts are hopeful that British American Tobacco p.l.c. (NYSE:BTI) will benefit from the rising e-cig sales in the world. A CDC report said that e-cig sales jumped about 47% between January 2020 and December 2022. Vuse was one of the top selling e-cig brands, according to the report. Vuse is made by R.J. Reynolds Vapor Co., which is owned by British American Tobacco (NYSE:BTI). Like British American Tobacco p.l.c. (NYSE:BTI), RTX Corporation (NYSE:RTX), The PNC Financial Services Group, Inc. (NYSE:PNC) and NextEra Energy, Inc. (NYSE:NEE) are some of the top undervalued dividend stocks.
British American Tobacco p.l.c. (NYSE:BTI) talked about its e-cig business in an earnings call earlier this year:
First. Combustible business is extremely important in the U.S., yes. Even if you don’t like it pays your bills every day. That gives you the resources to be able to invest, that’s number one. The second thing is there is already 20% of the market that is in New Categories, mostly e-cigarettes, that’s already there. And that’s I think very, very interesting in terms of margins per 1,000, okay? The second — the third thing is there is a lot of things that have been said in terms of THP in the U.S. It has been on the market for two years, it has not worked and the high tar levels and everything. But at the end of the day, what is important is what position you have in New Categories in the U.S. And we have a presence in the three categories.
We have PMTAs that are in progress, and this is going to be more in two years from now or at least. So you have to take your time and look at what is there, what is growing, and then that’s for the mid- to long term. And I’m confident that when you see what has happened in Europe between THP and e-cigarettes, there has always been a very strong space for e-cigarette in high tar markets. In Japan, …..[ read the full earnings call transcript here]
Broyhill Asset Management made the following comment about British American Tobacco p.l.c. (NYSE:BTI) in its second quarter 2023 investor letter:
“In our year-end letter to investors, we explained why we had reduced our investment in Altria and reinvested the proceeds to increase our position in Philip Morris. This quarter, we exited the position completely, swapping our exposure for British American Tobacco p.l.c. (NYSE:BTI), as the valuation gap became too hard to ignore. Investors are rightly frustrated with the stock. In addition to the menthol ban, leadership change, and North Korea kerfuffle. BTI has mountains of debt piled on its balance sheet following the acquisition of Reynolds, which will limit options for capital allocation, namely more buybacks. While we’d love to see new management aggressively repurchasing stock at these prices – shares trade below 7x earnings – we don’t think buybacks are necessary for the investment to work from here.”
5. FMC Corporation (NYSE:FMC)
Number of Hedge Fund Holders: 32
Average Analyst Price Estimate: $110
Chemical manufacturing company FMC Corporation (NYSE:FMC) ranks 5th in our list of the most undervalued dividend stocks to buy according to Wall Street analysts. However, FMC Corporation (NYSE:FMC) in September received a downgrade from Redburn Atlantic, which decreased its rating on the stock to Neutral from Buy.
FMC Corporation (NYSE:FMC) talked in detail about its guidance and business updates in its Q2 earnings call:
“EBITDA margins are expected to be up roughly 270 basis points in Q3 and 460 basis points in Q4 with full year 2023 EBITDA margin forecasted to increase by roughly 120 basis points despite the tough first half of the year. Interest expense for the second quarter was $64.5 million, up $29.2 million versus the prior year period. Substantially higher U.S. interest rates were the primary driver of higher interest expense in the quarter, along with higher overall debt levels resulting from elevated working capital. We now expect full year interest expense to be in the range of $220 million to $230 million, an increase of $15 million at the midpoint compared to our prior guidance.
This increase is driven by higher debt balances due to elevated working capital levels. Our effective tax rate on adjusted earnings for…” [ read the full earnings call transcript here]
Out of the 910 hedge funds tracked by Insider Monkey, 32 hedge funds had stakes in FMC Corporation (NYSE:FMC) as of the end of the second quarter of 2023. The biggest stake in FMC Corporation (NYSE:FMC) belongs to Ken Griffin’s Citadel Investment Group which owns a $106 million stake in the company.
TimesSquare U.S. Mid Cap Growth Strategy made the following comment about FMC Corporation (NYSE:FMC) in its Q4 2022 investor letter:
“Within Materials, FMC Corporation (NYSE:FMC) is an agricultural sciences company offering solutions in areas such as crop protection, plant health, professional pest, and turf management. The company delivered solid third quarter results that led to a 19% boost to its stock price. Management continues to view the outlook as favorable, underpinning strong demand. Inflationary pressures appear to be easing and supportive of margin expansion.”
4. East West Bancorp, Inc. (NASDAQ:EWBC)
Number of Hedge Fund Holders: 32
Average Analyst Price Estimate: $82
California-based bank holding company East West Bancorp, Inc. (NASDAQ:EWBC) is one of the most undervalued dividend stocks according to Wall Street analysts. In October, Janney analyst Timothy Coffey started covering East West Bancorp, Inc. (NASDAQ:EWBC) with a Buy rating. Coffey said the bank is expected to benefit from the collapse of Silicon Valley Bank and First Republic Bank.
Here is what Aristotle Capital Management Value Equity has to say about East West Bancorp, Inc. (NASDAQ:EWBC) in its Q1 2022 investor letter:
“We purchased East West Bancorp in the third quarter of 2017; however, our history with the business stretches back further having twice previously invested. Companies we consider to be high-quality like East West tend to remain high quality, and we have long admired the business for its uniqueness among the otherwise homogenous U.S. banking industry. Its dominant market share built over generations in Asian communities – and difficult-to-replicate experience due to culture, geography and business practices – create distinct competitive advantages in our view. During our most recent holding period, the bank achieved sustained loan growth, a catalyst we identified, through its continued leadership position as the financial “bridge” for customers doing business in the U.S. and China. Moreover, East West also realized market share gains in its headquarters state of California. With these catalysts nearing completion, we decided to exit our investment to fund the purchase of Oshkosh. As always, we will continue to study East West and, in the future, may once again find an opportunity to be investors.”
3. The PNC Financial Services Group, Inc. (NYSE:PNC)
Number of Hedge Fund Holders: 52
Average Analyst Price Estimate: $198
American bank holding company The PNC Financial Services Group, Inc. (NYSE:PNC) ranks 3rd in our list of the best undervalued dividend stocks to buy now. The PNC Financial Services Group, Inc. (NYSE:PNC) recently bought a portfolio of capital commitments facilities from Signature Bridge Bank, N.A. for about $16.6 billion in total commitments.
As of the end of the second quarter of 2023, 52 hedge funds tracked by Insider Monkey had stakes in The PNC Financial Services Group, Inc. (NYSE:PNC). The biggest hedge fund stakeholder of The PNC Financial Services Group, Inc. (NYSE:PNC) was Dmitry Balyasny’s Balyasny Asset Management which owns an $120 million stake in the company.
Artisan Value Fund made the following comment about The PNC Financial Services Group, Inc. (NYSE:PNC) in its Q1 2023 investor letter:
“We are taking advantage of the current weakness in bank stocks. In Q1, we purchased The PNC Financial Services Group, Inc. (NYSE:PNC) and US Bancorp. These are banks we have known for years. They are well-managed and have solid capital positions and liquidity. At the end of Q1, we had an ~7% weighting in banks consisting of PNC, US Bancorp and Bank of America. All 3 are among the 10 largest US banks. We believe the range of probabilities and long-term outcomes are tilted in our favor at current prices but are proceeding with caution for several reasons. First, while we believe deposit-runs have likely burned themselves out, there is a non-zero risk these runs spread wider than our base case. Second, we expect more regulation in coming years which will increase the cost of doing business, potentially in exchange for higher FDIC limits. Third, at the very least we expect banks to cease buybacks for the rest of the year to build up liquidity and capital ratios. There is an increasingly more likely outcome that banks issue equity capital and preferred stock once markets stabilize. Fourth, with the banking system in shock, it will likely retrench, which will constrict capital to the US economy. Coupled with the “long and variable lags” of Fed policy, this will slow US economic growth beyond what private credit markets can make up.”
2. RTX Corporation (NYSE:RTX)
Number of Hedge Fund Holders: 56
Average Analyst Price Estimate: $84
Aerospace and defense company RTX Corporation (NYSE:RTX), also known as Raytheon, is one of the top undervalued dividend stocks to buy according to hedge funds. Out of the 910 hedge funds tracked by Insider Monkey, 56 hedge funds had stakes in RTX Corporation (NYSE:RTX). The most significant stakeholder of RTX Corporation (NYSE:RTX) was Ken Griffin’s Citadel Investment Group which owns a $276 million stake in the company.
RTX Corporation (NYSE:RTX) shares were gaining on October 11 amid Israel-Hamas war. Citibank said in a note:
“We continue to expect low-single-digit top-line growth for the [U.S. Department of Defense] and mid-single-digit growth for defense contractors through 2030 as spending mix shifts to the weapons-buying accounts.”
ClearBridge Dividend Strategy made the following comment about RTX Corporation (NYSE:RTX) in its Q3 2023 investor letter:
“On the downside, shares of industrials company RTX Corporation (NYSE:RTX) underperformed significantly. On July 25 RTX announced it had discovered a manufacturing defect in some of its jet engines. RTX would have to ground the engines, replace the parts and reimburse the airlines for the downtime.
While this development weighed on the stock, our active management of the position meaningfully reduced the size of the blow. Earlier in July we had significantly trimmed our position to reflect some cyclical risks, so we were relatively less exposed when shares sold off following the announcement. When RTX delayed a scheduled update in early September, we interpreted it as a modestly negative development and further pared our position. When the update came, the stock sold off significantly on news the debacle would amount to around $3 billion over three years — the high end of investor expectations.
As we sit here today, we think the market’s reaction to RTX is likely overdone. $3 billion is a large sum, but the company’s market cap has declined over $30 billion since first releasing the news in late July. While this is a black eye for the company and will create headwinds for some time, we think it likely that the current level will mark a durable low and see opportunities to add back a small amount of the RTX we sold at higher prices earlier in the summer.”
1. NextEra Energy, Inc. (NYSE:NEE)
Number of Hedge Fund Holders: 59
Average Analyst Price Estimate: $75
NextEra Energy, Inc. (NYSE:NEE) ranks 1st in our list of the most undervalued dividend stocks to buy according to analysts. Morgan Stanley recently met with NextEra Energy, Inc. (NYSE:NEE) management and reiterated an Overweight rating on the stock and a $91 price target. NextEra Energy, Inc. (NYSE:NEE) cited demand for renewables, and the “potential for new disclosures to improve transparency” for its bullish outlook.
As of the end of the second quarter of 2023, 59 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in NextEra Energy, Inc. (NYSE:NEE). The biggest stakeholder of NextEra Energy, Inc. (NYSE:NEE) during this period was John Overdeck and David Siegel’s Two Sigma Advisors which owns a $190 million stake in the company.
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Disclosure: None. 12 Most Undervalued Dividend Stocks To Buy According To Analysts is originally published on Insider Monkey.
