When income investors search for new opportunities, Dividend Aristocrats are often on their radars. These companies have a demonstrated ability to weather economic storms and reward shareholders with consistent dividend growth for at least 25 years.
Investing in these companies when their stock prices are low, positions investors like you and me to have both steady income and potential capital appreciation as these companies regain their momentum.
But how do you find bargain-bin Dividend Aristocrats? Many investors use fundamental metrics like the price-to-earnings ratio to guage whether their picks are cheap.
Today, I’ve compiled a list of three near-oversold Dividend Aristocrats based on one of the most popular technical analysis tools: the Relative Strength Indicator (RSI).
The RSI measures the strength of a security’s price change and momentum on a scale of 0-100. If the value is more than 70, the stock is considered overbought, and any value lower than 30 indicates that particular stock is oversold.
How I Screened For The Following Stocks
As always, I start with Barchart’s excellent Watchlist function, which allows me to create unlimited watchlists with a Premier account. I use my pre-prepared Dividend Aristocrat list, then click on Screen to get to the Stock Screener page.
Once there, I selected two filters. The first is Current Analyst Ratings, which allows me to sort Aristocrats by their consensus scores. For this analysis, I looked for companies rated 4 and above to get those with buy to strong buy ratings.
Next, I used the 14-day Relative Strength Index filter. This filter allows me to comb through the entire Dividend Aristocrats list using the Relative Strength Index or RSI technical analysis indicator.
For context, RSI is a momentum indicator that uses recent price changes (in our case, within the last 14 trading days) to determine whether a particular stock has moved into oversold or overbought territory.
The indicator is plotted on a 100-point scale, and any stock scoring 70 and above is considered overbought, while those scoring 30 and below are considered oversold. Overbought companies tend to be more expensive, while oversold ones trade cheaper than they should.
I set the 14-day RSI filter in this analysis to look for stocks below 40. Some of you might ask why I used that instead of 30, the oversold level. That’s because I’m looking for nearly oversold companies working their way back to an uptrend. Combining RSI with high analyst ratings is a great way to get discounted Dividend Aristocrats with a good chance of offering capital return.
After setting my filters and conditions, I clicked on see results, and we have our candidates:
I then arranged the three stocks from lowest to highest, in terms of analyst ratings. So, now, let’s discuss why these three near-oversold Dividend Aristocrats might deserve a spot in your portfolio.
Nucor Corp (NUE)
Forging ahead in the steel industry, Nucor Corporation (NYSE:NUE) is a manufacturer that operates across the US. The company's business is divided into four segments: steel mills, steel products, raw materials, and Nucor Data Systems. Nucor's steel products segment delivers joists, decking, tubing, and fasteners. The Nucor's raw materials segment produces directly reduced iron and brokering metals. Rounding out its operations, Nucor Data Systems provides solutions for the data center infrastructure industry.
From a financial perspective, Nucor Corp’s Q1'24 results revealed a YOY contraction across various metrics largely due to decreased average selling prices. The company's revenue slightly declined from $8.71 billion in the prior year to $8.14 billion. In line with this trend, net income significantly drops from $1.14 billion to $844.8 million during the same period, reducing diluted EPS from $4.45 to $3.46.Despite the financial headwinds, Nucor has upheld its commitment to shareholders. The company currently pays an annual dividend of $2.16 per share, reflecting a yield of 1.26%. It’s also worth noting that Nucor has a track record of 51 consecutive years of dividend increases, which proves financial resilience against multiple economic uncertainties.
As of the most recent Barchart data, the company's 14-day RSI is 38.12%. Despite the recent pullback in financial metrics, the consensus on NUE stock is still a moderate buy rating of 4.0.
Abbott Laboratories (ABT)
Next on our list is Abbott Laboratories (NYSE:ABT), a healthcare titan that has initiated multiple global advancements in the medical field. The company’s portfolio spans four segments: Established Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Medical Devices. Abbott is at the frontline of healthcare innovation, whether branded generic pharmaceuticals or life-enhancing medical devices. Abbott Labs' Q1'24 financials are a mixed bag compared to recent quarters. Although the company managed to increase its total revenue by 2.2% to almost $10 billion YOY, this was countered by an 8.1% decrease in operating income to nearly $1.4 billion in the same period, primarily due to higher total expenses. Consequently, net income slightly declined from $1.32 billion to $1.22 billion. Although quarterly EPS dipped to $0.70, Abbott Laboratories provided an optimistic full-year EPS guidance range of $4.55 to $4.70, representing an increase at the midpoint of the range.Despite its mixed financials, Abbott Laboratories has been dedicated to returning shareholder value, partly thanks to increasing its dividends for 51 straight years. Today, the company offers an annual dividend of $2.20, translating to a 2.13% yield. ABT stock’s 14-day RSI level is currently at 31.11%, barely above oversold levels. With a 4.47 “strong buy” average rating, Abbott Laboratories remains an attractive option for investors seeking stable income plus potential capital appreciation.
West Pharmaceutical Services (WST)
Wrapping up our analysis of near-oversold Dividend Aristocrats is West Pharmaceutical Services (NYSE:WST), a prominent player in manufacturing high-tech containment systems for injectable drugs and other healthcare products. The company has two main business segments: Proprietary Products and Contract-Manufactured Products.
- Proprietary Products Segment: Offers packaging, containment solutions, drug delivery products, and various services
- Contract-Manufactured Products Segment: Focuses on creating complex devices for pharmaceutical, diagnostic, and medical device customers.
Q1'24 financials were weak, as figures slightly retreated compared to its Q1'23 levels. The company’s net sales fell 3%, while diluted EPS declined by 16.2%.West Pharmaceutical’s $0.80 annual dividend reflects a yield of 0.23%—quite low compared to most Aristocrats. However, the company also has an impressive 31-year streak of increased dividends.
Meanwhile, their 14-day RSI level stands at 30.76%, and Wall Street analysts maintain a strong buy consensus with an average score of 4.50, which indicates confidence in WST stock’s long-term prospects.
Closing Thoughts
Dividend Aristocrats have proven resilient through consistent dividend growth and strong market positions.
However, it's important to remember that the metrics I used in this analysis, like the 14-day RSI and analyst ratings, should not be the only basis for one’s investment decisions. Although I know that these indicators can provide valuable insights for investors, it's still important for all of us to conduct thorough due diligence and also consider other factors, like the company's overall financial health, market position, growth prospects, and more, before shelling out our hard-earned money.
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.
