In this article, we discuss 11 best undervalued dividend stocks to buy now. You can skip our detailed analysis of value and dividend stocks and their performance in the past, and go directly to read 5 Best Undervalued Dividend Stocks to Buy Now.
Undervalued stocks trade at a price lower than their intrinsic or true value. These stocks can potentially be a good investment option for investors who are looking to purchase stocks at a discount and hold them for the long term. If an investor can identify a stock that is undervalued due to temporary factors, such as a downturn in the industry or a negative news event, they may be able to purchase the stock at a lower price and benefit from the potential upside when the temporary factors subside.
Growth stocks have outperformed value equities in the past as they offer the potential for higher returns and capital appreciation. However, the consistent changes in monetary policies and growing inflation have turned investors’ attention toward value stocks. According to a report by UBS, value stocks surpassed growth equities by 18 percentage points in the first 10 months of 2022. The report mentioned that inflation above 3% has generally fared well for value stocks historically. In addition to this, tight monetary policies also favor value stocks relative to their growth counterparts. The UBS report revealed that value has historically outperformed growth by an average of 4 percentage points, in the 12 months following the bank’s last rate hike in a cycle.
Readers can also have a look at 11 Undervalued Dividend Aristocrats to Buy to know more about value investing.
Investors consider value stocks because of their solid long-term returns. This has been proven over the years as value has delivered strong returns to shareholders when compared with growth stocks. Since 1926, value investing returned 1,344,600%, compared with a 626,000% return for growth stocks, as reported by Bank of America. However, growth stocks reasserted their dominance in the recent past when interest rates were low. Investors are often advised to maintain a diversified portfolio, with both value and growth stocks, as it can help them manage risk and achieve their investment goals over the long term.
In addition to value stocks, dividend stocks are also becoming popular among investors this year. The Coca-Cola Company (NYSE:KO), Johnson & Johnson (NYSE:JNJ), and The Procter & Gamble Company (NYSE:PG) are some of the best dividend stocks as they have decades-long dividend growth streaks.
Image by Sergei Tokmakov Terms.Law from Pixabay
Our Methodology:
For this list, we scanned Insider Monkey’s database of 943 hedge funds as of the fourth quarter of 2022 and selected at least 25 stocks that have raised their dividends for at least 10 years and have P/E ratios below 20, as of April 17. From the resultant list, we picked 11 stocks with the highest number of hedge fund investors. The stocks are ranked in ascending order of hedge funds having stakes in them.
11 Best Undervalued Dividend Stocks to Buy Now
11. Polaris Inc. (NYSE:PII)
Number of Hedge Fund Holders: 20
P/E Ratio (TTM) as of April 17: 10.7
Polaris Inc. (NYSE:PII) is a Minnesota-based automotive industry company that offers some of the best brands in the industry. The company currently pays a quarterly dividend of $0.65 per share, having raised it by 1.6% in February this year. This was the company’s 28th consecutive year of dividend growth. The stock has a dividend yield of 2.40%, as of April 17.
Polaris Inc. (NYSE:PII) can be added to dividend portfolios due to its long dividend growth streak alongside some of the best dividend stocks, such as The Coca-Cola Company (NYSE:KO), Johnson & Johnson (NYSE:JNJ), and The Procter & Gamble Company (NYSE:PG).
Polaris Inc. (NYSE:PII) exhibited a strong cash position in FY22. The company’s operating cash flow for the year came in at $585 million, up from 287 million in 2021. Its free cash flow also grew from $22 million in 2021 to $199 million last year.
In March, RBC Capital raised its price target on Polaris Inc. (NYSE:PII) to $155 with a Sector Perform rating on the shares. The firm mentioned that the company offers a leading market share position across its core markets.
The number of hedge funds tracked by Insider Monkey owning stakes in Polaris Inc. (NYSE:PII) grew to 20 in Q4 2022, from 15 a quarter earlier. These stakes have a collective value of nearly $211.4 million.
Diamond Hill Capital made the following comment about Polaris Inc. (NYSE:PII) in its Q3 2022 investor letter:
“Other top contributors included Polaris Inc. (NYSE:PII), BOK Financial and Webster Financial. Polaris, a market leader in off-road vehicles, benefited from a restocking opportunity — inventory at dealers remains depleted, which can serve to offset near-term macroeconomic headwinds. The company also is perceived to be somewhat recession-resilient given its strong financial performance during and after the 2008 financial crisis. We took the opportunity to conclude our investment as we have increased concerns over rising competition, supply chain issues related to sourcing semiconductors and the business’s higher-than-perceived cyclicality.”
10. Franklin Resources, Inc. (NYSE:BEN)
Number of Hedge Fund Holders: 23
P/E Ratio (TTM) as of April 17: 13.7
Franklin Resources, Inc. (NYSE:BEN) is an American multinational holding company that offers services in investment management. In March, the company reported an increase in its assets under management (AUM) at $1.422 trillion, compared with $1.41 trillion at the end of February. The increase was mainly due to the impact of positive markets.
On February 7, Franklin Resources, Inc. (NYSE:BEN) declared a quarterly dividend of $0.30 per share, which was in line with its previous dividend. The company is one of the best dividend stocks on our list as it has raised its dividends for 42 years. The stock has a dividend yield of 4.47%, as of April 17.
In the fourth quarter of 2022, Franklin Resources, Inc. (NYSE:BEN) generated nearly $2 billion in revenues, up 1.5% from the same period last year. At the end of December 2022, the company had over $5.6 billion available in cash and cash equivalents and investments.
As of the close of Q4 2022, 23 hedge funds in Insider Monkey’s database owned stakes in Franklin Resources, Inc. (NYSE:BEN), compared with 25 in the previous quarter. The collective value of these stakes is over $158.6 million. With 1 million shares, Fairfax Financial Holdings was the company’s leading stakeholder in Q4.
9. Enterprise Products Partners L.P. (NYSE:EPD)
Number of Hedge Fund Holders: 24
P/E Ratio (TTM) as of April 17: 10.77
Enterprise Products Partners L.P. (NYSE:EPD) is a Texas-based energy company that specializes in refined products and petrochemicals. In March, Scotiabank initiated its coverage on the stock with an Outperform rating and a $31 price target. The firm presented a positive outlook on the sector.
In Q4 2022, Enterprise Products Partners L.P. (NYSE:EPD) reported revenue of $13.6 billion, which saw a 20.1% growth from the same period last year. The company’s distributable cash for FY22 stood at $7.8 billion, compared with $6.6 billion in 2021.
On April 6, Enterprise Products Partners L.P. (NYSE:EPD) declared a quarterly dividend of $0.49 per share, which was in line with its previous dividend. The company has been growing its dividends for the past 23 years, which makes it one of the best dividend stocks on our list. The stock’s dividend yield on April 17 came in at 7.28%.
At the end of December 2022, 24 hedge funds in Insider Monkey’s database owned stakes in Enterprise Products Partners L.P. (NYSE:EPD), up from 21 in the previous quarter. These stakes have a collective value of $242.4 million.
Legacy Ridge Capital Management, LLC mentioned Enterprise Products Partners L.P. (NYSE:EPD) in its Q4 2022 investor letter. Here is what the firm has to say:
“Enterprise Products Partners L.P. (NYSE:EPD) is still owned in the fund and remains one of our largest positions, as it has been since the partnership was founded. This has not been a great investment. Shares are down about 6% since I first wrote about it. However, we have received $8.93 per share in dividends, which is about 34% of the 2018 share price. So, with dividends included we’ve made 28% cumulatively over 5-years. Still not good, but not an impairment of capital either.
Since 2018, EPD’s dividend yield has gone from 6.5% to 8% with the annual per share payout growing from $1.72 to $1.96, +14%. The pace of dividend growth has recently increased from about 2% to 5%+. Additionally, Distributable Cash Flow per share (what could be paid to us if management wanted to) has increased 22%, from $2.73 to $3.33, while leverage has come down a little over ½ a turn. So, the balance sheet and cash flow metrics are in better shape than they were 5-years ago, and they were pretty good 5-years ago.
The competitive dominance of the asset base, industry leading low leverage, and a founding family with multiple billions of dollars invested alongside us keep it a core holding in the portfolio. We’ll continue to own this company unless the shares become meaningfully overvalued, and if it gets cheaper, we would be very comfortable owning more.”
8. T. Rowe Price Group, Inc. (NASDAQ:TROW)
Number of Hedge Fund Holders: 29
P/E Ratio (TTM) as of April 17: 16.9
T. Rowe Price Group, Inc. (NASDAQ:TROW) is a Maryland-based investment management company that offers related services to individuals and institutions. The company reported a 2.3% growth in its assets under management (AUM) in March to $1.34 trillion. Its US mutual funds AUM came in at $656 billion as of March 31, compared with $644 billion at the end of February.
Wells Fargo raised its price target on T. Rowe Price Group, Inc. (NASDAQ:TROW) in April to $115 with an Equal Weight rating on the shares, appreciating the company’s performance improvement this year.
T. Rowe Price Group, Inc. (NASDAQ:TROW), one of the best dividend stocks, currently pays a quarterly dividend of $1.22 per share. In February 2023, the company raised its dividend for the 37th consecutive year. The stock has a dividend yield of 4.29%, as of April 17.
At the end of Q4 2022, 29 hedge funds tracked by Insider Monkey reported owning stakes in T. Rowe Price Group, Inc. (NASDAQ:TROW), compared with 30 in the previous quarter. The collective value of these stakes is over $422.3 million. Among these hedge funds, Citadel Investment Group was the company’s leading stakeholder in Q4.
7. Best Buy Co., Inc. (NYSE:BBY)
Number of Hedge Fund Holders: 33
P/E Ratio (TTM) as of April 17: 11.66
Best Buy Co., Inc. (NYSE:BBY) is an American consumer electronics company, headquartered in Minnesota. On March 2, the company declared a 5% hike in its quarterly dividend to $0.92 per share. This was the company’s tenth consecutive year of dividend growth, which makes it one of the best dividend stocks on our list. As of April 17, the stock has a dividend yield of 5.02%.
In March, Truist raised its price target on Best Buy Co., Inc. (NYSE:BBY) to $88, from $80, following the company’s performance in its quarterly earnings. The firm also mentioned that the stock’s risk/reward profile remains balanced at current levels.
The number of hedge funds tracked by Insider Monkey owning stakes in Best Buy Co., Inc. (NYSE:BBY) stood at 33 in Q4 2022, growing from 31 in the previous quarter. The collective value of these stakes is over $611.8 million.
6. Nucor Corporation (NYSE:NUE)
Number of Hedge Fund Holders: 39
P/E Ratio (TTM) as of April 17: 5.13
Nucor Corporation (NYSE:NUE) specializes in the production of steel and other related products. The company currently pays a quarterly dividend of $0.51 per share and has a dividend yield of 1.38%, as of April 17. It is one of the best dividend stocks on our list as it maintains a 50-year streak of consistent dividend growth.
In addition to Nucor Corporation (NYSE:NUE), The Coca-Cola Company (NYSE:KO), Johnson & Johnson (NYSE:JNJ), and The Procter & Gamble Company (NYSE:PG) are some other best dividend stocks that hold decades-long dividend growth streak.
At the end of Q4 2022, 39 hedge funds tracked by Insider Monkey owned stakes in Nucor Corporation (NYSE:NUE), with a collective value of over $551.3 million. Ken Griffin and Cliff Asness were some of the company’s leading stakeholders in Q4.
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Disclosure. None. 11 Best Undervalued Dividend Stocks to Buy Now is originally published in Insider Monkey.
