7 Undervalued Dividend Stocks for Your Must-Buy List
With markets getting dragged down by another financial crisis, investors should seek safety. In fact, one of the best places for that is in undervalued dividend stocks. Especially those trading at a substantial discount relative to the firm’s underlying sector. That said, using the GuruFocus screener, I’ve curated a list of the best high-yielding stocks (yields over 3%) that are trading at a hefty discount to their 52-week high prices. These stocks are all trading at least 40% lower than their 52-week high prices.
City Office REIT
Undervalued Dividend Stocks: Pfizer (PFE)
Source: Sisacorn / Shutterstock.com
Dividend Yield: 4%
Relative % Below 52-week high: 96.3%
Pfizer (NYSE:PFE) played a major role in the fight against COVID-19 with its blockbuster vaccine. Sales from its vaccine helped the firm boast a 95% increase in sales from 2020 to 2021 to a mind-boggling $81.3 billion. The massive growth in its top line helped strengthen its cash balance, which stands at a mighty impressive $22.7 billion. Nevertheless, with Covid-19 cases declining, forward sales estimates for the firm are concerning, leading to the PFE stock sell-off.
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However, Pfizer is aware of these concerns and is looking to leverage its robust financial flexibility to pursue a more aggressive mergers and acquisitions policy. Consequently, it has acquired firms like BioHaven Pharma, Reviral, and cancer-drug maker Seagen in the near future. Its management has guided for non-Covid sales of roughly a billion through 2030, representing a 7% CAGR from 2019. Despite the slowdown in sales, Pfizer’s dividend profile remains in excellent shape, with a 4% yield and 12 consecutive years of payout expansion.
Undervalued Dividend Stocks: Rio Tinto (RIO)
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Dividend Yield: 7.2%
Relative % Below 52-week high: 45.8%
Rio Tinto (NYSE:RIO) is a leading metals and mining player, with an incredible track record of business expansion and shareholder rewards. Its stock has gained over 60% in the past three years, with dividend yields soaring past the 7% mark.
Furthermore, its massive footprint of resources has wide-ranging applications which have resulted in the steady top and bottom-line expansion. Its EBITDA and free cash flow margins have increased by over 45% and 19.6% in the past five years on average. Moreover, it wrapped up 2022 with a colossal $7.4 billion in free cash flows returning an amazing $10.7 billion of cash as dividends to its stockholders.
The outlook for its business remains rosy, on the back of strong demand for its base metals including copper, lithium, and other base metals. Additionally, its foray into green energy will pay many dividends down the road. For instance, it is poised to become the biggest lithium supplier in the European region over the next 15 years.
Undervalued Dividend Stocks: Newmont Corporation (NEM)
Dividend Yield: 3.6%
Relative % Below 52-week high: 84.3%
Newmont Corporation (NYSE:NEM) operates one of the largest gold businesses. In addition to gold, it also produces other industrial and precious metals, including copper, silver, lead, and zinc. Gold futures growth was flat last year, with the yellow metal trending lower for the better part of the year. However, NEM appears more attractive than ever, trading more than 80% lower than its 52-week highs while yielding over 3.5%. Supporting payments is unlikely to be a problem for Newmont, with its cash balance of $3.7 billion.
The dollar will likely weaken significantly in a recessionary scenario, which bodes well for gold. Factors including geopolitical tensions, inflation, and other macro events will support its upside ahead. As gold prices improve substantially, Newmont remains in an excellent position to deliver strong free cash flow numbers. Moreover, with 96 million ounces of proven reserves, the firm has excellent cash flow visibility through the decade.
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Dividend Yield: 4.6%
Relative % Below 52-week high: 54.5%
Vale (NYSE:VALE) is a leading South American business that looks well-positioned for success ahead. It’s the leading iron ore producer, a key component of steel, which recently reached its highest price since July last year. Steel demand is expected to grow at a healthy pace due to a surge in U.S. infrastructure spending, China’s reopening, the robust demand for automobiles, and the increasing demand for airplanes. Moreover, Russia-Ukraine is raising defense spending, positively impacting the steel demand.
Despite relatively softer prices, the company reported stellar adjusted EBITDA numbers of roughly $4 billion. Moreover, in the current year, it expects an annualized EBITDA of over $20 billion; therefore, cash flows should remain healthy for the foreseeable future. Moreover, its investments in other metals, including copper and nickel, should pay many dividends in a low-carbon economy. Speaking of dividends, the company has an incredible yield of 4.6%, trading more than 50% lower than its 52-week high price.
City Office REIT (CIO)
Source: Vitalii Vodolazskyi / Shutterstock
Dividend Yield: 10.8%
Relative % Below 52-week high: 98.7%
City Office REIT (NYSE:CIO) is a leading real-estate-investment trust (REIT) with a portfolio of Class A office buildings in the Sunbelt region. Its portfolio lies in a region that is profiting from population migration. Moreover, Class A office buildings are well-leased and less prone to remote-working headwinds. These newer buildings feature some of the most attractive amenities, including outdoor spaces, fitness centers, and other incentives.
In the past year, CIO has seen its shares decline over 60%, while its shares yield close to 10%. Additionally, its payout ratio is over 400%, indicating that its dividend payments are much higher than its earnings. However, CIOs debt to equity figure has declined by roughly 10% compared to its 10-year median. Therefore, the firm is effectively managing its debt load while increasing its dividend payouts in the process.
Source: JHVEPhoto / Shutterstock.com
Dividend Yield: 3.6%
Relative % Below 52-week high: 73.2%
Breakfast food king Kellogg (NYSE:K) ranks among some of the most reliable dividend stocks to buy in its sector with a healthy forward yield of over 3.4%, boasting 18 consecutive years of payout expansion. Its moat-worthy business has held up remarkably well in the current economic environment through its strategic price increases and productivity initiatives.
Additionally, it has a robust portfolio of well-recognized brands that generate incredible profitability for the business. Despite the market headwinds, Kellogg’s EBITDA and net income margins are virtually in line with its historical averages. Also, its return on equity is at a stellar 25%, with its trailing twelve-month cash balance at $1.65 billion, roughly 9% higher than its 5-year average. In a more conducive environment, K stock will likely offer incredible upside for its stockholders.
Source: Roman Zaiets / Shutterstock.com
Dividend Yield: 3.4%
Relative % Below 52-week high: 94%
Medtronic (NYSE:MDT) is a juggernaut in the medical devices market, having established a leadership position in the space. It’s known for its innovative products, including Minimed, the first portable insulin pump greenlit by the FDA. Moreover, with a penchant for innovation, the firm has been increasing its AI investments to improve patient outcomes.
For instance, its intelligent endoscopy module, called GI Genius, is effectively used for increased adenoma detection. Also, recent studies have shown that it could identify early lesions that can develop into colorectal cancers. The resurgence of the coronavirus in China, slowing ventilator sales, and foreign exchange headwinds have marred its results of late. Despite these troubles, MDT reported 4.1% year-over-year revenue growth on an organic basis, a testament to its business quality. Also, its dividend payouts have grown for almost a decade, with its dividend yield at 3.5%.
On the date of publication, Muslim Farooque 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.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.
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