In this article, we discuss 10 best undervalued aristocrats to buy in September. You can skip our detailed analysis of dividend aristocrats and value stocks, and go directly to read 5 Best Undervalued Aristocrats to Buy in September.
A dividend aristocrat is a company in the S&P 500 index that has raised its dividends consistently for over 25 years. Amid growing recession fears, investors are increasingly putting money in dividend stocks to stay afloat during these times. The Coca-Cola Company (NYSE:KO), Johnson & Johnson (NYSE:JNJ), and The Procter & Gamble Company (NYSE:PG) are some notable dividend stocks that investors are paying attention to because of their performance over the years. According to a report by American Equity, dividend stocks represented a 68.34% return of the S&P 500 from 2010 to 2020.
Matt Bartolini, head of SPDR Americas Research at State Street Global Advisors, talked to CNBC about dividend stocks, mentioning that companies that have raised their dividends for over 30 years have endured market conditions more severe than what we are confronted with today. He further mentioned that returns of dividend stocks are still expected to grow this year irrespective of market situations.
In addition to dividend stocks, value investing is also gaining traction this year as investors are increasingly avoiding high-risk, loss-making growth companies. Rob Arnott, a founder and chairman of Research Affiliates, said in his Bloomberg interview that high inflation is good for value stocks as they offer long-term investment opportunities. This is evident from this year’s returns, as Russell 1000 Value Index fell by 11.31%, compared with a 24.1% decline in the Russell 1000 Growth Index in 2022. Another report by T. Rowe Price also mentioned that value-oriented stocks could benefit from the current environment along with dividend stocks. Dividend aristocrats are good investment options in the S&P 500 index as they exhibit both value and growth characteristics. According to a report by Business Insider, the broad-based index has had a 57.55% average exposure to value and a 42.44% exposure to growth since 1999.
Photo by Mirza Babic on Unsplash
Our Methodology:
The companies mentioned below have raised their dividends consistently for over 25 years and have P/E ratios of less than 15. We examined these stocks in light of analysts’ ratings and also measured hedge fund sentiment around each stock, according to Insider Monkey’s Q2 2022 data of 895 elite funds.
10 Best Undervalued Aristocrats to Buy in September
10. Nucor Corporation (NYSE:NUE)
P/E Ratio: 4.48
Nucor Corporation (NYSE:NUE) is a North Carolina-based producer of steel and related products and is one of the most profitable steel companies in the world. The company topped analysts’ estimates in Q2 2022, posting a GAAP EPS of $9.67, which surpassed consensus by $1.07. The company’s revenue for the quarter came in at $11.79 billion, up 34.1% from the same period last year. It generated over $1.7 billion in free cash flow during the quarter and paid $272 million in dividends.
Nucor Corporation (NYSE:NUE) has paid dividends consistently for the past 197 quarters and has raised its payouts for 49 years in a row. It currently pays a quarterly dividend of $0.50 per share and has a yield of 1.48%, as of September 7.
In July, Morgan Stanley reiterated its Equal Weight rating on Nucor Corporation (NYSE:NUE), as the firm expects the stock to reflect near-term demand headwinds.
At the end of Q2 2022, 32 hedge funds tracked by Insider Monkey reported owning stakes in Nucor Corporation (NYSE:NUE), growing from 22 in the previous quarter. The collective value of these stakes is over $375.8 million, compared with $260.6 million worth of stakes owned by hedge funds in the preceding quarter.
In addition to The Coca-Cola Company (NYSE:KO), Johnson & Johnson (NYSE:JNJ), and The Procter & Gamble Company (NYSE:PG), Nucor Corporation (NYSE:NUE) is another prominent dividend stock to consider in the current market turmoil.
9. Franklin Resources, Inc. (NYSE:BEN)
P/E Ratio: 7.71
Franklin Resources, Inc. (NYSE:BEN) is a California-based holding company and one of the largest investment managers in the US. In August, Deutsche bank raised its price target on the stock to $29 while maintaining a Hold rating on the shares. The firm highlighted the company’s relatively good fundamentals shown in its recent quarterly results and presented a positive outlook on alternative management firms.
Recently, Franklin Resources, Inc. (NYSE:BEN) reported that its assets under management in July rose to $1.43 trillion, from $1.38 trillion in the previous month. In Q2 2022, the company’s operating cash flow came in at $819.8 million, up from $104.1 million in the previous quarter. Its free cash flow also jumped to $806.7 million, from $78.3 million in the preceding quarter.
Franklin Resources, Inc. (NYSE:BEN) has been raising its dividends consistently for the past 40 years. The dividend aristocrat currently pays a quarterly dividend of $0.29 per share and has a yield of 4.45%, as recorded on September 7.
At the end of June 2022, 24 hedge funds in Insider Monkey’s database owned stakes in Franklin Resources, Inc. (NYSE:BEN), down from 30 in the previous quarter. The collective value of these stakes is over $217.2 million. AQR Capital Management was the company’s leading stakeholder in Q2, owning stakes worth over $31.1 million.
8. Aflac Incorporated (NYSE:AFL)
P/E Ratio: 9.15
Another company on our list of undervalued aristocrats is Aflac Incorporated (NYSE:AFL), which is an American insurance company that provides supplemental insurance in the country. At the end of Q2 2022, 32 hedge funds tracked by Insider Monkey had over $340.6 million invested in the company. In the previous quarter, 32 hedge funds owned $377.6 million worth of stakes in the company.
In Q2 2022, Aflac Incorporated (NYSE:AFL) reported $121.4 billion in cash and total investments while its total assets amounted to $135.6 billion. The company’s cash position also remained strong during the quarter, as it generated $510 million in free cash flow. Its revenue stood at $5.4 billion in Q2.
On August 1, Aflac Incorporated (NYSE:AFL) declared a quarterly dividend of $0.40 per share, consistent with its previous dividend. The company has been raising its payouts consistently for the past 39 years. The stock’s dividend yield came in at 2.63% on September 7.
In July, JPMorgan raised its price target on Aflac Incorporated (NYSE:AFL) to $62 with a Neutral rating on the shares, presenting a positive stance on the life insurance sector post-pandemic.
7. Exxon Mobil Corporation (NYSE:XOM)
P/E Ratio: 10.27
An American multinational oil and gas company, Exxon Mobil Corporation (NYSE:XOM) has raised its dividends consistently for the past 39 years at an annual average rate of 6%. In addition to this, the company has paid dividends for 100 years in a row. The company pays a quarterly dividend of $0.88 per share and has a yield of 3.74%, as recorded on September 7.
In Q2 2022, Exxon Mobil Corporation (NYSE:XOM) reported cash from operating activities of $20 billion and generated earnings of $17.9 billion. Its revenue for the quarter came in at $115.6 billion, up 70.8% from the same period last year. The company’s cash flow increased due to aggressive cost control.
In September, Morgan Stanley raised its price target on Exxon Mobil Corporation (NYSE:XOM) to $113 with an Overweight rating on the shares, believing that the company is well-positioned to benefit from lower carbon business.
As per Insider Monkey’s Q2 2022 database, 72 hedge funds tracked by Insider Monkey owned stakes in Exxon Mobil Corporation (NYSE:XOM), falling from 83 in the previous quarter. These stakes hold a collective value of over $7.4 billion. With over $4 billion worth of stakes, GQG Partners held the largest position in the company in Q2.
First Eagle Investments mentioned Exxon Mobil Corporation (NYSE:XOM) in its Q2 2022 investor letter. Here is what the firm has to say:
“Integrated oil and gas giant Exxon Mobil performed well in the second quarter as continued high prices for energy products supported the stock. As the largest refiner in the US, the company has benefitted from wide “crack spreads,” or the margin between the cost of crude oil and the petroleum products extracted from it. Exxon continues to invest in refining capacity in the US, which industrywide has been in steady decline since 2019. We are pleased that Exxon has been using its strong cash flows to reduce debt and to return cash to shareholders through dividends and stock repurchases.”
6. Chevron Corporation (NYSE:CVX)
P/E Ratio: 10.31
Chevron Corporation (NYSE:CVX) is a California-based energy industry company that specializes in the exploration of oil and natural gas. The company generated stable cash in Q2 2022, with its operating cash flow standing at $13.7 billion, compared with $8 billion in the previous quarter. Its free cash flow for the quarter also grew to $10.6 billion, from $6 billion in the preceding quarter. The company’s dividends for the quarter amounted to $2.8 billion, reflecting stronger FCF.
One of the most prominent undervalued aristocrats, Chevron Corporation (NYSE:CVX) had a dividend yield of 3.65%, as recorded on September 7. The company pays a quarterly dividend of $1.42 per share. It holds a 35-year track record of consistent dividend growth. It can be a good addition to dividend portfolios among other dividend stocks like The Coca-Cola Company (NYSE:KO), Johnson & Johnson (NYSE:JNJ), and The Procter & Gamble Company (NYSE:PG).
In August, BMO Capital raised its price target on Chevron Corporation (NYSE:CVX) to $180 with an Outperform rating on the shares, highlighting the company’s strong operational performance, asset base, and financial strength.
Warren Buffett’s Berkshire Hathaway owned stakes worth over $23.3 billion in Chevron Corporation (NYSE:CVX), becoming the company’s leading stakeholder in Q2 2022. Overall, 59 hedge funds in Insider Monkey’s database owned stakes in the energy company in Q2, up from 53 in the previous quarter. These stakes hold a collective value of over $26 billion.
Diamond Hill Capital mentioned Chevron Corporation (NYSE:CVX) in its Q1 2022 investor letter. Here is what the firm had to say:
“Other top contributors in Q1 included multinational energy company Chevron Corp. (NYSE:CVX). The company benefited from increased energy demand as COVID-related economic restrictions eased in tandem with concerns regarding supply interruptions related to Russia’s invasion of Ukraine.”
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Disclosure. None. 10 Best Undervalued Aristocrats to Buy in September is originally published on Insider Monkey.
