Generally, investors look for capital gains from high-growth stocks. Meanwhile, dividend stocks often don’t provide much leverage. However, investors who prefer regular cash flow tend to overweight dividend stocks.
Of course, there are exceptions among dividends, from the perspective of healthy capital gains as well as dividend gains. However, my focus in this column is on dividend stocks that seem to trade at attractive valuations.
It is noteworthy that the file Standard & Poor’s 500 It is currently trading at a cyclical adjusted profit rate (P/E) of 39.6. As such, I’ve examined dividend stocks that trade at a huge discount on broad market valuations. Over the next six to twelve months, these choices have the potential for a significant upside. Thus investors can enjoy the double benefit of regular cash flow as well as capital growth.
I should also add that most of these are low beta stocks. With liquidity tightening soon, there is reason for some correction in the markets. In a bearish sentiment scenario, these choices are likely to outperform.
So, without further ado, let’s take a deeper look at these seven attractive value picks.
- Pfizer (New York Stock Exchange:PFE)
- Altria Group (New York Stock Exchange:MO)
- Lockheed Martin (New York Stock Exchange:LMT)
- Laqsula (New York Stock Exchange:BTI)
- Intel Corporation (NASDAQ:INTC)
- chevron (New York Stock Exchange:CVX)
- stronghold (New York Stock Exchange:F)
Dividends to be purchased: Pfizer Corporation (PFE)
First on this list of dividend stocks is PFE stock, which is up 35% over the past six months. The breakout came after an extended period of consolidation. At a forward P/E ratio of 12.6, Pfizer still looks attractive. Furthermore, PFE stock has an annual dividend of $1.60, which means a healthy dividend yield of 2.99%.
From a growth and bullish cash flow perspective, there are two points to note.
First, Pfizer expects revenue of $36 billion in 2021 from the Covid-19 vaccine segment. With variable omicron, booster doses and adolescent vaccination, segment revenues should remain strong throughout 2022 as well. In particular, sales of vaccines will have a significant impact on cash flows.
Moreover, this company owns a large selection of candidate drugs. Currently, PFE has 29 candidates in Phase 3 and another 29 in Phase 2. It expects to achieve double-digit earnings per share (EPS) growth through 2025 as these drugs are commercialized (page 11).
It’s also worth noting that with healthy growth in its cash stock, Pfizer has been active on the acquisition front. In the last few months of 2021, the company announced two acquisitions. This is another factor potentially promoting growth.
Overall, PFE stock looks attractive given the growth view. In addition, with the cash flow ballooning, the company is in a position to pay higher dividends.
MO stock has trended up 22% over the past 12 months. This choice of dividend stocks yields 7.19% and still looks attractive from a valuation perspective. Altria stock is trading at a P/E of 10.88.
I agree that growth has been a concern for Altria lately as the company continues to transform its business. However, its core combustible products business continues to deliver healthy cash flow.
In the first nine months of 2021, Altria reported operating cash flow of $5.7 billion. In addition, the company has approximately $3 billion in cash and cash equivalents. Therefore, there is a great deal of financial flexibility here for dividends and investments in its business transformation.
It should also be noted that the company’s oral tobacco and e-cigarette segment has experienced steady growth. In addition, another potential incentive for Altria is the company’s stake in Kronos (NASDAQ:krone). The potential federal legalization of cannabis in the United States could help Cronos gain growth momentum.
The US Food and Drug Administration (FDA) has also delayed its decision on Juul’s e-cigarette products. Any positive result on this front could push the MO stock higher. Overall, this pick is trading at attractive valuations and the dividend is likely to hold, even with some business headwinds.
Dividend buy stock: Lockheed Martin (LMT)
After that, LMT stock has also been underperforming in the past 12 months, trading largely sideways. However, this company’s annual dividend of $11.20 is attractive and sustainable. At the forward P/E multiple of 14.15, it looks like one of the dividend stocks is in a position to break out to the upside.
An important point to note here is that the defense sector is relatively immune to global economic shocks. In fact, global defense spending increased even during a pandemic year. As Lockheed Martin expands its customers outside the United States, its growth outlook looks positive.
This point is underlined by the fact that Lockheed reported $134.8 billion in orders backlogs as of the third quarter of 2021. The backlog provides a clear view of revenue and cash flow.
Last year, Lockheed drew its operating cash flow (OCF) of $8.3 billion. Furthermore, for 2022, the company has provided OCF guidance of $8.4 billion. It is clear that cash flows will likely remain stable. This will ensure continued profits.
Finally, in terms of international growth, Lockheed Martin is already delivering F-35s to the United States as well as 14 other international allies. In 2021, the company outperformed its F-35 delivery guidance. With geopolitical tensions still high, Allied defense spending should act as a catalyst for demand backlog growth.
British American Tobacco (BTI)
British American Tobacco is the next entry on this list of dividend stocks. BTI stock was trading at around $34 in November 2021. Since then, this pick has seen a sharp rally, currently trading at around $43.
However, from a valuation perspective, the forward P/E here of only 9.68 still looks very attractive. I expect further upside for BTI stock. Moreover, investors will also benefit from a dividend yield of 6.9%.
Similar to Altria, British American Tobacco has also sought to transform its portfolio with a focus on non-combustible products. Its product, Vuse, is already a world-leading steam brand.
In the first half of 2021, this company recorded 50% growth in the new product category. British American Tobacco claims to have 16.1 million non-combustible customers. Furthermore, BTI reported operating cash flow of 2.25 billion pounds (about 3.1 billion US dollars) for the first half of 2021. This means an annual cash flow potential of 4.5 billion pounds (6.1 billion US dollars). Therefore, the company has strong flexibility in dividend and debt reduction.
Finally, in October 2021, British American Tobacco invested $3.5 million in a start-up energy drink company. It is very likely that this company will diversify further as it seeks to transform the portfolio. However, the combustible portion will remain a major cash flow driver for the next few years.
Dividend distribution to buy: Intel (INTC)
INTC stock is another quality name among the dividend stocks that are traded at an attractive valuation. At a forward P/E multiple of 10.14 and a dividend yield of 2.59%, these stocks are worth looking at even after a 6% rally in the past month.
It is true that Intel has been lagging behind in terms of investments and innovation. However, things seem to be changing and that will have a positive impact on INTC stock. In 2022, Intel planned investments between $25 billion and $28 billion. It also directed the company to increase investments in the next few years.
From an innovation perspective, Intel will launch the first AISC-based Infrastructure Processing Unit (IPU). Moreover, the company’s next generation discrete gaming GPU is likely to be launched in the first quarter of this year.
Another catalyst for INTC is the potential inclusion of Mobileye. Intel plans to publicly roll out the self-driving car unit in 2022 and the company will likely receive a valuation of more than $50 billion. This will unlock value for shareholders.
It is worth noting that in the first nine months of 2021, Intel reported operating cash flow of $24.2 billion. The company also announced $11.9 billion in cash and short-term investments as of the third quarter of 2021. Therefore, there is a great deal of financial flexibility here for large investments and ongoing dividends.
Chevron is the next name on this list. With oil heading higher, CVX stock has seen a strong rally in the past 12 months. However, for broad markets, the CVX still appears to be an attractive value. This choice also provides a healthy dividend yield of 4.16%.
One of the main reasons Chevron is listed among the top dividend stocks is the cash flow potential. For the third quarter of 2021, the company reported operating cash flow of $8.6 billion. With Brent heading upwards, annual cash flow potential is between $35 billion and $40 billion.
This cash flow will ensure healthy dividends and sustainable share repurchases. Additionally, it’s worth noting that Chevron reported a net debt ratio of 18.7% as of the third quarter of 2021. The balance sheet is strong and allows CVX to pursue aggressive investments in order to take advantage of higher oil prices.
In terms of the asset base, Chevron has 6P resources of 84 billion barrels of oil equivalent (bboe). The company also has a reserve replacement ratio (RRR) of 99% in the past five years. So, with a strong spare life, there is a clear cash flow view here. Low break even assets ensure that the EBITDA margin remains strong even if there is some correction in oil prices from current levels.
Stock Dividend Buying: Ford (F)
At the bottom of the dividend stocks list, F stock has seen a huge rally in the past 12 months. During this period, the stock rose more than 120%. However, Ford has recovered from oversold levels and is still trading at an attractive forward P/E of 11.86. F stock also has a dividend yield of 1.78%.
One important point to note here is that Ford is seeking a major shift in its portfolio toward electric vehicles (EVs). Over the next few years, the company plans significant investments. This is likely to be a catalyst for the upside and potential earnings growth.
In terms of investments, Ford and SK . innovation Already planning to invest $11.4 billion in production sites in both Tennessee and Kentucky. The investment will be directed towards growth in battery capacity and increased production capacity of the F-150 Lightning Truck.
In China, Ford has also already opened 25 exclusive electric vehicle stores. The company plans to increase the number of stores to 100 within the next five years. The company has also already begun delivering “homegrown” Mustang Mach-E models in China.
Finally, though, Ford has a decent balance sheet. As of the third quarter, the company reported a total liquidity pool of $47.4 billion. In addition, it continued to report positive adjusted free cash flow. This balance sheet provides ample financial room for Ford to invest and take advantage of positive industry winds.
at the date of publication, Faisal Humayun They have not (directly or indirectly) held any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the author, and are subject to InvestorPlace.com’s posting guidelines.
Faisal Humayun is a Senior Research Analyst with 12 years of industry experience in credit research, equity research and financial modelling. Faisal has authored over 1,500 stock articles focusing on the technology, energy and commodities sector.