3 Undervalued Dividend Stocks!
+ Market Update!
Market Latest
Last week we saw a fairly volatile S&P 500, with the week ending flat.
We note that historically the S&P 500 underperforms leading up to a US Presidential election, in fact over the last 6 Presidential election cycles it has averaged a negative 4.3% return during the 2 month lead up to Election day.
Those that perform best?
Defensive sectors such as consumer staples, utilities and health care averaging 2.3% - 3.9%.
Those that perform the worst?
Real estate and technology, averaging between 3% - 3.5% declines.
As per the heat map below it was a very mixed week in terms of winners and losers, however what will stand out the most will be Nvidia down 8%, and this comes in the week that they announced earnings.
Even though we saw a double beat and a $50 billion share buyback program announced, the stock is down.
For an in depth dive you can see our recent review of Nvidia and this quarters earnings below:
Earnings This Week
As always, we will cover this on our YouTube channel, and for those that aren’t subscribed, we would love to have you in our community which is officially over 50,000.
Fear and Greed Index
Market sentiment can change in an instant and it was just a month ago that we were sitting in Fear, a week ago we were in Neutral and now we can see the market is in Greed.
Undervalued Dividend Stocks
Let us dive into the 3 Undervalued Dividend Stocks we like.
To select those that we believe to be undervalued and worth a deep dive we have used the following criteria:
Dividend Safety 60+ (Safe)
ROIC > 10%
Net Debt to EBITDA below 3 (Strong Balance Sheet)
Upside > 10%
Qualcomm (QCOM)
Qualcomm designs and manufactures advanced semiconductors, telecommunications equipment, and software, primarily for wireless communications, including 5G technology.
As we can see below, over the last 10Y Qualcomm is up 131.24%, and this has marginally outperformed the S&P 500 during this period, when including dividends reinvested.
As per below, we get a double reasonable valuation signal as the current yield is near the 5Y average (1.94% v 2.24%) and the Forward P/E is marginally higher than the 5Y (16.4x v 16.2x).
Dividend Safety score of 80 indicates safety.
Nice dividend growth over the last 20 Years, with an average increase of 20% year on year.
ROIC gives us faith that management are able to allocate their capital effectively and it is good to see the consistent levels above the minimums we want to see which is 12% for the semiconductor industry.
The Net Debt to EBITDA of 0.35 for 2023 is also very good to note as it indicates they have a strong balance sheet, and has been lowering from the highs of 2018, with the reduction expected to continue into 2024 at 0.1.
As per below, Wall Street see 25.90% upside over the next 12 months.
When we last ran it through our valuation model our intrinsic value came to $209.56.
So in conclusion for Qualcomm, we see around a 15% margin of safety around the $178 mark with Wall Street indicating 26% upside.
Alphabet (GOOGL)
Google provides internet-related services and products, including search engines, online advertising technologies, cloud computing, and software like Android and Chrome.
Over the last 10Y Google has significantly outperformed the S&P 500 and is up 446.62%!
As Google has just started to pay a dividend we will ignore the dividend yield part for today, however on a Forward P/E basis we have an undervaluation signal as it is lower than the 5Y (20.4x v 23.4x).
Dividend Safety score of 80 indicates safety.
ROIC is very good and has been increasing over the longer term, above the 10% minimum we want to see in Companies we own. 28% in the more recent year is very good.
The Net Debt to EBITDA of 0 over the last 10 years and anticipated over the next 12 months, meaning it won’t even take them 1 day to pay off all of their debt net of cash on hand. Very good!
As per below, Wall Street see 25.49% upside over the next 12 months.
When we last ran it through our valuation model our intrinsic value came to $187.64.
So in conclusion for Alphabet, we see around a 15% margin of safety around the $160 mark with Wall Street indicating 25% upside.
Chevron (CVX)
Chevron is an integrated energy company involved in the exploration, production, refining, and marketing of oil and natural gas, as well as the development of alternative energy sources.
As we can see below, over the last 10Y Chevron is up 16.13%, and whilst this has underperformed the S&P 500 during this period (COVID took place in this period), we believe over the longer term this is a high quality stock that can outperform with a nice dividend too.
As per below, we get a double undervaluation signal as the current yield is above the 5Y average (4.41% v 4.17%) and the Forward P/E is marginally lower than the 5Y (11.9x v 12.1x).
Dividend Safety score of 90 indicates safety.
Love to see this consistency in growth year on year, with the increase to the dividends being 7% per year, on average, over the last 20 years.
ROIC is fairly inconsistent due to the fact that this industry is cyclical however we note it is strong over the last few years, with 13% in 2023.
The Net Debt to EBITDA of 0.4 for 2023 is very good to note as it indicates they have a strong balance sheet, and has been lowering from the highs of 2020.
As per below, Wall Street see 20.99% upside over the next 12 months.
When we last ran it through our valuation model our intrinsic value came to $180.34.
So in conclusion for Chevron, we see around a 20% margin of safety around the $144/$145 mark with Wall Street indicating 22% upside.
Latest YouTube Videos!
Some of the videos we have covered this week on the YouTube channel:
Buy the Dip in these 6 Undervalued Dividend Stocks:
7 Stocks Super Investors in Congress are Buying Now:
6 Undervalued Dividend Stocks on Sale to Buy in September:
Stock Valuation Model
If you are interested in valuing stocks yourself, we have created a valuation model below which you can pick up, this is the same version we use in our YouTube analysis:
Seeking Alpha
Seeking Alpha, one of the websites that I use when I review stocks on YouTube has a $25 off discount for your first year. This also includes a 7-day free trial for new users too!
Patreon
Join our community in the patreon where we discuss weekly buy and sells.
https://www.patreon.com/DividendTalks
Conclusion
We have just gone through 3 Undervalued Dividend Stocks to buy.
However as always do your own due diligence and let us know your thoughts about today’s newsletter in the comments.
I hope you all have a great week ahead!
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Note
I am not a financial advisor or licensed professional. Nothing I say or produce anywhere, should be considered as advice. All content is for educational purposes only. I am not responsible for any financial losses or gains. Invest and trade at your own risk.