Dividend stocks are about to enjoy a renaissance. Just look what happened with Costco (NASDAQ:COST) last week – the warehouse giant announced a special $15 cash dividend and shares soared to new all-time highs.
Some of the enthusiasm points to renewed confidence in the consumer staple stock based on the financial strength to offer the dividend. But there’s an equally large contingent investing solely to capture the dividend payout before moving on.
That’s because dividend investing is tailor-made for today’s unique economic conditions. They combine the best of both worlds – rising equities and income opportunities – to attempt a Fed-proof portfolio as Powell and his team keep markets guessing.
Of course, at $658 per share, Costco is on the pricier end of dividend stocks. But these seven companies are equally appealing, offering investors a chance to capture undervalued dividend stocks for their portfolio.
Walmart (WMT)
Walmart (NYSE:WMT), the world’s leading supermarket and general merchandise retailer, should top your list of undervalued dividend stocks, considering its popularity and recession-proof stability.
With its expansive network of over 11,500 stores in 27 countries, Walmart is strategically located within 10 miles of 90% of the U.S. population. This accessibility, of course, makes Walmart a go-to consumer pick when combined with the company’s budget-friendly pricing.
But Walmart’s dividend appeal lies in its impressive dividend track record. The company began issuing dividends in March 1974 at 5 cents per share and currently offers a 1.49% forward yield. This reflects an average annual growth rate of 8% over the last fifty years, a significant achievement in varying economic conditions.
Walmart’s success stems from its vast scale, allowing it to negotiate favorable prices from suppliers and pass on savings to consumers. While many retailers struggled against Amazon’s (NASDAQ:AMZN) dominance, Walmart effectively adapted, becoming a strong competitor in eCommerce. This also bodes well for post-holiday shopping season earnings reports.
Undervalued Dividend Stocks: Caterpillar (CAT)
Caterpillar (NYSE:CAT) is a leading manufacturer in the fields of construction, mining, and engineering equipment. But its investor appeal lies in its dividend yield and stability, at just under 2%, with an impressive history of increasing dividends for 31 consecutive years. This track record makes it a cornerstone for both long-term and income-focused investors.
The company’s performance this year is solid, with shares jumping nearly 20% and solid earnings to boot. Caterpillar’s revenues surged by 12%, reaching $16.8 billion, and its earnings per share were reported at $5.45, or $5.52 on an adjusted basis.
Caterpillar’s strength lies beyond its financials. As the world’s largest manufacturer of construction and mining equipment, it serves as a key barometer of the global economy’s health. Its future looks even brighter with its strong emphasis on artificial intelligence and automation. Currently, 13% of construction professionals use automation tools, and this number is expected to rise to 60% – creating a market hungry for Caterpillar products.
In line with these trends, Caterpillar is leading the industry with its range of automated construction equipment, including innovative technologies like self-digging solar ditch machines. This ability to adapt to and capitalize on emerging trends underscores Caterpillar’s potential for continued growth and market share expansion, further cementing its position as a top undervalued dividend stock.
Emerson Electric (EMR)
Emerson Electric (NYSE:EMR) is another undervalued dividend stock with a long track record of payouts. Its 2.3% yield won’t top the charts, but the company has consistently increased dividends for more than 60 years. This makes EMR a dividend stalwart to anchor a well-rounded portfolio.
Emerson’s recent earnings report points to some tight times ahead as, on an annual basis, revenue fell 10%, and earnings dropped 18%. But EMR shares dipped only slightly on the news, indicating markets priced the underperformance in. But this also makes for a moderate undervaluation if you’re bullish on the company’s long-term prospects.
Emerson faces a few additional short-term challenges, particularly as supply chains continue pressuring sales. But Emerson’s longevity is undisputed, and their commitment to shareholders places it near the top of the list of undervalued dividend stocks.
Undervalued Dividend Stocks: Verizon (VZ)
Recent telecom turbulence impacted the entire sector, including Verizon (NYSE:VZ), a much-loved dividend aristocrat. Despite this sector-wide decline, the widespread stock price dips offer a great chance to capture undervalued dividend stocks – with VZ topping the list.
You probably remember this summer’s lead shielding debacle that tumbled telecom stocks. But, thus far, initial fears of widespread litigation or remediation costs seem unwarranted. But VZ shares haven’t yet rebounded, and the undervalued dividend stock has lost nearly 7% of its total since January.
However, the company’s recent financials point to strength and reinforce the undervaluation thesis. A key highlight was its 0.2% adjusted EBITDA increase. While it seems modest, it’s big news in a cost-sensitive, highly competitive telecom sector. The moderate improvement points to VZ’s ability to navigate tricky economic times while keeping shareholder value at the fore.
Verizon’s current yield tops 7%. While some analysts may view the stock as a potential value trap, its recent price drop and promising growth prospects position Verizon as a highly attractive option for those seeking reliable dividend stocks. The company’s resilience and potential for growth make it a standout choice in the volatile telecom sector.
Realty Income (O)
Talking about dividend stocks is tough without mentioning “The Monthly Dividend Company.” That’s especially true when balancing dividends with undervaluation, considering shares of Realty Income (NYSE:O) are down 10% this year.
But the company’s latest earnings report paints a largely positive picture hidden by per-share pricing. Despite a slight decline in occupancy, an impressive 98.8% of its properties are still generating cash flow for shareholders. Plus, Realty Income is improving margins from those properties, as funds from operations hit $1.04 per share compared to $0.97 in 2022. Likewise, the company’s current acquisition strategy points to continued growth potential.
With a current dividend yield of about 6%, Realty Income offers an attractive option for investors seeking regular monthly income, outperforming even the highest-yielding savings and money market accounts available today. Beyond that, though, shares seem materially undervalued for this dividend stock, creating a once-in-a-lifetime opportunity to cheaply allocate substantial capital to Realty Income.
Undervalued Dividend Stocks: General Motors (GM)
General Motors (NYSE:GM) seems to have threaded the needle between labor disputes and continued profitability. Though its planned deal will likely surpass $9 billion, GM just announced a $10 billion concurrent buyback and 33% dividend increase. That sets GM’s total yield at $5.34 – not bad considering shares dropped nearly 5% over the past six months, setting GM up as a decidedly undervalued dividend stock.
GM’s long-term prospects are bullish, too, considering its EV strength. The company has seen a 33% year-over-year increase in EV sales. With six EV models currently on the market and more in the pipeline, GM is solidifying its position as a major player in the EV space, although it still trails behind Tesla (NASDAQ:TSLA) by a considerable margin.
GM’s not out of the woods yet when it comes to continued volatility, especially considering consumer confidence hasn’t ticked back up fully. But this undervalued dividend stock is likely the best play within car manufacturers and by far the best among EV stock options.
Medtronic (MDT)
The medical stock sector, which saw dramatic fluctuations during the pandemic, has left many investors wary. Companies saw significant stock surges followed by steep declines, casting a shadow over the entire industry. Medtronic (NYSE:MDT), a major player in the field, wasn’t immune to these trends, with its market capitalization reducing by more than a third from its peak during the pandemic. But recent signs point to a strong recovery, and its 3.54% dividend yield keeps investors happy while they wait for the rebound.
An aspect of Medtronic that stands out, especially in the current context, is its strong dividend program. The company has a history of consistently increasing its annual dividend for nearly 50 years, demonstrating a stable commitment to shareholder returns.
Medtronic’s role in the medical device industry extends beyond financials. Known for its innovation and development in medical technology, the company is now focusing on more collaborative and risk-based contracting with hospital networks. These agreements are designed to enhance patient outcomes and reduce costs, making Medtronic a valuable partner in an era where healthcare delivery costs are escalating. At the same time, ongoing partnerships with Nvidia (NASDAQ:NVDA) keep Medtronic at the forefront of emerging health tech trends, making it a dividend stock for the long haul.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
