Generating passive income is easier said than done. A lot of investors look for dividend stocks to enjoy steady and consistent income. However, you need to be careful when investing in dividend stocks. While the dividend yield provides an idea about the payout, it is important to look for companies that show steady dividend growth and have a stable balance sheet. When you look for stable companies, the dividends are more stable and you can also enjoy capital appreciation over time. Here are seven of the most undervalued dividend stocks to buy this month.
Dividend Stocks to Buy: Johnson & Johnson (JNJ)
One of the largest healthcare companies in the world, Johnson & Johnson (NYSE:JNJ) is a reliable name in the industry. Despite having to deal with several lawsuits, the company has been making progress and rewarding shareholders. At the moment, the JNJ stock has a dividend yield of 2.74% and its quarterly dividend is $1.19. It’s also one of the safest dividend stocks to own and has steadily increased the dividend over the years.
It has a record of 62 years of consistent dividend increases and its healthcare business is highly resilient. No matter how the economy behaves, people will always be willing to spend their money on their healthcare and well-being. After the spinoff of the consumer health segment, the company will see better revenue numbers.
Johnson & Johnson has a few stalwarts in its portfolio and they will continue to generate income in the long term. With a dividend payout ratio of 92%, JNJ stock is the one to buy and hold for the long term.
Another company that can weather the market storm is PepsiCo (NASDAQ:PEP). The company has used its pricing power and has shown how it can generate revenue even after rising product prices. In the recent quarter, it saw a 10.3% increase in revenue and about a 93.2% increase in earnings per share (EPS). PEP stock has a dividend yield of 2.84%, it currently pays $1.26 a share and has increased the dividend for 52 consecutive years.
Its strength lies in the company’s diversified product portfolio and its brands. The company also has a global presence and a balanced mix of snacks and beverages that generate strong income each year. If you are building a retirement portfolio, this is one stock you must own.
Trading at $178, the stock has massive upside potential and has grown over 60% in the past five years. It is one of the undervalued stocks with high dividends to add to your portfolio.
PepsiCo’s biggest rival Coca-Cola (NYSE:KO) is another undervalued dividend stock worth adding to your portfolio. The company is steadily growing and has generated a significant amount of cash which allows it to reward investors. It has a very strong balance sheet and the earnings per share is steadily increasing. KO stock looks highly undervalued at the current level of $60.
It has a higher dividend yield than PepsiCo at 3.04% and its dividend stands at $1.84 a share. KO is one of the undervalued dividend stocks to buy. With a stable and thriving business, Coca-Cola is highly resilient in the industry and will continue to grow in the coming years. Its brand name and global presence help generate steady cash flow and continue paying dividends. The company has a dividend payout ratio of 74% and it has enough liquidity to increase the payout in the coming years.
I have always loved the stability of Microsoft (NASDAQ:MSFT). With a dividend yield of 0.86%, the stock falls behind some of the Dividend Kings but it is one stock to buy and hold. One reason to add it to your portfolio is the company’s potential to increase dividends in the coming years. It has a dividend payout ratio of 27% which means that there is a high chance of increasing the payouts over the next few years.
Microsoft is a tech dinosaur that is steadily growing and it has a range of products and services that continue to generate income. With higher cash flow and liquidity, it will have a chance to increase the dividends. Besides that, the potential for capital appreciation is very high with Microsoft. It is a stock that offers high rewards at low risk and is an ideal addition to your portfolio. The recent dip in the stock is a good chance to buy.
Dover Corp. (DOV)
If you are looking for a true Dividend King, consider Dover Corp.(NYSE:DOV). The company has a record of increasing its dividends for the past 68 years and it enjoys a dividend yield of 1.46%. It is one company that is committed to rewarding shareholders and has been doing so for as long as one can remember. Although its earnings weren’t great in the recent quarter, it has continued with the dividend payout.
The company’s dividend payout ratio is 27% right now. As a manufacturer of infrastructural products, the company exists across several industries and the demand for its products might see a temporary drop but it will never run out of consumers. The company has cemented its position in the industry and is here to stay. It is a very stable player currently trading at $139 and has recently announced a quarterly dividend of $0.51.
Procter & Gamble (PG)
One of the best dividend stocks to buy this month, Procter & Gamble (NYSE:PG) has a history of 68 years of consecutive dividend increases. It has been paying dividends for over 133 years and I strongly believe it will continue to do so. In the recent quarter, the company reported a revenue of $20.6 billion, a 5.5% rise and it expects even stronger organic results in the coming quarter.
Like the other companies mentioned here, Procter & Gamble is part of an industry where the demand may see a slowdown but it will never die. This gives stability to the stock. It has a dividend yield of 2.47% and has recently paid a quarterly dividend of $0.9407 per share. Consumer goods will always remain in demand and this says a lot about the future of the company. The stock is currently exchanging hands at $152 and is very close to the 52-week high but it could hit a new high really soon.
A personal favorite, there are many reasons to like Caterpillar (NYSE:CAT), a manufacturer of construction and mining equipment. Whenever the economy improves, we see momentum in the construction industry, which is beneficial for Caterpillar. Most recently, the company reported second-quarter results and saw the sales hit $17.3 billion, up 22% from the same quarter the previous year.
Rising demand for equipment and an improvement in the economic conditions has led to an improvement in the company’s financials. It boasts a dividend yield of 1.89% and has announced a quarterly dividend of $1.30. While the stock is trading at $275, it isn’t cheap but the upside potential from here is significant. It expects an even better quarter and solid long-term growth.
On the date of publication, Vandita Jadeja did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.