Although passive income represents a core component of portfolio health, some ideas languish under the category of overlooked dividend stocks. Whether because of their unconventional or perhaps controversial businesses, certain companies just don’t get the immediate nod.
That might be a mistake. Yes, the usual suspects – such as the most-popular dividend aristocrats and kings – capture most of the attention. However, as with anything, a little digging around can yield surprisingly robust ideas.
Further, by going beyond the conventional route, you may be able to extract far better total returns than jumping on the same boring familiar trades. On that note, below are enticing ideas for overlooked dividend stocks.
Seagate Technology (STX)
A data storage company, Seagate Technology (NASDAQ:STX) is one of the world’s largest manufacturers of hard disk drives (HDDs). As well, the company designs and manufactures solid-state drives (SSDs). Beyond these core products, Seagate invests in research and development to innovate and come up with new data storage technologies. Such advancements offer significant implications for cloud computing and data center applications.
Because of its role in facilitating storage of vast amounts of data, Seagate benefits from the tremendous interest in artificial intelligence and machine learning. Indeed, over the past one-year period, STX rewarded stakeholders with solid double-digit returns. As AI becomes increasingly integrated into society, it’s quite possible – if not outright plausible – that STX could swing higher.
However, such tech-focused enterprises don’t seem an ideal place for passive income. But that’s exactly why STX is one of the overlooked dividend stocks. Right now, the company carries a forward yield of 3.23%, well above the tech sector average of 1.37%. Also, the payout ratio is reasonable at 59.14%, thus providing confidence toward yield sustainability.
IBM (IBM)
I talk about legacy tech juggernaut IBM (NYSE:IBM) a lot. It’s not a scientific survey or anything. However, since Aug. 8 of last year, I mentioned Big Blue in 23 stories. I believe my colleague Larry Ramer comes in second at nine mentions. During this time, I’m sure all my colleagues who mentioned the company will agree: it’s been a great run.
Previously, IBM has been the red-haired stepchild of the tech ecosystem. While it has a pedigree like no other, it’s nowhere near as exciting as Nvidia (NASDAQ:NVDA). Further, because of the glare of the competition, IBM in some ways represents one of the overlooked dividend stocks. Moving forward, that should no longer be the case.
Thanks to its myriad innovations, including for AI, ML and even the blockchain, Big Blue has reasserted its relevance. At the same time, the company sports a forward yield of 3.62%. Even better, it offers 28 years of consecutive payout increases, making it one of the dividend aristocrats.
Iron Mountain (IRM)
In the emerging world of digitalized everything, Iron Mountain (NYSE:IRM) may strike many young investors as one of the overlooked dividend stocks. The history of the company stems from its first security vaults, which stored important documents and valuable assets. To this day, Iron Mountain stays true to its roots, providing solutions for physical storage of important records and equipment.
That’s not to say that this is the company’s only business. Over the years, Iron Mountain has evolved into a digital transformation specialist. However, it still provides “old school” services such as offsite records storage. Fundamentally, with cybercrime reaching astronomical heights, it always pays to be safe than sorry. And while some of the top hackers can crack basically anything, the digital realm symbolizes an impossibility.
Currently, IRM carries a forward yield of 3.8%. Financially, the enterprise’s standout metrics include its consistent profitability and strong revenue and EBITDA growth. Analysts rate shares a unanimous strong buy with a $74.60 price target.
Stag Industrial (STAG)
One of the indirect players in the burgeoning e-commerce field, Stag Industrial (NYSE:STAG) deserves consideration for your portfolio. Structured as a real estate investment trust or REIT, the company prioritizes storage facilities and warehouses. As InvestorPlace contributor Marc Guberti noted, Stag owns 568 buildings in 41 states. Additionally, the company has many big-name tenants that will stick around for years.
If you’re looking for stable cash flow, STAG stock belongs on your radar. Just as importantly, the REIT’s warehouse and distribution facilities support the storage, fulfillment and distribution of goods purchased online. With e-commerce transactions as a percentage of total retail sales rising higher since the second quarter of 2022, STAG should benefit from a resilient demand profile.
Lastly, it’s tough to ignore the passive income, with the company’s forward yield landing at 3.82%. Also, it’s on a small but growing payout increase streak of six years. Therefore, it’s a solid candidate for overlooked dividend stocks to buy.
Pembina Pipeline (PBA)
While I wouldn’t necessarily label Pembina Pipeline (NYSE:PBA) an outright oddity, it arguably qualifies for overlooked dividend stocks. Basically, when people look for passive income in the hydrocarbon space, they target big oil companies. We’re talking about Chevron (NYSE:CVX), Exxon Mobil (NYSE:XOM) and their ilk. However, more adventurous investors may want to give PBA stock a chance.
First, on the yield side, Pembina wins hands down. Exxon offers a forward yield of 3.7% while Chevron lands at 4.23%. In contrast, PBA stakeholders enjoy a forward yield of 5.84%. Granted, the payout ratio is high at 84% and it lacks a consecutive track record in payout increases. Still, if you’re looking for income while you sleep, Pembina should have you covered.
Second, as the name suggests, the company operates in the midstream component of the value chain; that is, transportation and storage infrastructure. This is a business that’s unlikely to go out of business simply because of vast relevancies.
As a bonus, analysts rate shares a moderate buy with a $38.69 price target.
EPR Properties (EPR)
A distinct REIT, EPR Properties (NYSE:EPR) specializes in amusement parks, movie theaters, ski resorts, and other entertainment properties. Per its public profile, the company owned 353 properties as of 2022. However, EPR may rank as one of the overlooked dividend stocks due to high pressures impacting the consumer economy. After years of inflation and elevated interest rates, many folks couldn’t keep opening their wallets.
I have to be careful about my next words because the issue raises much debate. However, a December article by The Seattle Times noted that revenge travel will continue to be a major trend in 2024. Despite many onerous headwinds, Americans are still getting out to explore the world and relax. Cynically, those with more modest means may elect entertainment venues for their rest and relaxation.
If you decide to speculate on EPR, the company offers a very enticing forward yield of 7.76%. That’s well above the REIT sector’s average yield of 4.46%. Thus, it’s one of the overlooked stocks to put on your radar.
British American Tobacco (BTI)
As a tobacco giant, British American Tobacco (NYSE:BTI) ranks among the overlooked dividend stocks for obvious reasons. Fundamentally, it appears that the company is losing relevance. Study after study reveals that global smoking prevalence rates have declined. Further, anti-tobacco advocacy groups have succeeded in taking the “cool” image out of cigarettes.
So, is BTI a dead investment? Not quite. For one thing, smoking prevalence isn’t down across the board, with some countries seeing an increase in the underlying practice. Second and more significantly, vaporizers or e-cigarettes have blossomed. By that, I’m referring to legal sales and not the crisis associated with underage vaping, which I absolutely do not support.
Fundamentally, tobacco firms may have a better read on what smokers prefer. Thus, they’re are able to better craft “digital” alternatives. Finally, British American’s forward yield stands at 9.81%. Moreover, its payout ratio comes in at a reasonable 61.56%. With such a robust dividend, even those uninterested in the industry may consider BTI stock.
On the date of publication, Josh Enomoto 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.
