We recently compiled a list of the 10 Best Beaten Down Dividend Stocks to Invest in Now. In this article, we are going to take a look at where UGI Corporation (NYSE:UGI) stands against the other 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.
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.
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).
A view of the skyline from an electricity pylon, to show the ubiquity of the companies energy products.
UGI Corporation (NYSE:UGI)
3-year high-to-low share price decrease as of August 30: 48.8%
UGI Corporation (NYSE:UGI) is a Pennsylvania-based natural gas and electric power distribution company that offers safe, reliable, and affordable energy to its consumers. The company owns AmeriGas, the largest propane marketer in the US. The European propane market has been volatile, leading to an oversupply and decreased demand in the heating sector. The company also runs an LPG distribution business across 16 European countries under six well-known brands. This has led to the company encountering difficulties in the market. As a result, propane prices have fallen by nearly 20%, now sitting below levels from two years ago. AmeriGas Propane, its LPG division, reported $445 million in revenue for fiscal Q3 2024, down from $514 million during the same period last year.
UGI Corporation (NYSE:UGI) also reported a nearly 17% YoY decline in its revenue in fiscal Q3 2024 at $1.38 billion. These recent headwinds have not distracted the company from achieving its long-term goals. The company is actively tackling the current challenges by leveraging all available resources. The board has chosen to focus on restructuring and improving operations at AmeriGas. This approach emphasizes retaining customers, boosting free cash flow, managing costs effectively, and maintaining disciplined capital allocation. The company has also set a plan to distribute $1.3 billion in shareholder returns from fiscal 2024 through 2027.
First Pacific Advisors also mentioned reasons to invest in UGI Corporation (NYSE:UGI) in its Q1 2024 investor letter. Here is what the firm said:
“UGI Corporation (NYSE:UGI) owns gas utilities and pipelines in Pennsylvania and West Virginia and the largest propane distribution businesses in the United States and Europe. Despite its disparate parts, UGI has increased consolidated earnings at a relatively steady high- single-digit rate while distributing excess cash through dividends. UGI’s share price has declined because of a combination of poor execution and too much debt at AmeriGas, UGI’s U.S. propane business. On August 30, 2023 UGI announced a review of strategic alternatives. We believe the company’s stock price is attractive at less than 10x earnings, and we have been incrementally adding to the Fund’s position.”
UGI Corporation (NYSE:UGI), one of the best dividend stocks on our list, has been growing its dividends consistently for the past 37 years. The company pays a quarterly dividend of $0.375 per share and has an impressive dividend yield of 6.02%, as of August 30.
UGI Corporation (NYSE:UGI) was a part of 32 hedge fund portfolios at the end of Q2 2024, up from 29 in the previous quarter, as per Insider Monkey’s database. The stakes owned by these hedge funds have a consolidated value of over $310.6 million.
Overall UGI ranks 6th on our list of the best beaten down dividend stocks to invest in now. While we acknowledge the potential for UGI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than UGI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
