In this article, we discuss 12 best undervalued dividend stocks to buy now. You can skip our detailed analysis of undervalued dividend stocks and their performance in the past, and go directly to read 5 Best Undervalued Dividend Stocks To Buy Now.
Historical data reveals that the performance of growth stocks and value stocks has followed cyclical patterns. Growth stocks enjoyed a strong performance during the 1990s, particularly during the dot-com era, and have continued to perform well in the past decade. On the other hand, value stocks outperformed from 2001 to 2008 when investors placed a higher emphasis on dividends and stock valuations.
Value stocks are known for trading at lower price-to-earnings or book value ratios compared to growth stocks. A historical analysis has demonstrated that value stocks tend to offer greater advantages over the long term. According to a report by Franklin Templeton, value stocks tend to excel in periods of rising interest rates.
According to Franklin Templeton, value stocks can benefit from moderate inflation. Such companies often have the ability to pass on increased costs to their customers, resulting in higher cash flows. These additional funds can then be reinvested to expand the business. If reinvestment isn't the most attractive choice, the company can choose to distribute dividends to shareholders or buy back its own stock. Analysts anticipate that value stocks will outperform in the coming years, considering the appealing valuations, earnings growth potential, and relative stability during mild economic downturns. The report further mentioned that value stocks can serve as a valuable addition to existing investment portfolios, offering improved balance and diversity, and the potential for enhanced long-term returns, irrespective of the market conditions.
12 Best Undervalued Dividend Stocks To Buy Now
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Our Methodology:
For this article, we scanned Insider Money's database of 910 hedge funds as of the end of Q2 2023 and focused on identifying 30 dividend stocks with consistent dividend policies. Among these stocks, we further refined our selection by choosing those with price-to-earnings (P/E) ratios below 20 as of November 7. Low P/E ratio indicates that a company's stock is relatively inexpensive or undervalued compared to its earnings. The stocks are ranked in ascending order of the number of hedge funds having stakes in them as of Q2 2023.
Archer-Daniels-Midland Company (NYSE:ADM) is a global food processing and commodities trading corporation. They engage in various activities related to the agricultural and food industries. On November 1, the company declared a quarterly dividend of $0.45 per share, which was in line with its previous dividend. The company has been raising its dividends consistently for the past 50 years, which makes ADM one of the best dividend stocks on our list. The stock's dividend yield on November 7 came in at 2.48%.
At the end of Q2 2023, 32 hedge funds in Insider Monkey's database owned stakes in Archer-Daniels-Midland Company (NYSE:ADM), compared with 39 in the previous quarter. The overall value of these stakes is over $676.1 million. With over 2.1 million shares, AQR Capital Management was the company's leading stakeholder in Q2.
11. American Electric Power Company, Inc. (NASDAQ:AEP)
Number of Hedge Fund Holders: 33
P/E Ratio as of November 7: 18.19
American Electric Power Company, Inc. (NASDAQ:AEP) is an Ohio-based major electric utility company. It is primarily involved in the generation, transmission, and distribution of electricity. The company has been paying uninterrupted dividends to shareholders since 1910 and also holds a 14-year streak of consistent dividend growth. It currently pays a quarterly dividend of $0.88 per share for a dividend yield of 4.44%, as of November 7.
As of the close of Q2 2023, 33 hedge funds in Insider Monkey's database owned stakes in American Electric Power Company, Inc. (NASDAQ:AEP), down slightly from 34 in the previous quarter. The consolidated value of these stakes is over $674 million.
Northrop Grumman Corporation (NYSE:NOC) is an American global aerospace and defense technology company. The company specializes in the design, development, and manufacturing of advanced technology systems and products for a wide range of applications.
Northrop Grumman Corporation (NYSE:NOC), one of the best dividend stocks on our list, currently pays a quarterly dividend of $1.87 per share. The company raised its dividend for the 20th consecutive year in May 2023. The stock has a dividend yield of 1.59%, as recorded on November 7.
At the end of the June quarter of 2023, 40 hedge funds tracked by Insider Monkey reported having stakes in Northrop Grumman Corporation (NYSE:NOC), worth more than $712.2 million in total. Yacktman Asset Management was the largest stakeholder of the company in Q2.
The Travelers Companies, Inc. (NYSE:TRV) is next on our list of the best dividend stocks to buy now. The major insurance company is primarily involved in providing a wide range of insurance and financial services to individuals, businesses, and organizations. The company offers a quarterly dividend of $1.00 per share and has a dividend yield of 2.36%, as of November. It has raised its dividends every year for the past 33 years.
As of the close of Q2 2023, 41 hedge funds owned stakes in The Travelers Companies, Inc. (NYSE:TRV), compared with 45 in the preceding quarter, according to Insider Monkey's database. The total value of these stakes is over $665.4 million.
Target Corporation (NYSE:TGT) is an American retail company that operates a chain of department stores and discount stores. The company remained committed to its shareholder obligation, returning $499 million to investors through dividends in its most recent quarter. In addition to this, the company has raised its dividends for 52 years in a row. It currently pays a quarterly dividend of $1.10 per share and its dividends yield on November 7 came in at 3.96%.
Insider Monkey's database of Q2 2023 indicated that 45 hedge funds owned stakes in Target Corporation (NYSE:TGT), compared with 46 in the previous quarter. The consolidated value of these stakes is more than $882.8 million.
Madison Investments mentioned Target Corporation (NYSE:TGT) in its Q3 2023 investor letter. Here is what the firm has to say:
“Target Corporation (NYSE:TGT) has seen a traffic slowdown as discretionary spending by consumers has softened with inflation as well as spending on services. Although we are disappointed with top line trends, we view the stock as attractive at 11.9x consensus earnings for 2024.”
Emerson Electric Co. (NYSE:EMR) is a diversified global manufacturing and technology company that operates in various industries. The company recently announced its Q3 earnings and posted a strong cash position. Its operating cash flow for the quarter came in at over $1 billion and it generated $838 million in free cash flow. For FY24, the company expects to return approximately $1.2 billion to shareholders through dividends.
Emerson Electric Co. (NYSE:EMR) currently pays a quarterly dividend of $0.52 per share and has a dividend yield of 2.27%, as of November 7. The company has been rewarding shareholders with growing dividends for the past 66 years, which makes EMR one of the best dividend stocks on our list.
The number of hedge funds in Insider Monkey's database owning stakes in Emerson Electric Co. (NYSE:EMR) grew to 49 in Q2 2023, from 47 in the previous quarter. Their collective stake value is over $1.77 billion.
6. The Bank of New York Mellon Corporation (NYSE:BK)
Number of Hedge Fund Holders: 52
P/E Ratio as of November 7: 10.54
The Bank of New York Mellon Corporation (NYSE:BK) is a globally renowned financial institution that operates in the field of banking and financial services. On October 17, the company announced a quarterly dividend of $0.42 per share, consistent with its previous dividend. The company has a 21-year run of paying regular dividends to shareholders, which makes BK one of the best dividend stocks on our list. The stock has a dividend yield of 3.73%, as of November 7.
At the end of June 2023, 52 hedge funds tracked by Insider Monkey owned stakes in The Bank of New York Mellon Corporation (NYSE:BK), compared with 56 in the previous quarter. The total value of these stakes is over $1.4 billion.