7 undervalued dividend stocks to buy now

  • Bear markets have investors seeking income from dividend-paying stocks. All the better if these names also offer growth potential.
  • Lowe’s (LOW) – The home improvement market continues to grow, and so does the dividend from this company.
  • Walgreens Boot Alliance (WBA) – An attractive price/earnings ratio and a reliable dividend are a prescription for income-oriented investors.
  • Target (TGT) – A loyal customer base and strong fundamentals make this company’s dividend a solid pick.
  • Microsoft (MSFT) – With a dividend to accompany solid growth, this company shows that some tech stocks can still offer good value.
  • 3M Corp. (MMM) – This industry stock also offers investors exposure to disruptive technologies.
  • Chevron (CLC) – One of the best energy stocks in its class gives your portfolio growth and income.
  • Cummins (CMI) – An industrial stock that is showing slow but steady growth.

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I write this as investors digest the April CPI numbers. Needless to say, volatility will be the norm for some time to come. There is one group of stocks that has always rewarded investors in bear markets. It would be dividend stocks. And in this market, we look for undervalued dividend stocks.

Dividend stocks deserve a place in investors’ portfolios at all times. Yet when investors are looking for growth stocks, these stocks can be overlooked. There is a reason for this. These companies make a point of setting aside a portion of their profits to pay a cash dividend to investors. Typically, the return on growth stocks will exceed the dividend.

But when the market corrects, as it does now, dividend stocks offer investors the opportunity for passive income, regardless of the stock’s performance. If investors reinvest these dividends, it can help offset losses without having to risk additional capital. Here are seven undervalued dividend stocks. This means you can get a little growth to go along with a good dividend.

LOW Lowe’s Companies, Inc. $194.00
WBA Walgreens Boots Alliance, Inc. $43.55
TGT Target company $219.73
MSFT Microsoft Corporation $261.12
MMM 3M Company $149.30
CLC Chevron Company $167.87
CMI Cummins inc. $201.12

Lowe’s (BAS)

the front of a Lowe's store

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The first of my undervalued dividend stocks is Lowe’s (NYSE:LOW). If you think the best days for home improvement stocks are behind them, I have a stat for you. According to Global Market Insights, the US home improvement market is expected to grow at a compound annual growth rate (CAGR) of over 4% through 2027. This is partly because the average US home has 37 years.

That leaves a lot of meat on the bone. But to be fair, the LOW stock is down 27% in 2022. That puts it near a 52-week low.

However, the reason you’ll want to consider the stock is because of the dividend that currently pays $3.20 per share per year. The dividend yield itself is around 1.7%, which in itself is not overwhelming. But the company has paid a dividend in each of the past 46 years. This kind of reliability is music to the ears of dividend investors.

Walgreens Boots Alliance (WBA)

Walgreens (WBA) store exterior and sign in Pompano Beach, Florida

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The abandoned growth investors Walgreens Boot Alliance (NYSE:WBA) a long time ago. But investors holding a long position in WBA shares have been rewarded with a dividend that has increased over the past 46 years.

The retail pharmacy chain has made significant changes to capture market share in a highly competitive market. One of the main improvements is the installation of full-service health clinics in certain locations. The company’s transition to becoming an integrated healthcare provider couldn’t have come at a better time as the pandemic has given consumers an in-person alternative to their doctor’s office.

Some analysts worry about the company’s growth in a post-vaccination world. But much of that worry is already priced into the stock which hasn’t done much since the pandemic began. However, with a P/E ratio of around 6, WBA stock has an attractive valuation to go along with this reliable dividend.

Target (TGT)

Image of the Target (TGT) logo on a storefront.

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With a P/E ratio of 15.6, Target (NYSE:TGT) is trading just around its sector average. TGT stock is a dividend king. It has increased its dividend in each of the past 51 years. And rock-solid fundamentals mean the dividend is not in jeopardy. For example, in the last quarter alone, the company generated nearly $2 billion in free cash flow (FCF).

Target remains a cult brand with its loyal customers. This allows the company to avoid getting into the price wars that can plague this industry. And the company’s first pivot to the omnichannel model proved to be a savvy move during the pandemic.

The company is showing strong growth in its digital business, which will help it stay a priority for everyday items that consumers will still need to buy.

Microsoft (MSFT)

Image of a corporate building with the Microsoft (MSFT) logo above the entrance.

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The next company on my list of undervalued dividend stocks proves that you don’t have to stay away from the tech sector to find a reliable dividend. In reality, Microsoft (NASDAQ:MSFT) gives investors elements of growth and value stocks.

On the growth front, Microsoft has been a pandemic winner with its Teams collaboration software. And the company continues to grow its cloud business as the pandemic enters the endemic phase. Additionally, the company, which is already a game player with its Xbox, will become an even bigger player if its deal to acquire ActivisionBlizzard (NASDAQ:ATVI) is approved.

However, the company also offers great value for income-oriented investors. The dividend is $2.48 per share, which corresponds to a yield of only 0.95%. However, the company has increased its dividend in each of the past 20 years. Additionally, among tech stocks, a P/E ratio of over 27 gives MSFT stocks an appropriate valuation.

3M Corp (MMM)

More pain to come is likely for 3M stock investors despite dividend lure

Source: Shutterstock

3M Corp. (NYSE:MMM) has taken investors on a roller coaster ride since its April 26 earnings release. The company continues to expect supply chain disruptions. And these disruptions will likely weigh on earnings for the rest of the year.

That’s all the bearish sentiment analysts needed to initiate a selloff.

However, like many stocks on this list, MMM stock is correctly valued at around 15 times earnings and it has a rock-solid dividend. Not only does the stock have an impressive dividend yield of around 4%, but the annual dividend is $5.96 per share and has been growing for 65 years.

With such dividend performance, it’s worth it for investors to buy and hold 3M stock while the market finds its footing.

Analysts give MMM stock a consensus price target that gives it growth of around 16%. This seems achievable and even if the stock is somewhere in the high numbers, it would likely overtake the market.

Herringbone (CVX)

herringbone stock

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Cyclical stocks typically pay dividends to reward investors when the stock underperforms the market. Some good examples of this come from the energy sector. And that brings me to Chevron (NYSE:CLC) which is a top game among oil and gas stocks.

CVX stock is up 39% in 2022. The company recorded a double beat when it reported results on April 29. In this report, the company announced that it had increased its production by 10% and that it should produce between 700,000 and 750,000 barrels of oil by the end of the year.

And Chevron is also a game about renewable fuels. The company invests heavily in renewable natural gas, renewable diesel and sustainable aviation fuel.

As for its dividend, Chevron pays an annual dividend of $5.68, which works out to a dividend yield of 3.38%. The company has also increased its dividend for 35 consecutive years.

Cummins (CMI)

A Cummins (CMI) sign in bright red.

Source: Jonathan Weiss/Shutterstock.com

Last on my list of undervalued dividend stocks is Cummins (NYSE:CMI). The company designs and manufactures power systems for trains, heavy machinery, buses, heavy trucks and more. Like many industrial stocks, not much is happening with Cummins. However, the company reinvested its capital and earned a decent rate of return.

The stock is currently trading at an appropriate valuation and it enjoys a consensus ‘buy’ rating from analysts covering the stock. The target price gives the CMI share a 32% increase compared to its current level. And the dividend yield was briefly above 3% and stands at 2.88% at the time of this writing. The company has increased its dividend over the past 17 years.

As of the date of publication, Chris Markoch had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.

Chris Markoch is a freelance financial writer who has covered the market for over five years. He has been writing for InvestorPlace since 2019.

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