When the going gets tough, investors start buying dividend stocks. And with good reason. Dividend stocks outperform non-income-generating stocks by a wide margin. They provide a solid foundation to build a retirement portfolio.
Not only do investors get extra money put into their accounts, which helps to hedge against stock market downturns, but they’re a pretty good indicator the company paying them is financially sound.
What makes that investing strategy even better is when you can find undervalued dividend stocks. You get the income, the downside protection, and the future potential of capital appreciation. It’s a triple play of opportunity—the following three dividend stocks off all three prongs for success.
Continue reading for more information on how buying dividend stocks can help you reach your income goals.
Although best known for its namesake bleach, Clorox (NYSE:CLX) has a global portfolio of name-brand products. They include Pine-Sol and Formula 409 cleaners, Kingsford charcoal, and Brita water filters. Clorox brands often rank as the #1 or #2 market share product in their respective categories. Its main competitors are often grocery store private label brands. These core products account for over 80% of Clorox’s total revenue.
These top-of-mind brands allow Clorox to charge a premium that helps bolster its bottom line. That’s important because the runaway inflation that hurt consumers also hit Clorox. It’s been working to take pricing and build back margins eroded by the economic setbacks.
Part of that will be achieved by focusing on its core product lines and possibly selling non-core businesses. Vitamins, for example, have been a drag on performance. Clorox took a $267 million write-down in 2021. It took another $445 million writedown last quarter and has been rumored to be looking to sell off the business.
Clorox stock is down 13% from recent highs. Although shares are up 10% year to date, it trails the performance of the S&P 500, which has gained more than 17% in 2023. The bleach maker’s dividend currently yields 3.1% annually. It has paid a dividend yearly since 1970 and has increased the payout since 1978. That makes it a Dividend Aristocrat and should be considered by everyone investing for income.
This company shows why it’s worthwhile buying dividend stocks in any economic situation.
The old saying “when it rains, it pours” applies to telecom giant AT&T (NYSE:T). With analysts already concerned about its ability to generate free cash flow, a recent Wall Street Journal story about old, buried lead-lined cables created a new cloud of worries.
In short, old, underground phone lines wrapped in lead could be leaching toxic lead into the surrounding soil and water. The Journal said its tests showed contamination under and beside the wires but dropped off further away. That suggests the cables are causing the problem. It further alleges AT&T management knew of the issue for decades. Also at risk are Verizon (NYSE:VZ) and other telecoms that were spun off from Ma Bell.
AT&T disputes the allegations. In a statement, the telecom said, “The Journal’s reporting conflicts not only with what independent experts and long-standing science have stated about the safety of lead-clad telecom cables but also our testing, which we have made available to the public and shared with The Journal.”
It’s an issue that will weigh on the stock for some time. It could be costly remediation, but it creates an opportunity for long-term investors. The stock is trading at just five times earnings estimates, at a fraction of its revenue, and less than 20 times the free cash flow it produces. Its dividend is yielding 7.8% annually as a result.
These are rock-bottom valuations. The stock trades at levels not seen since the 1990s. It’s an undervalued dividend stock to consider buying now.
Stanley Black & Decker (SWK)
Even though Stanley Black & Decker (NYSE:SWK) is up 28% this year, shares remain more than 55% below the all-time high they hit in 2021. There is plenty more room for this dividend-paying stock to achieve.
Stanley is the premier tool-making company that has gathered under its umbrella some of the top brands on the market. Beyond its namesake brands, it owns Bostitch, Craftsman, DeWalt, Irwin, Mac Tools, and Porter-Cable.
Stanley Black & Decker is amid a turnaround. Its restructuring plan is actually achieving its goals, which accounts for the rebound in its stock. Having pursued a growth-by-acquisition strategy over the years, the toolmaker is now cutting costs and reducing ballooning inventory. It aims to achieve $1 billion in cost cuts by the end of this year and some $2 billion over the next several years.
The company was a beneficiary of the soaring housing market and the DIY boom of the pandemic, but the immediate future is undoubtedly cloudier. Home sales are softening, and rising interest rates don’t help. What will keep Stanley’s momentum moving forward will be able to keep hitting its turnaround targets.
The stock trades at less than 20 times next year’s earnings estimates and a fraction of its sales. Its dividend yields 3.3% annually. Few companies have paid a dividend for as long as Stanley: 146 years, and increased the payout yearly since 1967, making it a Dividend King. Those companies have raised their dividends for 50 consecutive years or more.
On the date of publication, Rich Duprey held a LONG positions in CLX and T stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.