The market has been weak this year so far which has given investors an opportunity to obtain quality companies at discounts to what the prices were just a few weeks ago.
The Dow is down -5.70%, S&P500 is down -7.73% and the Nasdaq is leading the way down a with -11.99% decline. Even some of the top dividend ETFs are trending down as well. SCHD is down -3.92%, NOBL is down -4.59% and DGRO is down -4.82%. The declines this year have been across the board but some companies have been discounted more than others.
While as dividend growth investors we are not looking for short term capital appreciation, it does help to buy a quality dividend growth stock at a lower price, all else being equal, because it provides a higher starting dividend yield. Dividend yield goes up as the price goes down. This is also one reason dividend investors love down markets. More income for less capital!
As my favorite analyst, Chuck Carnivale, always says ‘Valuation matters, and it matters a lot’. Buying a quality dividend stock at a value price provides the higher yield, higher chance of capital appreciation, and the ability to better participate in the growth of the business.
All this said, I did a screen on my dividend tracker today looking for companies that are showing undervaluation on 5 key valuation metrics that I use. I was able to find 10 stocks on my list that are undervalued based on all 5 metrics.
- Discount to Analyst Price Target
- Discounted Cash Flow (DCF)
- 5% or more off 52 week high
- P/E Mean Reversion
- Dividend Yield Theory (DYT)
There were a lot of companies that met 2 or 3 of these metrics, but the following met all 5 criteria for undervaluation:
This list can be used to begin your research to determine if these stocks meet your investing criteria such as dividend yield, dividend growth, EPS growth, future prospects, etc.
The company symbols listed are: FNF, JPM, LEG, MDT, MMM, PKG, SBUX, TROW, V, and WBA.
Best of luck, happy investing, and let me know if any of these are on your radar as well!