3 Beaten Dividend Producers for Income Investors
The 2022 bear market has presented opportunities to buy strong companies at a discount. Recession fears and rising interest rates hurt equities. Although this is painful for existing shareholders, investors can take this opportunity to add holdings or create new positions.
Some investors are taking the opportunity to buy growth stocks, but many people are already overweight these stocks. Additionally, those looking for income must look elsewhere; actions like Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGNASDAQ:GOOGL), parent company of Google, does not yet pay dividends.
Therefore, I looked for stocks in bearish territory with a yield above 3.5%, a payout ratio below 65% and that have increased the dividend for more than 10 years. I narrowed the list down further by requiring a price to earnings (P/E) ratio of less than 18X.
Below we will discuss these three beat dividend producers:
|TRUE||T. Rowe Prize Group||$120.78|
|WBA||Walgreens Boot Alliance||$39.44|
Dividend Producers Slaughtered: Whirlpool (WHR)
Tourbillon (NYSE:WHR) was founded in 1911. It is one of the largest designers and manufacturers of home appliances in the world. Whirlpool sells washing machines, dryers, refrigerators, ice makers, ovens, cooktops, microwaves, ranges, garbage disposals, and more. The main brands of these appliances are Whirlpool, Maytag, Cooking aidand Speed Queen, among others.
Whirlpool has grown organically and through acquisitions, acting as a consolidator in the industry. Today, some of its main competitors are AB Electrolux from Sweden, Haier from China, LG from South Korea and Bosch-Siemens from Germany.
The company had revenue of $21.98 billion in 2021. In the past 12 months, gross margins were in the 1980s and operating margins were around 10%. Whirlpool is sensitive to the economic cycle, particularly the housing market. Many of its products are purchased for new homes, when selling an older home, or for renovations. As a result, Whirlpool’s stock price is sensitive to higher interest rates and lower home sales.
Whirlpool has one of the highest dividend yields among Dividend Contenders at 4.14%, more than triple the average for S&P500 Index. The company has increased the dividend for 12 consecutive years. The growth rate was 6.9% over the past five years and 10.9% over the past ten years. The forward payout rate is low at around 24%, indicating it is safe and indicative of future increases.
Whirlpool’s share price is down about 22% year-to-date (YTD), lowering the P/E ratio to about 6.9X, which is below the five-year range and 10 years. As a result, investors get a market leader with a yield above 4% and a low valuation.
T price. Rowe (TROW)
T price. Rowe (NASDAQ:TRUE) is a major player in retirement plans in the United States. The company is known for its active mutual funds, primarily its equity and target date funds. The company is one of the few people can invest in for asset managers. Many others are not publicly traded or were acquired in a consolidating industry. In addition, T. Rowe Price provides mutual funds to retail and institutional investors and sub-advisory services to other managers.
Total revenue was $7.67 billion in 2021 and $7.7 billion for the last 12 months ending March 31, 2022. T. Rowe Price’s revenue and profit depends on its fees , as the company earns a percentage of assets under management, or AUM. At the end of June 2022, the asset manager had approximately $1.31 trillion in assets under management, down from the peak at the start of the year due to market action and net outflows.
T. Rowe Price is a dividend champion and popular aristocrat due to his 36 annual dividend increases. The company maintained a double-digit dividend increase rate with a 10-year growth rate of approximately 13.3% and a five-year growth rate of approximately 14.9%. Moreover, the dividend is secure with a payout ratio of around 34%. It’s important to note that T. Rowe Price did not cut or suspend its dividend during the dot-com crash or the subprime mortgage crisis, as it generally maintains a net cash position on the balance sheet.
The stock price is down about 38% year-to-date on fears of a bear market. Consequently, the valuation fell to around 13X after factoring in lower earnings estimates. This value is below the range of the last five years and the last 10 years. Therefore, investors get an undervalued stock with a dividend yield of 3.99%.
Dividend Producers Slaughtered: Walgreens Boots Alliance (WBA)
Walgreens Boot Alliance (NASDAQ:WBA) is a pharmaceutical distributor founded in 1901. The company operates in nine countries globally through the Walgreens, Duane Reade, Boots, Benavides and Ahumada brands. Walgreens has more than 9,000 stores in the United States and 4,031 stores internationally. Walgreens sells prescription and over-the-counter drugs, as well as beauty, health, personal care, and food products.
Total revenue was $134.5 billion in the last twelve months from US Pharmacy, US Prescriptions, US Retail, International and Walgreens Health businesses. The retailer is growing organically by selling more items in its stores. Walgreens is also growing by adding stores to its network. However, both growth pathways are relatively mature. VillageMD, Shields Health Solutions and Walgreens Health Corners are its recent growth initiatives.
Walgreens is a long-standing dividend growth stock. It paid a growing dividend for 47 years, making the company an aristocrat and a dividend champion. Lack of growth and execution difficulties after the Boots merger pushed the dividend yield up to 4.87%. However, the payout ratio is still relatively conservative at 36%. The dividend growth rate has been 5.2% over the past five years and 9% over the past decade, but it is slowing.
That said, Walgreens is trading at a P/E of around 7.76X, below the five-year and ten-year averages. As a result, investors get a high-yielding stock at an advantageous valuation.
As of the date of publication, Prakash Kolli held a long position in TROW. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines. The author is not a licensed or registered investment adviser or broker/dealer. It does not provide you with individual investment advice. Please consult a licensed investment professional before investing your money.
Prakash Kolli is the founder of the Dividend power to place. He is a self-taught investor and blogger on dividend growth stocks and financial independence. Some of his writing can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and major financial blogs. He also works as a part-time freelance equity analyst with a leading dividend-paying equity newsletter. He was recently in the top 1.0% and 100 (81 out of over 9,459) financial bloggers tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.