As the year began, institutional investors fled growth stocks to the relative safety of value stocks. In the second quarter, some of that money moved back to growth stocks. Now with higher interest rates well into 2024 a near certainty, institutional money is likely to flow back into some of the best value stocks.
It’s easy to understand why that is. These companies have dependable business models that allow them to generate consistent revenue and, more importantly, profits. With concerns about higher interest rates and a possible recession (no matter how shallow), it makes sense to invest in companies that have a track record of turning a profit even when the economy is slowing down.
Some of the best value stocks, like the ones featured here, also offer an attractive dividend. This is not just about a high yield, although many of them do offer one. It’s also about maintaining, and better still growing, its dividend. To that end, many of the stocks on this list are dividend aristocrats or dividend kings.
Altria Group (MO)
Altria Group (NYSE:MO) is the parent company behind some of the most iconic tobacco brands in the world including Marlboro cigarettes and smokeless tobacco brands such as Copenhagen and Skoal. It’s also one of the best value stocks for investors.
As a classic “sin stock” Altria Group is a no-go for many investors. However, what sin stocks lack in popular sentiment, they make up for in the value they provide to investors. And you don’t have to drill too far down in the earnings reports to see that value. The company continues to deliver consistent revenue and earnings growth. It may not be your cup of tea, but tobacco continues to be a profitable business.
In the case of Altria that translates to a stable price for MO stock, a healthy free cash flow which reached $8 billion in 2023 and dividend growth. As of this writing, the dividend yield is an eye-popping 9.14%. And Altria is a Dividend King that has raised its dividend for 54 consecutive years.
In its most recent earnings report, the company announced a “progressive dividend goal that targets mid-single digits dividend growth.” With little reason to question the company’s dividend, and a forward price-to-earnings (P/E) ratio of just 8.6x, MO stock is one of the best value stocks for risk-conscious investors.
AT&T (T)
AT&T (NYSE:T) has been an unremarkable stock for the last five years. In fact, unremarkable may be an understatement. The company lost its way through a string of acquisitions that piled on the debt. It’s taken some time, but a series of divestitures is getting the company back to its roots as a mobile phone provider.
And not just any provider, but a company with a 45% market share in wireless subscriptions. Plus, it’s also a leader in 5G with a network that covers over 300 million people.
As expected, revenue is down, but in its most recent quarter, it booked a slight year-over-year (YOY) gain. And earnings remain resilient as the company has reduced its debt load by approximately $20 billion over the last three years. That means concerns over the company’s ability to sustain its dividend are waning. Which is good because the 7.25% yield remains one of the most attractive features of T stock.
Coca-Cola (KO)
When you think about the best value stocks, the consumer staples sector is a good place to look. And within that sector Coca-Cola (NYSE:KO) stands out. First, the company is known for its iconic products that have continued to demonstrate their pricing power in 2023.
It’s also a Dividend King that has increased its dividend for 62 consecutive years and counting. The reliability of that dividend is a key reason that the stock remains one of the core holdings of Warren Buffett’s hedge fund. Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) owns approximately 9% of the company’s stock. Part of the return on that investment will be $736 million in dividends it will receive this year.
Despite revenue and earnings that continue to grow on a YOY basis, investors are a little concerned about the premium valuation that KO stock commands. However, with the stock down 9% in 2023, it’s starting to look like a great value for investors looking for a stock that’s likely to close out the year on a high note.
Emerson Electric (EMR)
Next up is another Dividend King in Emerson Electric (NYSE:EMR). The company has been a favorite of value investors for decades. But the company looks vastly different today than it did even one generation ago.
The company’s business mix includes projects in areas such as hydrogen, liquefied natural gas (LNG), carbon capture, and electric vehicle (EV) batteries. Recent wins in those areas allowed the company to increase its revenue, earnings, and free cash flow guidance.
After a 14.8% rally in the last six months, EMR stock is currently posting a slight gain in 2023. Analysts may be starting to believe the company’s supply chain issues are easing. The stock has received numerous upgrades in recent months which support the projected 9% increase in the stock in the next 12 months. That combined with a dividend yield of over 2%, and investors have one of the best value stocks to combat higher-for-longer interest rates.
Shell (SHEL)
Another area for investors to find the best value stocks is the energy sector. And with crude oil prices over $90 a barrel, oil and gas stocks deserve a close look. There are many names to choose from, but Shell (NYSE:SHEL) is my pick for this article.
Formerly known as Royal Dutch Shell, the company is the fourth largest energy company in the world based on market capitalization. In the short term, the price of oil will drive revenue and earnings. It was record profit in 2022 that drove the company to raise its dividend and initiate a $3 billion share buyback program.
However, Shell has been on the forefront of the renewable energy movement for several decades. To that end, in the company’s Investor Day presentation in June, it announced a $35 billion investment into its Downstream and Renewable & Energy Solutions. Of that investment, $10 to $15 billion will be for low-carbon energy solutions.
Walgreen’s Boots Alliance (WBA)
Healthcare has been one of the few sectors that are serving as a bright spot in the most recent quarter. That being said, investing in drugstore chains has been no bargain for investors. But Walgreens Boots Alliance (NYSE:WBA) may be the best house on a bad street.
That doesn’t mean that the Walgreens house doesn’t need maintenance. But this is one renovation that may be worth investing in. The company has been relying heavily on debt as it has been acquiring other businesses. The company’s CEO also recently left the company after being at the helm for just two years.
WBA stock has taken a beating in the last year. It’s down 35% in the last year and 42% in 2023 alone. But the key for investors is the dividend. Walgreens is a Dividend Aristocrat with 47 consecutive years of dividend increases. That streak is in jeopardy. Although that’s rare, it may be a necessary step for a company that needs to take care of its debt load. Either way, there’s no indication that Walgreen’s is cutting its dividend which makes the stock an attractive buy.
Lockheed Martin (LMT)
Lockheed Martin (NYSE:LMT) is part of the defense sector. The company is the country’s top defense contractor by revenue and market capitalization.
The defense sector has been another area that is proving to be recession-proof. And with geopolitical concerns creating potential flashpoints across the globe, that’s unlikely to change anytime soon.
The one thing that could get in Lockheed’s way is the U.S. government. As of this writing, the U.S. House of Representatives had not come to an agreement on a defense spending bill. If that money isn’t appropriated in the next week or so, the defense sector will get caught up in the government shutdown that lawmakers are trying to prevent.
In 2020, Lockheed Martin received $72.9 billion from the Pentagon which was the most any company received. In fact, 50% of Lockheed’s revenue comes from the Department of Defense. A potential shutdown is serious business.
However, deadlines have a way of settling negotiations. And we are on the cusp of an election year, so investors shouldn’t have long to wait. Once the defense spending is passed (and it will be), LMT stock will be back to firing on all cylinders.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
