Dividend stocks have long been investor favorites. Not only do dividends provide a reliable stream of income but they also increase a portfolio’s returns over time. They get even more exciting if they’re undervalued dividend stocks.
Since 1930, dividend stocks outperformed all other classes of stocks. The Hartford Funds found that over the last 95 years, stocks on the S&P 500 that initiated and raised their dividends have never had a losing decade. Through world wars and global pandemics, income-generating stocks were the best investments. No other stock can say the same.
And it stands to reason. Dividend stocks to buy are successful businesses, and having gone through numerous business and economic cycles, have come through the trials intact. With capable management and a conservative outlook, they steered their companies well and shared their success — and profits — with shareholders.
Below are three undervalued dividend stocks to buy in July. Despite the bull market and regardless of their performance, they now represent some of the best investments available.
Ford (F)
Everyone focuses on Tesla (NASDAQ:TSLA) when it comes to electric vehicles, but Ford (NYSE:F) is the sleeper play in the industry. Second-quarter U.S. sales inched up 0.8% and are 3.6% higher over the first half of 2024, but virtually all of the growth came from hybrid vehicles and EVs.
Hybrid sales surged 55.6% in the quarter, a record 53,822 vehicles, powered by the light-duty Maverick. The model accounts for almost 44% of total hybrid volume for the first six months of the year. Fully 59% of all Maverick buyers are considered “conquest” customers, or those who were considering buying other brands. They are trading in their compact cars and crossovers in favor of the truck’s flexibility and adaptability.
Ford president and CEO Jim Farley told analysts earlier this year, “It’s one of our fastest-growing vehicles.” Sales are growing so fast Farley thinks Ford may run into a supply problem.
Yet F-150 hybrid pickups are also driving off the lots at a brisk pace with sales up 38% in the second quarter. The Escape was also rising 35% for the period.
Having been burned by its all-in bet on battery EVs, Ford quickly pivoted to hybrids and is reaping the benefits. Ford stock is up 7% in 2024 but trades at less than 7 times next year’s earnings. With its dividend yielding an attractive 5.3% annually, the automaker is one of the undervalued dividend stocks to buy in July.
Benchmark Electronics (BHE)
Small-cap powerhouse Benchmark Electronics (NYSE:BHE) is on a roll this year, up 41% and stands 51% higher over the last 12 months. The semiconductor capital equipment manufacturer is an under-the-radar play on artificial intelligence. It provides product design, engineering, technology and manufacturing services for original equipment manufacturers (OEMs), and also serves the aerospace, defense and medical industries.
The proliferation of AI across the semiconductor industry but also throughout the other markets it serves, created a sales explosion for Benchmark. Semiconductor sales, its largest market, enjoyed a 12% increase in revenue but was dwarfed by a 35% surge in aerospace sales. Adjusted profits grew 8% to 55 cents per share.
Although it initiated its first quarterly dividend in 2018, at 15 cents per share, it is slowly increasing the payout and its starting yield is a respectable 1.7% annually. It sports a free cash flow (FCF) payout ratio of just 24%, suggesting there is sufficient room for further growth in the future.
Universal (UVV)
Another hidden gem is Universal (NYSE:UVV), the world’s largest supplier of tobacco leaf. It counts as customers all the major cigarette manufacturers including Altria (NYSE:MO), British American Tobacco (NYSE:BTI) and Philip Morris International (NYSE:PM) but also supplies China Tobacco International, the world’s largest cigarette maker.
That is key to Universal’s future growth trajectory because although smoking is on a secular decline in the U.S., it continues to grow in China. Statista estimates the market there will reach “a staggering $282.9 billion” this year and continue growing at 1.6% annually through 2029.
Universal has a 54-year history of raising its dividend, making it a Dividend King. It has increased the payout at a near-5% compounded annual growth rate (CAGR) for the past decade and the dividend yields a juicy 6.8% annually.
Yet recognizing the declining industry here at home, Universal is diversifying its business. It moved into the plant-based ingredients and food products business, and though the segment is still small, it is enjoying expanding opportunities. President and CEO George Freeman said Universal “entered several new partnerships to supply innovative products that capitalize on our newly developed capabilities and portfolio across our three ingredients companies.”
Cardinal Health (CAH)
Medical supplies and drug distributor Cardinal Health (NYSE:CAH) is an industry behemoth, though just the third largest supplier. It had about $190 billion in U.S. drug sales last year, fully one-quarter of the total market. Along with Cencora (NYSE:COR) and McKesson (NYSE:MCK), the trio supply 90% of the market.
Cardinal serves nearly 90% of all U.S. hospitals, more than 60,000 U.S. pharmacies and over 10,000 specialty physician offices and clinics. It also provides more than 3.4 million patients with more than 46,000 home healthcare products.
While inflation and supply chain constraints hurt segment sales and profits in fiscal 2023, inflation has eased since then and the Federal Reserve could begin cutting interest rates before the end of the year. So although it will face similar headwinds for a while yet, they should decrease going forward. Beyond that, Cardinal should be able to raise prices and benefit from an improving economy.
Cardinal also pays a dividend that it has increased for 27 consecutive years, making it a Dividend Aristocrat. The payout yields 2.1% a year.
Enterprise Products Partners (EPD)
Oil and gas industry middleman Enterprise Products Partners (NYSE:EPD) is admittedly not a stock for everyone. Although it has a very attractive business model that ensures steady revenue flows, its organization as a master limited partnership (MLP) complicates an investment.
MLPs are an investment class holding immense long-term income and profit potential but there are complex tax issues investors should consider before buying in. Because MLPs are required by law to distribute 90% or more of their profits to investors as dividends, they introduce more complicated tax considerations. But if it is an investment you can make, Enterprise Products Partners is one to consider. Those dividends yield a very healthy 7.3%.
The storage and pipeline transportation owner makes money no matter which way the oil and gas markets go. Operating on long-term fixed contracts, Enterprise Products Partners gets paid whether its customers take the product or not.
With oil and gas having long-term tailwinds behind it, Enterprise Products is among the undervalued dividend stocks to buy today.
RTX (RTX)
The second-largest defense contractor is RTX (NYSE:RTX), formerly known as Raytheon but it changed its name after merging with United Technologies. It manufactures numerous defense systems, though missile systems are the workhorse of its business.
RTX produces the Patriot missile system, Stinger and Javelin missiles, high-speed, anti-radiation missiles (HARMS) and national surface-to-air missile systems (NASAMS). It ended 2023 with a record backlog of orders totaling $196 billion. That grew to $202 billion at the end of the first quarter.
The war in Ukraine fuels a lot of the demand for RTX weapons systems. During the quarter it booked $282 million for NASAMS for Ukraine but also booked $1.6 billion for Patriot systems for Germany, $818 million for Patriot-guided enhance missiles (GEM-T) for NATO and another $874 million for various international GEM-T orders.
RTX pays a dividend of $2.46 that yields 2.6% annually. It has paid a dividend every year since 1936 and has raised it for 30 consecutive years, so it should be considered among undervalued dividend stocks.
Toyota Motor (TM)
Coming full circle, Toyota Motor (NYSE:TM) is the next dividend stock to buy as it has become the premier EV manufacturer. Although Tesla may sell more EVs than Toyota, the Japanese automaker correctly read the market well before anyone else and went all-in on the hybrid market. It is the best electric vehicle manufacturer today without exception.
Toyota saw a dramatic 20% surge in first-quarter sales volume. For the first half of 2024, EV sales took off even more, surging 68% and representing over 38% of total sales. It sold more than 454,000 electrified vehicles in the first six months of the year (it does make BEVs too). Overall, Toyota remains the world’s biggest automobile manufacturer. The carmaker also noted its Lexus brand recorded its best-ever first half in its 35-year history.
Despite Toyota stock being up 12% year-to-date and 25% for the last 12 months, shares trade at just 8 times trailing earnings, 9 times estimates and at a fraction of its sales. Wall Street expects earnings to maintain their strong 16% CAGR for the next five years. Its dividend also yields an attractive 2.7% a year making Toyota the top undervalueddividend stock to buy in July.
On the date of publication, Rich Duprey held a LONG position in MO, CAH and RTX stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.
