In this article, we will analyze the list of the best beaten down dividend stocks.
Dividend stocks have faced challenges over the past year due to the rising focus on tech stocks. However, the value of income remains strong, and investors haven’t overlooked dividend equities. As a result, US companies are now more focused on dividends, offering substantial payouts to shareholders. In fact, many tech companies have begun issuing dividends this year, thanks to strong cash flow on their balance sheets. While they could reinvest in growth, sharing profits with shareholders has become an appealing strategy to attract investors.
Also read: 10 Stocks that Pay Dividends Monthly
This means that with the changing market dynamics, high-quality companies with strong balance sheets that are trading at lower multiples have become more appealing. Dividend stocks often fall into this category, as they typically have stable business models and cash flows that allow them to consistently return earnings to investors. Dan Lefkovitz, a strategist for Morningstar Indexes, also highlighted this in the firm’s latest report:
“Investing in dividend-paying stocks is a good way to participate in equities over the long term. There have been long stretches when the dividend-paying section of the market has outperformed. Eventually, they’ll come back into favor. Dividend-paying stocks have a value bias. To the extent that there’s a rotation away from technology and growth into the value side of the market and more old economy sectors, that’s going to benefit the dividend-paying portion of the market.”
Another factor influencing the market trends is the Fed’s anticipated rate cuts. Investors believe the Fed is likely to start lowering interest rates in September, marking the beginning of a new easing cycle after one of its most aggressive tightening phases. The central bank began raising rates in March 2022 in response to soaring inflation, and they’ve remained at restrictive levels since July 2023. According to popular belief, dividend investors might benefit as rates decline. Lower rates can reduce bond yields, making dividend yields more appealing by comparison. In addition, companies with higher debt, such as utility companies and REITs, often benefit from falling rates and are typically among dividend payers.
If we set aside the impact of interest rates on dividend stocks, it becomes clear that they have made a substantial contribution regardless of market conditions. According to a study by S&P Dow Jones Indices, from 1926 to July 2023, dividends accounted for 32% of the broader market’s monthly total return, with the rest coming from capital appreciation. The report also underscored the power of compounding dividends. Without dividends, an initial investment in the stock market on January 1, 1930, would have grown to $214 by July 2023. However, with dividends reinvested, that same investment would have soared to $7,219 over the same period.
While there are encouraging signs for dividend stocks, they have struggled to keep pace with the broader market this year. The Dividend Aristocrats Index, which tracks the performance of companies with at least 25 consecutive years of dividend growth, has gained nearly 9% in 2024, compared with over 16.5% return of the broader market. With this, we will take a look at some of the best beaten down dividend stocks to invest in.
Photo by lucas Favre on Unsplash
Our Methodology:
To compile this list, we began by examining stocks that have experienced a decline from their peak prices within the past three years. From this pool, we selected 10 dividend-paying stocks that have witnessed a drop of 25% or greater in their share prices over these three years. The rankings within the list are based on the extent of the decrease in share prices from their three-year highs to their current levels, with the list arranged in ascending order of these declines as of August 30, 2024.
We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 912 funds as of Q2 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
10. American Tower Corporation (NYSE:AMT)
3-year high-to-low share price decrease as of August 30: 25.99%
American Tower Corporation (NYSE:AMT) is an American real estate investment trust company that specializes in wireless and broadcast communications infrastructure in several countries. The company has struggled in the recent past because of high interest rates, leading to a drop of nearly 26% from its 2021 peak. In addition, the company is burdened with substantial debt, totaling $47.4 billion in the latest quarter. Its debt-to-equity ratio is also significantly high at 4.5. If high interest rates persist, it could have a negative impact on the company’s performance.
That said, analysts are expecting rates cut in September, which would benefit American Tower Corporation (NYSE:AMT). Moreover, the company has reported strong earnings in the second quarter of 2024. Its revenue for the quarter came in at $2.9 billion, which showed a 4.6% growth from the same period last year. The company’s net income also increased significantly by 96.8% to $908 million. Being a dividend payer, it maintains a solid balance sheet. The company ended the quarter with $9.2 billion in total liquidity and $2.5 billion available in cash and cash equivalents.
Despite the ongoing challenges posed by high interest rates, income investors can feel reassured about American Tower Corporation (NYSE:AMT)’s payout due to its stable cash flow. Although the dividend was slightly reduced in March, that risk has now passed, as the company’s cash flows are secure for this quarter. Its operating cash flow came in at $1.33 billion and free cash flow amounted to over $1 billion, showing 10.7% and 27.5% YoY growth, respectively. The company pays a quarterly dividend of $1.62 per share and has a dividend yield of 2.89%, as of August 30. It is one of the best dividend stocks grabbing investors’ attention despite reporting negative returns.
The number of hedge funds tracked by Insider Monkey owning stakes in American Tower Corporation (NYSE:AMT) grew to 63 in Q2 2024, from 56 in the previous quarter. These stakes are collectively valued at nearly $3 billion. With over 6 million shares, Akre Capital Management was the company’s leading stakeholder in Q2.
9. Bristol-Myers Squibb Company (NYSE:BMY)
3-year high-to-low share price decrease as of August 30: 38.7%
Bristol-Myers Squibb Company (NYSE:BMY) is a New York-based pharmaceutical industry company that offers innovative medicines and therapies to patients with serious illnesses. Over the past five years, the stock’s performance has been lackluster, largely due to significant patent expirations. The most notable is Revlimid, a once top-selling cancer drug, which has lost its patent protection. Earlier this year, BMY finalized a $14 billion acquisition of Karuna Therapeutics and its experimental psychosis treatment, KarXT. However, the stock has dropped because the company took a $12.9 billion charge for in-process research and development in the first quarter, linked to this acquisition.
The approval decision for KarXT is expected in September, and even if the deal doesn’t go through, Bristol-Myers Squibb Company (NYSE:BMY) still has solid growth potential. In the second quarter of 2024, the company reported revenue of $12.2 billion, which saw a 9% growth from the same period last year. Its Growth and Legacy portfolios resulted in US revenues growing by 13% on a YoY basis to $8.8 billion. The company’s development pipeline includes five experimental drugs currently in late-stage clinical trials. With numerous potential growth drivers ahead and several already in the commercial phase, the company is well-positioned to sustain steady cash flow generation.
Ariel Investments highlighted the company’s new product launches in its Q4 2023 investor letter. Here is what the firm has to say about Bristol-Myers Squibb Company (NYSE:BMY):
“Biopharmaceutical company, Bristol-Myers Squibb Company (NYSE:BMY), also underperformed in the quarter on mixed earnings results and a reduction in guidance due to a delay across several new product launches. Although the company’s mid- to long-term targets remain intact, management expects a transition period before the company returns to top-tier growth. In our view, many of the new drugs represent either the first-in-class (the first molecule approved by the FDA) or best efficacy opportunities and believe the new product portfolio should outperform expectations over time. Meanwhile, management remains bullish on its maturing pipeline and reaffirmed it will continue to seek business development through bolt-on acquisitions and licensing deals.”
Bristol-Myers Squibb Company (NYSE:BMY) is a strong dividend payer with 18 consecutive years of dividend growth under its belt. The company’s cash reserves suggest the potential for additional dividend increases. Its trailing twelve-month operating cash flow comes in at $14.1 billion and a levered free cash flow is $15.7 billion. Currently, the company pays a quarterly dividend of $0.60 per share and has a dividend yield of 4.80%, as of August 30.
At the end of Q2 2024, 61 hedge funds tracked by Insider Monkey held stakes in Bristol-Myers Squibb Company (NYSE:BMY), up from 57 in the previous quarter. These stakes have a total value of more than $2.5 billion.
8. Hormel Foods Corporation (NYSE:HRL)
3-year high-to-low share price decrease as of August 30: 39.5%
Hormel Foods Corporation (NYSE:HRL) is one of the best dividend stocks that is currently facing business headwinds. The American food processing company specializes in marketing and production of a wide range of consumer-branded food and meat products. In the past 12 months, the stock has fallen by nearly 18%.
Hormel Foods Corporation (NYSE:HRL) is struggling to pass on rising costs to its customers, a challenge that its competitors don’t seem to face. In addition, its turkey operations have been severely impacted by avian flu outbreaks. The company reported declines on many fronts in the first quarter of 2024. Its revenue fell by 3% on a YoY basis at $2.9 billion and its operating income also dropped to $252 million, from $296 million in the same period last year. However, the company’s volumes provided some relief for investors, with its food service volumes notably rising by 2.9% compared to the same period last year.
When we look at the performance of Hormel Foods Corporation (NYSE:HRL) for the first half of the year, it doesn’t look too bad, especially when taking its cash flows into account. This period for the company was strong, with consecutive quarters of earnings surpassing expectations and a significant boost in operating cash flows. The company also made strides in its strategic initiatives and is on course to achieve its goals of enhancing business performance and driving long-term growth and returns for shareholders. So far this year, it has generated over $640 million in operating cash flow, representing a 55% increase from the same period last year.
The strong cash flows have enabled Hormel Foods Corporation (NYSE:HRL) to increase its dividends for 50 consecutive years, a significant achievement that’s not easy to accomplish. The company’s quarterly dividend comes in at $0.2825 per share and has a dividend yield of 3.47%, as of August 30.
Of the 912 hedge funds tracked by Insider Monkey at the end of Q2 2024, 31 funds held investments in Hormel Foods Corporation (NYSE:HRL), growing from 27 in the preceding quarter. These stakes have a consolidated value of nearly $714 million. Among these hedge funds, Citadel Investment Group was the company’s leading stakeholder in Q2.