Dividend Kings—companies that have paid increasing dividends for 50 years or more—are great for long-term portfolios. Finding ones with buy recommendations from top financial firms gives investors a better chance of gaining capital and dividend growth. Dividend Kings are also especially great when you can get them cheap. With time, dividend increases, and solid reputations and business acumen, you know you’re in for a comfortable upward ride.
So, today, I’ll screen the top three cheapest Dividend Kings with buy recommendations.
How I Screened For These Stocks
For this analysis, I used the Barchart Watchlist, where I pre-prepared several lists according to different criteria. I went to my Dividend Kings list and clicked on the screen to get to the Stock Screener page.
Then, I used the following filters to search for the cheapest Dividend Kings with buy recommendations:
- P/E ratio TTM: The price-per-earning ratio is a common indicator of how cheap a stock is. It is calculated by dividing the stock’s current price by the company’s earnings for the last twelve months (in the case of TTM or trailing twelve months). For this analysis, I selected very low to low (0 - 20 P/E). I also compared the company’s P/E to its overall sector’s P/E to ensure it's actually cheap - in the proper context.
- Current Analyst Ratings: I set this filter to 4 and up, translating to moderate to strong buy recommendations, so I’ll get a shortlist of stocks that Wall Street warmly regards.
- Annual Dividend Yield: I also used the Dividend filter but left it intentionally blank to sort these stocks from highest to lowest.
After that, I clicked on the Annual Dividend Yield column to arrange the stocks from highest to lowest dividends. Doing so gives me the results of the top three cheapest Dividend Kings with buy recommendations from analysts.
Federal Realty Investment Trust (FRT)
Federal Realty Investment Trust tops the list. The company is one of the oldest REITs in the US, with over 60 years of operations. It owns and operates properties in high-value, high-demand cities and regions like Silicon Valley, Southern California, New York City, Boston, Chicago, and Washington, D.C. Investing in a REIT allows investors to be invested in real estate by way of a stock, rather than investing in physical bricks and mortar. There are certainly pros and cons to both, but that's for another day.
Federal Realty has a 56-year history of increasing dividend payouts, with another increase announcement expected in Q3’24. That alone makes FRT stock worth considering. Analysts also see potential in FRT, giving the stock a 4.24 rating. Furthermore, its current trading price is relatively cheap, with a P/E ratio of 15.53 compared to the S&P 500 Real Estate P/E of 33.43.
As for financials, Federal Realty reported FY’23’s funds from operations (FFO) per share reached $6.55, marginally more than $6.32 last year. The company’s average contractual lease rent increased from $33.43 to $36.75 per square foot, and properties reached 92.2% occupancy as of year’s end.
FRT stock currently pays a $4.36 forward annual dividend rate, translating to a 4.3% yield.
AbbVie (ABBV)
Many investors see biotech and pharmaceutical companies as one-trick ponies that sink or swim on the fate of their blockbuster drug. It's widely accepted that a “blockbuster drug” is a product that generates at least $1 billion in revenue.
While banking on a blockbuster drug is a surefire way to earn a lot of money, it’s not a good way to keep the company afloat over the long term.
AbbVie, an established pharmaceutical company, sidesteps this issue by developing several drugs that sell more than $1 billion yearly. The company is known for Humira, which is used for rheumatoid arthritis and other joint inflammation conditions. It was the best-selling drug in the world in 2020.
Last year, Humira’s exclusivity lapsed, and biosimilars appeared on the market, so the company is taking a hit in revenue. However, AbbVie came back with double-digit sales growth in FY’23 for its top 2 and 3 drugs, Skyrizi and Rinvoq, which may make up for the loss in sales down the line.
AbbVie has a 4.09 consensus rating from analysts, a 14.74 P/E (compared to the healthcare sector’s 33.24), and an annual dividend rate of $6.20, reflecting a 3.77% yield.
Target Corporation (TGT)
Target Corporation is not only known as one of the largest retailers in the US that offers discounted quality products. It is also a Dividend King with 52 years of consecutive increases. I find it comforting when a company proudly lists the years of dividend increases in its press releases—as not all do. This tells me that management is committed to shareholder value, which I find reassuring as a dividend growth investor.
While the company's sales slightly declined in 2023, it made up for it with an almost 50% increase in GAAP and adjusted EPS. It also doubled cash from operations, from $4.0 billion in 2022 to $8.6 billion.
Analysts rate TGT stock at 4.20, ranking it as a buy. Its P/E ratio is 17.80, lower than its sector’s 24.91 ratio, making it a good bargain.
Additionally, Target pays a forward annual dividend of $4.40, translating to a 2.74% yield.
Final Thoughts
As the old adage goes, buy low and sell high. Buying Dividend Kings when they're cheap can add reliable income to your portfolio. But, just because it's cheap doesn't mean it's right for you. Always do your due diligence and before making any investment choices.
On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
