In this article, we will take a look at the 10 best undervalued dividend stocks to buy now. You can skip our detailed discussion on the merits of dividend investing and go to 5 Best Undervalued Dividend Stocks to Buy Now.
The reopening of the economy as the COVID-19 vaccine rollout allows for the safe resumption of business activities has failed to initiate a bull run in the stock market. In fact, supply chain issues and the price volatility surrounding technology-related growth stocks have stoked inflation fears, leaving investors scratching their heads in search for good returns. In these uncertain times, undervalued dividend stocks can be a good hedge against the bearish market outlook, offering the smart minds a dependable income and a safeguard for their portfolio.
In conversations around dividend stocks, the real estate sector hogs all the attention, but the insurance and banking industry also has some good options in this regard. The Goldman Sachs Group, Inc. (NYSE: GS), one of the leading investment banks in the world, has offered investors a regular and steadily growing dividend going back decades. The Goldman Sachs Group, Inc. (NYSE: GS) has a diverse portfolio of investments and is unlikely to be affected by overall market dynamics even in times of recession.
Similarly, another dependable but more affordable option for dividend investors is The Allstate Corporation (NYSE: ALL), the Northfield Township-based insurance company. The Allstate Corporation (NYSE: ALL) recently increased its dividend by close to 50% and also has a history of regular and steadily increasing dividend payments for shareholders. The stock of the firm has outperformed competitors in the market despite recent losses incurred as a result of a hail event that swept through Texas and Oklahoma.
Quest Diagnostics Incorporated (NYSE: DGX) also deserves a mention in the undervalued dividend stock list. The biotech company, which is based in Secaucus, pays a regular quarterly dividend to shareholders despite the high operational costs associated with the biotech industry. Quest Diagnostics Incorporated (NYSE: DGX) has recently been cited in media reports claiming that tech giant Amazon.com, Inc. (NASDAQ: AMZN) is seeking a foray into the medical industry. Amazon.com, Inc. (NASDAQ: AMZN) is planning to develop and sell at-home diagnostic kits.
There are several benefits that undervalued dividend stocks can offer to investors, including hedges against inflation, income streams, capital preservation, advantageous returns in bearish or bull markets, a compounding dividend growth and the benefits it brings, as well as several others. Historically, dividend stocks have provided 43% of the S&P 500 total returns. As retail investors looking to make quick bucks increasingly stoke volatility, it has become even more important to look for safer and reliable options to ride the market chaos.
Some of this uncertainty in the stocks is related to technological disruption. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
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With this context in mind, here is our list of the 10 best undervalued dividend stocks to buy now. We have tried to list stocks with a PE ratio of around 10 that pay a healthy dividend and trade on exchanges in the United States.
Best Undervalued Dividend Stocks to Buy
10. First Horizon Corporation (NYSE: FHN)
Number of Hedge Fund Holders: 30
PE Ratio: 8.9
First Horizon Corporation (NYSE: FHN) is a Memphis-based holding company founded in 1864. It is placed tenth on our list of 10 best undervalued dividend stocks to buy now. The firm owns the First Horizon Bank that has 490 banking offices in 12 states in the United States. Some of the services the firm offers include mortgage banking, title insurance and loan-closing, brokerage, and correspondent banking, among others. First Horizon stock has returned close to 111% to investors in the past year.
First Horizon Corporation (NYSE: FHN) is a good option for dividend investors. It declared a quarterly dividend of $0.15 per share on April 27, in line with previous and payable to shareholders in July. The forward yield was 3.28%.
At the end of the fourth quarter of 2020, 30 hedge funds in the database of Insider Monkey held stakes worth $403 million in First Horizon Corporation (NYSE: FHN), the same as in the preceding quarter worth $378 million.
9. Ally Financial Inc. (NYSE: ALLY)
Number of Hedge Fund Holders: 57
PE Ratio: 9.1
Ally Financial Inc. (NYSE: ALLY) is a Michigan-based bank holding company founded in 1919. It is ranked ninth on our list of 10 best undervalued dividend stocks to buy now. Some of the services the firm provides include car finance, online banking, corporate lending, vehicle insurance, and mortgage loans, among others. Ally also operates an electronic trading platform for financial assets. Ally stock has returned a whopping 224% to investors over the course of the past twelve months.
In earnings results posted in April, Ally Financial Inc. (NYSE: ALLY) declared a revenue of $1.93 billion for the first quarter of 2021, beating market estimates by more than $180 million and up close to 20% to the revenue over the same period last year.
Out of the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Harris Associates is a leading shareholder in Ally Financial Inc. (NYSE: ALLY) with 25 million shares worth more than $1.1 billion.
8. Santander Consumer USA Holdings Inc. (NYSE: SC)
Number of Hedge Fund Holders: 21
PE Ratio: 7.0
Santander Consumer USA Holdings Inc. (NYSE: SC) is a Texas-based finance firm founded in 1955. It is placed eighth on our list of 10 best undervalued dividend stocks to buy now. The company focuses on vehicle financing and third party services primarily inside the United States. Santander stock has returned more than 136% to investors in the past year. In addition to vehicle financing, the firm provides financial products and loans for inventory, construction, real estate, working capital, and other needs.
On April 28, Santander Consumer USA Holdings Inc. (NYSE: SC) declared earnings per share of $2.42 for the first quarter of 2021, beating market predictions by $0.94. The net finance and other interest income was $1.37 billion over the period.
At the end of the fourth quarter of 2020, 21 hedge funds in the database of Insider Monkey held stakes worth $408 million in Santander Consumer USA Holdings Inc. (SC), up from 20 in the preceding quarter worth $429 million.
7. Manulife Financial Corporation (NYSE: MFC)
Number of Hedge Fund Holders: 20
PE Ratio: 9.3
Manulife Financial Corporation (NYSE: MFC) is a Canadian multinational insurance firm founded in 1887. It is placed seventh on our list of 10 best undervalued dividend stocks to buy now. The company has many segments managing daily operations, including wealth and asset management, insurance and annuity products, as well as corporate affairs. Manulife stock has offered investors returns exceeding 77% in the past year. The company operates in the US through the John Hancock Financial brand. Unlike expensive names like Amazon.com, Inc. (NASDAQ: AMZN), The Goldman Sachs Group, Inc. (NYSE: GS) and The Allstate Corporation (NYSE: ALL), MFC is an affordable stock to buy, trading at around $20.
On May 7, investment advisory RBC Capital Markets downgraded Manulife Financial Corporation (NYSE: MFC) stock to Sector Perform from Outperform after the insurance firm posted disappointing quarterly earnings results.
Out of the hedge funds being tracked by Insider Monkey, Toronto-based investment firm Galibier Capital Management is a leading shareholder in Manulife Financial Corporation (NYSE: MFC) with 3.5 million shares worth more than $76 million.
6. Aflac Incorporated (NYSE: AFL)
Number of Hedge Fund Holders: 35
PE Ratio: 7.1
Aflac Incorporated (NYSE: AFL) is a Georgia-based insurance company. It was founded in 1955 and is ranked sixth on our list of 10 best undervalued dividend stocks to buy now. Aflac stock has returned 595 to investors over the course of the past twelve months. The company has separate segments devoted to dealing with life insurance products in Japan and the United States. The Japanese segment offers policies for cancer, medical, income support, and whole or other life insurance products.
On April 28, Aflac Incorporated (NYSE: AFL) declared earnings for the first quarter of 2021, posting a revenue of $5.8 billion, up close to 14% compared to the revenue over the same period last year, and beating market estimates by $340 million.
At the end of the fourth quarter of 2020, 35 hedge funds in the database of Insider Monkey held stakes worth $389 million in Aflac Incorporated (NYSE: AFL) , up from 34 in the preceding quarter worth $479 million.
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Disclosure: None. 10 Best Undervalued Dividend Stocks to Buy Now is originally published on Insider Monkey.
