We recently published a list of the 10 Overlooked Dividend Stocks to Buy Now. In this article, we are going to take a look at where Cognex Corporation (NASDAQ:CGNX) stands against other overlooked dividend stocks.
In recent times, dividend investing—also known as equity income—has fallen out of favor. Once a widely followed and dependable strategy, it has gradually been overshadowed. The strong capital gains delivered by growth stocks appear to have shifted investors’ attention away from the more stable and consistent returns that come with dividend-paying stocks.
However, the recent market downturn, combined with the economic impact of Trump’s trade policies, has brought renewed attention and appeal to these types of stocks. The S&P Dividend Aristocrats Index, which tracks the performance of companies with at least 25 consecutive years of dividend growth, has fallen by a little over 2% since the start of 2025, compared with a 6% fall in the broader market.
Dividend stocks have seen mixed results over different economic cycles—performing well in some downturns and falling behind in others. They generally outpaced the broader market during the recessions starting in July 1981, March 2001, and December 2007. However, their performance lagged during the shorter recessions in 1980 and 2020. This was mainly due to dividend cuts from major firms, along with limited exposure to fast-growing tech names. For context, the steepest drop in dividends came during the 2008–09 financial crisis, when S&P dividend payouts declined by 24%, though investors still received 76% of their income.
That said, while the possibility of dividend reductions is a valid concern and a potential drawback of this strategy, it shouldn’t be a reason to overlook dividend stocks altogether. When incorporated thoughtfully, they can still play a valuable role in a well-rounded investment portfolio.
M&G Investments noted that dividends serve as more than just income—they also signal a company’s financial health and management’s confidence. While short-term market returns often hinge on stock valuations, dividends play a much more substantial role in driving equity returns over longer periods, such as 10 or 20 years. The report also mentioned, citing Bloomberg’s data, that dividends play a vital role in long-term returns. Over the last 25 years, nearly half of the total gains from US stocks have come from reinvested dividends and the power of compounding. During this period, the broader market delivered an average annual return of 7.4%, with 55% attributed to rising stock prices and the remaining 45% coming from reinvested dividend income.
The fact that dividends are not guaranteed highlights a deeper financial story behind corporate decisions. Companies must carefully weigh the trade-off between returning profits to shareholders and keeping enough earnings on hand to support future expansion. Getting this balance right is a strategic task.
A particularly high dividend payout ratio—typically above 75%, though this varies by sector—can raise red flags about sustainability. When too much profit is paid out, there’s little room left to increase dividends down the line. This could eventually lead a company to scale back or even stop its dividend payments altogether, which may hold back both business growth and long-term gains in share value. Given this, we will take a look at some overlooked stocks that pay dividends.
A worker utilizing a vision sensor to verify discrete items.
Our Methodology
For this list, we thoroughly reviewed reputable sources such as Forbes, Morningstar, Barron’s, and Business Insider and searched for stocks that remain under the radar but have strong balance sheets and sound financials. In addition, these lesser-known dividend companies also boast dividend growth track records, which make them a reliable option for income investors. After compiling our data, we picked 10 companies with the highest number of hedge fund investors, as per Insider Monkey’s Q4 2024 database.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Cognex Corporation (NASDAQ:CGNX)
Number of Hedge Fund Holders: 37
Cognex Corporation (NASDAQ:CGNX) focuses on machine vision technology, serving key sectors such as automotive, logistics, and consumer electronics. Its recent product introductions, including VisionPro Deep Learning 4.0 and the AI-driven DataMan series, showcase its dedication to innovation. The company has also strengthened its market position through strategic acquisitions like Moritex, helping to drive growth in both established and emerging markets.
In the fourth quarter of 2024, Cognex Corporation (NASDAQ:CGNX) generated $229.7 million in revenues, which grew by 17% from the same period last year. The revenue exceeded analysts’ estimates by $9 million. The company’s operating income of $31 million showed a significant growth of 142% on a YoY basis.
Cognex Corporation (NASDAQ:CGNX) remained in a solid financial position, holding $587 million in cash and investments with no outstanding debt at the end of December 2024. During the fourth quarter of 2024, the company generated $51 million in cash from operating activities and recorded $49 million in free cash flow, representing year-over-year increases of $37 million and $42 million, respectively. Cognex allocated $43 million toward share repurchases and distributed $14 million in dividends to its shareholders. The company also indicated plans to continue buying back its common stock under the current repurchase program. It currently offers a quarterly dividend of $0.08 per share and has a dividend yield of 1.22%, as of April 25.
Overall, CGNX ranks 2nd on our list of the best overlooked dividend stocks to invest in. While we acknowledge the potential of CGNX as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued dividend stock that is more promising than CGNX but that trades at 10 times its earnings and grows its earnings at double digit rates annually, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.
