Undervalued Dividend Aristocrat Stocks
Undervalued Dividend Aristocrat Stocks
Here we will take a look into each Dividend Aristocrat, find out which ones are undervalued and which ones are worth investing into!
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What are Dividend Aristocrats?
In a simple way, Dividend Aristocrats are S&P 500 index constituents that have increased the dividend paid for 25 consecutive years or more.
Dividend Aristocrats are normally a safer stock, and also a safer investment, with a good history to back it up. This stocks can be found in almost every Portfolio aiming for passive income.
As of July 1, 2020 there are 66 Dividend Aristocrats.
Now, I’m not going to list every single one of them, but the ones that I find to be undervalued and why.
I’ll put some rules here, for the stock to be “undervalued” it has to have a Price Target Upside of at least around 10%. I’ll also take into consideration the dividend growth in the past 3 years, as it is supposed to be a dividend investment and not growth only.
So, Let’s get to it:
After research, out of 66 companies I find 13 to be currently undervalued.
Below, I’ll leave a small description on what each companies does, their current dividend yield, growth, future potential and how many consecutive years they’ve been paying dividends for.
1. Johnson & Johnson – JNJ
Johnson & Johnson is an American multinational corporation founded in 1886 that develops medical devices, pharmaceutical, and consumer packaged goods.
The company has been one of the most respected, well managed, and consistent companies for decades now.
JNJ, trading at $148.97 has a price target upside of 9.72%, making it’s consensus price target $166.08.
The company offers an initial dividend yield of 2.67% and has been increasing their dividends for 58 consecutive years.
Johnson & Johnson pays out 46.54% of its earnings out as a dividend.
Johnson & Johnson annual free cash flow for 2019 was $23.183B, a 6.67% increase from 2018.
I see JNJ’s dividend as safe and expect it to keep increasing for years to come.
2. Becton, Dickinson and Company – BDX
Becton, Dickinson and Company, is an American multinational medical technology company that manufactures and sells medical devices, instrument systems, and reagents. BDX also provides consulting and analytics services in certain geographies.
BDX, trading at $236.46 has a price target upside of 14.39%. It’s consensus price target is $280.39.
BDX has a dividend yield of 1.33% and has increased it’s dividends for the last 49 years.
Becton, Dickinson and CO. pays out 30.98% of its earnings out as a dividend.
Becton Dickinson cash flow from operating activities for the quarter ending September 30, 2020 was $3.539B, a 6.28% increase year-over-year.
BDX has a low dividend growth of 14.39% in the last 3 years, but taking into consideration the fact that their dividend payout is at a low 31% of their earnings, I think the company has enough room to increase the payout in the upcoming years without stagnating it’s growth.
3. Kimberly-Clark Corporation – KMB
Kimberly-Clark Corporation is an American multinational personal care corporation that produces mostly paper-based consumer products. The company manufactures sanitary paper products and surgical & medical instruments.
KMB is trading at $136.92 per share, and has a price target of 155.89, a 13.58% upside from current price.
With a dividend yield of 3.12%, the soon-to-be dividend king has increased it’s dividends for the last 48 consecutive years.
Kimberly-Clark pays out 62.12% of its earnings out as a dividend.
It’s cash flow from operating activities for the quarter ending September 30, 2020 was $2.842B, a 56.84% increase year-over-year.
Another company with a low dividend growth in the past 3 years of 11.96%, shouldn’t see big raises in the future. In my opinion, this stock should be seen as a safe, dividend investment with an okay yield, with not that much room for growth.
4. S&P Global Inc. – SPGI
S&P Global Inc. is an American publicly traded corporation headquartered in Manhattan, New York City. Its primary areas of business are financial information and analytics. It is the parent company of S&P Global Ratings, S&P Global Market Intelligence, and S&P Global Platts, CRISIL, and is the majority owner of the S&P Dow Jones Indices joint venture.
SPGI with an actual price of $336.24 a share, has an analyst rating of ‘Buy’. The consensus price target is $386.62, representing a 15.64% upside.
The company however, has a low dividend yield of 0.8% but has, for the past 3 years, seen a dividend-growth of 58.33%.!
With a low pay out ratio of 28.12% of it’s earnings as dividends, the company has enormous room for dividend increases if it pleases to do so.
Looking at it’s free cash flow, operating activities for the quarter ending September 30, 2020 was $2.426B, a 36.91% increase year-over-year.
In my opinion, SPGI is a huge BUY BUY! Multiple facts to take into account: Huge dividend-growth together with a 47 years of consecutive increases, Stock price on the rise for the past 5 years, increase on free cash flow as well as low-pay-out ratio of earnings in the form of dividends.
5. Lowe’s Companies, Inc. – LOW
Lowe’s Companies, Inc., is an American retail company specializing in home improvement. Lowe’s is the second-largest hardware chain in the United States behind rival The Home Depot and ahead of Menards.
Trading at $152.75, Lowe’s has an estimated price target of $171.16, implying an upside of over 10% on actual share price.
LOW offers a dividend yield of 1.5% and has seen a dividend-growth of 63.49% in the past 3 years.
Lowe’s Companies pays out 41.96% of its earnings out as a dividend.
Lowe’s cash flow from operating activities for the quarter ending October 31, 2020 was $11.485B, a 179.37% increase year-over-year.
LOW is a huge company, in a super-momentum. It’s free cash flow is increasing by insane numbers year after year, huge dividend growth and a stock in a safe industry. A huge Buy for me!
6. McDonald’s Corporation – MCD
McDonald’s Corporation is an American fast food company, founded in 1940. MCD is the world’s largest restaurant chain by revenue.
MCD’s Stock is currently valued at $207.50 a share but analysts see it’s price going up to $228.32.
The Dividend Aristocrat has been increasing it’s dividends for the past 44 consecutive years. The last 3 years saw a dividend growth of 31.02%. The company pays out 65.82% of its earnings out as a dividend.
Mcdonald’s offers a starting yield of 2.47%. However, for the past 2 years, the company has seen a decline on their free cash flow from operating activities.
On personal opinion, I don’t think MCD is going anywhere, anytime soon. A safe investment, just not for my likes. I’ll stay away from this one.
7. Exxon Mobil Corporation – XOM
Exxon Mobil Corporation, is an American multinational oil and gas corporation headquartered in Irving, Texas. It is the largest direct descendant of John D. Rockefeller’s Standard Oil.
ExxonMobil was the tenth most profitable company in the Fortune 500 in 2017.
a whole post on why Exxon is a BUY at the moment.
Exxon is trading at $40.47 a share, below it’s consensus price target of $47.61. This Dividend Aristocrat, with 37 consecutive years of dividend increases, has a huge starting yield of 8.13%. At the moment, Exxon Mobil pays out 154.67% of its earnings out as a dividend. It should be taken into consideration that oil prices went down by a huge number in 2020. Those prices are expected to grow back in 2021.
In my opinion, even though Oil is a risk investment, XOM is a Buy. The stock price is undervalued, it offers a high-yield of 8%+ and I can see oil prices going up in 2021.
8. AT&T Inc. – T
AT&T Inc. is an American multinational conglomerate holding company, the world’s largest telecommunications company, the largest provider of mobile telephone services, and the largest provider of fixed telephone services in the United States.
This Stock is a controversial one, you either love it or you hate it.
With a price of $29.50, the stock is currently undervalued. Analysts have a price target of $32.48, representing an upside of 10+%.
AT&T has grown it’s dividends for the past 36 years. Their dividend growth isn’t enormous though, a low 6.25% in the past 3 years.
The company however, has an initial dividend yield of 6.61%, making it a perfect investment for the ones searching for passive income-only.
Another problem to take into account is the extremely high amount of debt that AT&T has.
However, I think it’s worst days are gone. Recently with a CEO change, the company seems to finally be finding the right path. It’s dividend also seems safe and AT&T can be a huge player in the 5G market.
Due to this reasons, I personally think AT&T is a BUY!
9.Cardinal Health, Inc. – CAH
Cardinal Health, Inc. is an American multinational health care services company, and the 14th highest revenue generating company in the United States.
It’s current price of $55.40 has room to grow, according to analysts. They have a consensus price target of $61.67 on the stock. Cardinal also has a excellent track-record of dividend increases – 33 consecutive years and I don’t see an end to that anytime soon.
Cardinal pays out 35.60% of its earnings out as a dividend, leaving enough room for both dividend growth as well as investing back in the company. In the past 3 years, the dividend has seen an increase of 10.72%, not exactly a big number. However, Cardinal’s dividend yield of 3.46% is something that gets me excited.
The company’s free cash flow from operating activities has been on the decline for a couple of years now.
This is a stock that I’m staying away from. Not only does the dividend growth not surprise me, it’s stock has been on the decline since 2015.
10. Chevron Corporation – CVX
Chevron Corporation is an American multinational energy corporation. One of the successor companies of Standard Oil, it is headquartered in San Ramon, California, and active in more than 180 countries.
IF you read my opinion on XOM, you probably know where I’m going with this…
CVX is trading at $89.90, below it’s consensus price target of $105.83.
Also a Dividend Aristocrat with increases for the past 33 consecutive years, CVX has a high-yield of 5.71%.
Chevron pays out 82.30% of its earnings out as a dividend. It’s dividend has also seen a small increase of 10.96% in the past 3 years.
Between CVX and XOM, CVX probably is the safest investment. On the other side, XOM offers a higher yield and also has a higher dividend growth for the past 3 years. At this time, I don’t think you can go wrong with any of the both.
11. Atmos Energy Corporation – ATO
Atmos Energy Corporation, headquartered in Dallas, Texas, is one of the United States’ largest natural-gas-only distributors.
ATO, share price $97.25, also makes it to this list of undervalued stocks, seeing as analysts predict it’s share price to jump up to $110.21. Atmos energy offers a dividend yield of 2.56% and pays out 52.97% of its earnings out as a dividend.
Atmos Energy cash flow from operating activities for the quarter ending September 30, 2020 was $1.038B, a 7.15% increase year-over-year.
Their dividend-growth is also something to take into account. For the past 3 years, it has seen it’s dividend increase by 25.73%
This is a Stock worth looking into, not only is it’s share price on the rise, it also has decent dividend growth as well as an okay starting yield. A buy for me.
12. General Dynamics Corporation – GD
General Dynamics Corporation is an American aerospace and defense corporation. As of 2019, it was the fifth-largest defense contractor in the United States, and the sixth-largest in the world, by sales.
Trading at $153.00, below it’s consensus price target of $172.38, GD is also an undervalued stock.
The Dividend Aristocrat offers a dividend yield of 2.85% and only pays out 36.73% of its earnings out as a dividend.
General Dynamics cash flow from operating activities for the quarter ending September 30, 2020 was $1.296B, a 120.78% increase year-over-year. Looking into their dividend-growth, 34.34% for the past 3 years represent year-to-year double digits increases.
GD is, in my eyes, one of the best stocks to buy at this moment. Not only is the entry price fair, double digit dividend increases & good initial yield make me love this stock.
13. Realty Income Corporation - O
Realty Income Corporation is a real estate investment trust. The company is one of a few real estate investment trusts that pays dividends monthly, rather than quarterly and has registered a trademark for the phrase ‘The Monthly Dividend Company’.
Currently trading at $61.03, a consensus price target of 67.77 represent a potential upside of over 10%.
This new-to-the-group Aristocrat is known for paying monthly dividends. It offers an initial dividend yield of 4.63% and has seen an increase of 13.07% in the past 3 years.
Realty Income is a company that I personally love. Not only does it have a high-yield of 4.5%+, the share price has been growing steadily and the company’s dividend policy is outstanding.
In my eyes, realty income is a must have in every portfolio.
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