The 7 Most Undervalued Dividend Stocks With Growth Potential

Some of the best opportunities can be found in undervalued dividend stocks with growth potential. In fact, I found seven of them which have at least 2% dividend yields with relatively low valuations, and solid growth prospects ahead of them. Some of the top ones include:

Undervalued Dividend Stocks with Growth Potential: IBM (IBM)

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IBM (NYSE:IBM) is making major strides in artificial intelligence and the cloud. In fact, according to research firm Melius Research found that many companies would engage IBM’s AI consultants. Melius also believes that Big Blue can beat the Street’s forecast of just 3% top-line growth in 2024. The firm has a $175 price target and a “buy” rating on the shares.

In addition, as I pointed out in a prior column, the company’s AI software platform was “adopted by over 150 organizations,” including Citi and Samsung. All “just ten days after being launched.”

In the cloud, the revenue of its subsidiary, Red Hat, jumped an impressive 11% last quarter versus the same period a year earlier. Finally, IBM expects to generate $10.5 billion of free cash flow in Q3. IBM stock has a low forward price-earnings ratio of 14.5 and a high dividend yield of 4.5%.

AT&T (T)

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Last month, Citi raised its rating on AT&T (NYSE:T) to a buy rating, citing, “the stabilization of competition in the wireless sector, an attractive valuation, and improving free cash flows.’”

In addition, much like its competitor, Verizon (NYSE:VZ), AT&T will benefit from the $42 billion that the Biden Administration will invest to make Internet access universal over the next few years. AT&T, like Verizon, should gain many more broadband customers from that initiative. Better, CSCO trades at 5.8x forward earnings, with a yield of 2.77%.

Undervalued Dividend Stocks with Growth Potential: Broadcom (AVGO)

broadcom (AVGO) logo outside office building

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Broadcom (NASDAQ:AVGO) is benefiting from the advent of artificial intelligence. In fact, the company just reported that its AI-related sales helped the firm increase its overall revenue by 5% last quarter versus the same period a year earlier.

In response to the company’s quarterly results, Bank of America maintained its “buy” rating on the shares. Meanwhile, BMO Capital increased its price target on the name to $1,000. In addition, Broadcom is in the final stages of acquiring VMware, a leading developer of cloud technologies for data centers. With data centers poised to rapidly grow due to the proliferation of AI, the acquisition should significantly lift AVGO stock over the longer term.

AVGO stock has a fairly low forward price-earnings ratio of 18.9 and a yield of 2.14%.

Goldman Sachs (GS)

In this photo illustration the Goldman Sachs Group (GS) logo displayed on a smartphone screen and a stock market graph in the background

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Goldman Sachs (NYSE:GS) is poised to get a big lift from the improved performance of U.S. stock markets and the revitalization of the IPO market. In fact, if chip maker ARM Holdings and delivery service Instacart perform well out of the gate, we could see even more IPOs. All of which could be a substantial benefit to firms like Goldman Sachs.

Helping, analysts at HSBC recently identified GS stock as a top pick, citing its ability to get a lift from a rebound of the entire investment banking sector. HSBC expects GS to generate revenue growth of around 10% next year, along with ” outsized EPS growth in both 2024 and 2025.” GS stock has a very low forward price-earnings ratio of just 8.6 and a high dividend yield of 3.4%.

Cisco (CSCO)

the cisco (CSCO) logo on a wall

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Cisco (NASDAQ:CSCO) just reported strong fiscal fourth-quarter results. Its top line number was up 16% year over year to $15.2 billion. Meanwhile, EPS soared about 37% year over year $1.14. “We are seeing solid customer demand, gaining market share, and innovating in key areas like AI, security, and cloud,” said CEO Chuck Robbins in a statement. Even better, for all of its current fiscal year, CSCO expects its EPS to come in between $4.01 and $4.08. That puts its forward price-earnings ratio at a low 14. The shares have a dividend yield of 2.77%.

Bank of America (BAC)

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HSBC recently identified Bank of America as one of its “top picks” among large U.S. banks, giving it a buy rating to boot. Even better, HSBC was upbeat on BAC’s valuation, noting, “We believe Bank of America’s considerable scale, capacity to invest vast sums on technology and innovation, broad product depth, and well-known brand provide considerable advantages across its business.”

In a previous column, I noted that I expect BAC to benefit from upcoming interest rate cuts and pointed out that Warren Buffett has maintained his large stake in BAC stock. BAC also trades at 8.5x forward earnings, with a yield of 3.31%.

NextEra (NEE)

Nextra Energy (NEE) website on a mobile phone screen

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Elon Musk recently predicted that electricity demand would soar in the U.S. thanks to the proliferation of electric vehicles and AI. In fact, Musk predicts that the U.S. will suffer an electricity shortage in 2025. NextEra (NYSE:NEE), which owns America’s largest electric utility, should benefit from that trend.

Further, as I pointed out in a previous column, “NEE’s net income jumped nearly 100% last quarter, reaching $2.8 billion, versus $1.38 billion during the same period a year earlier. Amazingly, the net income of the company’s renewable energy unit soared over 10 times versus the same period a year earlier to $1.46 billion.”

On the date of publication, Larry Ramer’s wife held a long position in BAC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

 

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.

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