The correlation between risk and returns is one of the fundamental facts about asset markets. Higher the risk, higher is the possibility of robust returns. A selection of quality growth stocks will always outperform low-beta blue-chip stocks. There are exceptions among blue-chip dividend stocks.
My objective is to identify dividend stocks that are attractively valued and can surge higher in the next 12 to 24 months. During this period, these dividend stocks can potentially outperform several growth stocks. Further, returns from a portfolio of these stocks is likely to be significantly higher than index returns.
Let’s discuss the reasons to be bullish on these dividend stocks to buy.
Amdocs (DOX)
Amidst volatility, Amdocs (NASDAQ:DOX) stock has remained sideways in the last 12 months. It’s among the sleeper dividend stocks to buy for robust total returns.
DOX stock looks attractive at a forward price-earnings ratio of 13.1. Additionally, the stock offers a dividend yield of 2% making it one of the more attractive dividend stocks in the space.
Amdocs is a provider of software products and services with focus on the media and telecommunications industry. For financial year 2023, the company reported revenue growth of 7.7% on a year-on-year basis to $4.9 billion.
There are two important points to note from the perspective of growth visibility. First, Amdocs has a presence in North America and is building a presence in Europe and emerging markets. Six of the company’s top 10 customers are outside North America. Inroads into new markets like Southeast Asia is likely to help in accelerating revenue growth.
Further, Amdocs reported free cash flow of $698 million for 2023. Robust FCF provides flexibility for dividend growth and aggressive investments in technology. The company is actively seeking acquisitions and has a flexible balance sheet for growth.
Angico Eagle Mines (AEM)
Economists at Bank of America (NYSE:BAC) are forecasting 152 rate cuts by global central banks in 2024. This sets stage for a big rally in gold as expansionary monetary policies would imply a weaker dollar.
Angico Eagle Mines (NYSE:AEM) is among the lesser talked about gold miner that looks attractive after a consolidation in the last 12 months. Besides expecting a breakout rally for AEM stock, a dividend yield of 2.96% is attractive. With rising gold trends and growing free cash flows, the company can increase dividends.
It’s worth mentioning that Angico Eagle Mines reported operating cash flow of $1.9 billion for the first nine months of 2023. This implies an annualized OCF of $2.5 billion. With gold trending higher, I expect OCF of more than $3 billion next year.
From a long-term perspective, Angico Mines has proven and probable gold reserves of 31.5 million ounces. This provides production visibility and a healthy balance sheet is likely to ensure that reserve replacement is robust.
Southern Copper (SCCO)
As central banks look to cut rates next year, another asset class that’s likely to benefit is industrial commodities.
Copper demand has been increasing as it’s among the critical metals required for global clean energy transition.
I expect the bullish outlook for copper to sustain and Southern Copper (NYSE:SCCO) looks attractive even after a 40% rally in the last 12 months. SCCO stock also offers a dividend yield of 4.86%.
Further, the company has guided for free cash flow of $2.7 billion. Clearly, there is ample flexibility for investment in expansion and dividend growth. The company has a strong balance sheet with a net-debt-to-EBITDA of 0.4. Southern Copper plans to make aggressive investments to boost production in the next few years.
Amcor PLC (AMCR)
Amcor PLC (NYSE:AMCR) is another attractive dividend stock to buy with a current yield of 5.13%. Further, AMCR stock trades at a forward price-earnings ratio of 14 and looks undervalued. The stock has remained sideways in the last six months. I expect a breakout on the upside after this period of consolidation.
As an overview, Amcor is a provider of packaging products in North America, Europe, Latin America, and the Asian region. With a big addressable market and focus on innovation, the company has growth visibility. The company is investing $100 million annually on R&D for sustainable packaging products.
For Q1 2024, Amcor reported 6% decline in revenue on a year-on-year basis to $3.4 billion. However, I don’t see this as a concern with the company expecting to return to growth in the second half of the year. Further, with value-added product categories and focus on emerging markets, the company expects to sustain growth in the long term. This would also imply steady dividend growth.
Flex LNG (FLNG)
For investors looking for a robust dividend yield, Flex LNG (NYSE:FLNG) is another stock that’s worth considering. A dividend yield of 10% and a forward price-earnings ratio of 11.8 implies potentially high total returns in the next 12 to 24 months.
As an overview, Flex LNG is a provider of seaborne transportation of liquified natural gas globally. Currently, the company has 13 LNG carriers.
An important point to note is that these LNG carriers have clear revenue and cash flow visibility. To put things into perspective, the fleet has a combined contract backlog of 51 years that can potentially be increased to 77 years with extensions. Therefore, healthy dividends are likely to sustain.
For FY23, Flex LNG has guided for revenue and EBITDA of $370 million and $290 million respectively. Cash flows will therefore be healthy and the company has a cash buffer of $429 million with no debt maturities until 2028.
The point I want to make is that Flex LNG is potentially positioned for fleet expansion considering the cash flow visibility. This will help in supporting revenue growth and dividend upside.
Aker BP ASA (AKRBF)
Aker BP ASA (OTCMKTS:AKRBF) is not in the limelight because the stocks does not trade in the main exchanges. However, in my view, it’s among the best oil and gas stocks to buy.
Even with correction in oil prices, AKRBF stock has remained sideways in the last 12 months. Further, the stock offers an attractive dividend yield of 7.66%. With the possibility of multiple rate cuts in 2024, I expect crude to trend higher. The stock will be positioned for a breakout rally.
From a business perspective, a major reason to like Aker BP is assets with a low break-even. Further, with 2P reserves of 1.86 billion barrels of oil equivalent, there is clear cash flow visibility beyond the decade.
For Q3 2023, Aker BP ASA reported revenue and EBITDA of $3.5 billion and $3.2 billion respectively. This would imply an annualized EBITDA of $12.8 billion. If oil is at $90 per barrel, Aker BP can deliver over $20 billion in annual EBITDA. This puts into perspective the cash flow potential.
AT&T (T)
I would like to end with a dividend stock that’s not really under the radar. However, the stock has been ignored and continues to trade at depressed valuations.
AT&T (NYSE:T) stock trades at a forward price-earnings ratio of 6.7 and offers a dividend yield of 6.68%.
The deleveraging is progressing well and key business metrics point to potentially higher cash flows in the coming years. Between 2018 and 2022, AT&T has invested $140 billion towards building a strong 5G infrastructure. These investments will continue to yield results as growth in subscriber base.
For the first nine months of 2023, AT&T reported free cash flow of $10.4 billion. Robust cash flows provide flexibility for dividends, investments, and deleveraging. The average revenue per user is likely to swell with higher 5G adoption. This will positively affect FCF.
On the date of publication, Faisal Humayun did not hold (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.
