I’ve known people who spend an inordinate amount of time in farmer’s markets and shopping malls looking for deals that can save them even the smallest amounts. The funny thing is, sometimes it’s not always about how much they save. Rather, it’s more about the thrill of finding bargains, of buying things well below their intended prices.
When investing, this quirk can yield dividends in more ways than one, specifically if you buy undervalued dividend stocks with consistent and increasing yields and excellent market dominance, like those on the Dividend Aristocrats list. Doing so allows investors to earn through ever-increasing payouts and participate in the stock’s capital appreciation.
So, let’s look at the most undervalued Dividend Aristocrats with the highest yields in the market.
How I Screened For The Following Stocks
I used a pre-prepared Barchart Watchlist to find the most undervalued Aristocrats. After accessing the list, I clicked on SCREEN and was directed to the Barchart Stock Screener.
Then, out of the dozens of filters available for screening customization, I selected the following criteria:
- Annual Dividend Yield: I left this intentionally blank so that it wouldn’t limit my selection, but I can still use it to sort the results.
- P/E Ratio TTM: The price-to-earning ratio is a financial metric that compares the company's earnings to its current trading price to see if it is undervalued or overvalued. So, I limited the search to stocks with low and very low P/E ratios (0-20). Then, I compared the resulting P/E ratios of each stock to their overall sector P/E, so I’m sure the selections are undervalued.
- Current Analyst Ratings: I screened for stocks with Moderate Buy to Strong Buy ratings because analyst sentiment can affect a stock’s value. That way, I don’t get “cheap” stocks that are about to get much “cheaper” when prices slide further down.
After clicking SEE RESULTS, I got 21 stocks that fit my chosen criteria. I arranged the top three stocks based on dividend yields (by clicking the Div Yield (a) column heading).
And the results are in: the top three undervalued Dividend Aristocrats, organized from highest to lowest dividend yield.
Realty Income Corp (O)
P/E TTM: 13.15
Real Estate Sector P/E TTM: 33.69
Dividend investors should be familiar with Realty Income. The REIT is one of the best-known dividend stocks in the market, joining the S&P 500 Dividend Aristocrats Index in 2020. It is also known for paying monthly dividends, which can draw some investors.
What’s impressive about Realty Income is that it increases its dividend payouts multiple times a year. So far, in 2024, the company has increased dividends three times. The latest increase was announced on June 11, 2024, raising their monthly dividends from $0.2625 to $0.2630 per share. This brings their annual forward rate to $3.156, representing a 5.94% yield.
Looking at these kinds of yields, one can’t help but think that maybe Realty Income is paying out more than it earns; we’ve seen it before. Thankfully, a quick look at its FY’23 results shows that adjusted funds from operations available to shareholders ended at $4.00 per share—more than enough to cover its dividend. Wrapping it up, it's no wonder Realty Incomes has a moderate buy rating (3.79 average score).
Federal Realty Investment Trust (FRT)
P/E TTM: 15.33
Real Estate Sector P/E TTM: 33.69
REITs can be good investments if you're looking for dividend income. However, consistently increasing dividends for decades isn’t something every REIT can do.
Federal Realty Investment Trust is the second-highest-yielding undervalued Dividend Aristocrat on our list. It is also one of only three REITs in the S&P 500 Dividend Aristocrat Index. So, that’s two out of three REITs on this list. Federal Realty primarily owns retail and mixed-use properties across the United States.
FRT stock currently pays a $1.09 quarterly dividend, bringing its forward annual yield to 4.31%. But, based on its schedules, that’s expected to increase around the September quarterly payout. It also has a moderate buy rating with an average score of 4.24.
Chevron Corp (CVX)
P/E TTM: 12.20
Energy Sector P/E TTM: 13.14
Chevron Corporation takes the spot as the highest-yielding dividend aristocrat on this list. The global energy company known for specializing in oil, gas, and related products is the third-largest energy company in the world, behind Exxon (another Dividend Aristocrat) and Saudi Arabia's Aramco (the only non-tech company in the trillion-dollar club). Fitting, then, that it’s also on my list.
Chevron pays a $1.63 quarterly dividend, equivalent to a $6.52 forward rate and 4.25% yield. It is also the only stock in this list with a strong buy rating from analysts, garnering an average score of 4.50.
Final Thoughts
Dividend growth investors love the Dividend Aristocrats. The key is determining which deserves a spot in your portfolio—and you can’t go wrong with the ones trading at bargain prices.
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.
