The S&P 500’s Dividend Aristocrats index members are some of the most sought-after companies for dividend growth investors. With over 25 years of sequentially increasing dividends, the companies on the list have proven that they can provide excellent shareholder value while keeping their businesses afloat through various economic and technological shakeups.
However, being stable companies, most Dividend Aristocrats have stable (read: high) stock prices relative to their overall sectors. So, finding one—or even three—potentially cheap Aristocrats can lead to higher yields and returns in the long run.
So, let’s look at my analysis of three buy-rated, undervalued Dividend Aristocrats.
How I Screened For The Following Stocks
To get my list, I used the following filters on Barchart’s Stock Screener tool:
- Annual Dividend Yield: 3% or more. I want Dividend Aristocrats that belong to the “high yield” territory.
- Number of Analysts: 16 or more. Typically, I use the midpoint here (8 or more). However, seeing that Aristocrats are some of the most well-covered companies in the market, I decided to increase the requirement to the highest possible. Hence, I only get the most covered Aristocrats.
- P/E Ratio Trailing Twelve Months: 20 or less. The price-to-earnings ratio is a time-tested way of checking if a stock is cheap or expensive relative to its earnings. To contextualize the data further, I’ll compare the company’s P/E ratio to its sector’s ratio.
- Current Analyst Rating: 4 (moderate buy) to 5 (strong buy). Since we’re discussing potential explosive gains, I must mention what analysts think of the stock.
After running the screen, I got four results:
Then, I arranged the results from the lowest P/E ratio to the highest. For diversification reasons, though, I will skip number two, Exxon Mobil, as it’s the second oil and energy company on the list.
Chevron (CVX)
Energy giant Chevron tops my list with 37 years of consecutive dividend increases. The company is one of the largest energy corporations in the world, with various segments covering energy production and exploration. Chevron provides upstream, midstream, and downstream services—the whole package.
CVX’s P/E ratio is relatively low at 12.41, which is marginally higher than the overall energy sector’s 12.32 ratio. Price-wise, though, it’s still 9.78% away from its 52-week high. Meanwhile, analysts rate it a moderate buy with a high target price of $192, translating to 27% upside potential—plenty of room for growth.
Its $6.52 annual forward dividend rate is even more attractive, resulting in an excellent 4.31% yield.
Federal Realty Investment Trust (FRT)
Federal Realty Investment Trust is a real estate investment trust (REIT) specializing in owning, operating, and developing high-quality retail and mixed-use properties in major metropolitan markets across the United States. These properties are in affluent, densely populated urban areas, attracting high foot traffic and stable demand from retailers and tenants.
FRT raised its quarterly dividend to $1.10, bringing its annual rate to $4.40. This reflects a more-than-decent 3.88% yield based on the stock's closing price on Oct 17, 2024. The stock also has a moderate buy rating and a high target price of $135, representing a 19% upside potential. Federal Realty is also a Dividend King—another reason for it to be a potential buy.
Meanwhile, its P/E ratio is 17.15, making it look quite cheap compared to the current 40.25 P/E in the real estate sector.
AbbVie (ABBV)
Originally a spin-off from Abbott Laboratories in 2013, AbbVie is now a leading pharmaceutical company focused on discovering, developing, and delivering innovative medicines in several therapeutic areas. The company strongly focuses on pushing the boundaries of medical science, as seen in its massive $7.8 billion investment in research and development in 2023 alone.
While it’s doing very well in price performance, analysts and its financials show opportunities. First, it has a 17.80 P/E ratio, which looks exceedingly cheap compared to the 34.35 P/E of the overall healthcare sector.
Second, analysts peg a high target price at $225 and a moderate buy consensus rating. Based on current trading prices, that’s an almost 20% upside.
As for dividends, ABBV stock pays $1.55 quarterly or $6.20 annually, which reflects a 3.29% yield. For those of you who are confused about why AbbVie is a Dividend Aristocrat despite only being a separate corporation in 2013, it’s because the time it was part of Abbott is considered. In any case, ABBV is a good buy all around, be it for dividends or capital gains.
Final Thoughts
It’s always a good idea to buy great dividend stocks while they’re cheap. That way, you retain the high yields you got from your original purchase, increasing as these companies maintain their Dividend Aristocrat status for the foreseeable future. That’s already a very compelling scenario. Add the potential for capital appreciation, and you got yourself a great deal, indeed.
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.
