Loading up on passive-income opportunities at reasonable valuations can be a winning strategy for long-term investors, especially in 2024. With broader indexes like the S&P 500 and Nasdaq Composite propelled higher by massive gains in megacap growth stocks, there are many diamonds in the rough among undervalued dividend stocks. Today, we focus on three standout dividend payers: PepsiCo (PEP), Deere & Company (DE), and Chevron (CVX). Despite their recent underperformance, these stocks are not just good buys — they are incredible bargains with the potential for long-term growth.
Let’s break down the key reasons why these dividend stocks are must-buys right now:
- Market Timing: The S&P 500 and Nasdaq Composite have been largely driven by megacap growth stocks, leaving dividend stocks overlooked and undervalued.
- Long-term Stability: These companies are industry leaders known for consistent performance, even during volatile market conditions.
- Dividend Income: Reliable dividend streams are gold, especially for those planning for retirement or seeking financial independence.
- Expert Management: Each company boasts strong leadership, driving strategic growth and capital allocation.
Now, let’s dig deeper into each of these companies to understand why they should be part of your investment strategy.
Editor's Note: Analysis and insight for this article were originally sourced from our friends at The Motley Fool
PepsiCo (PEP) – Kickstart Your Dividend Gains!
The Strategic Leadership You Need
Under the leadership of CEO Ramon Laguarta, PepsiCo has deftly navigated numerous challenges, from the U.S.-China trade war to the COVID-19 pandemic. Laguarta succeeded Indra Nooyi, who improved the brand and grew profits during her 12-year tenure. Effective management is crucial, especially for a giant like PepsiCo, where every percentage point in margin can translate to hundreds of millions of dollars.
Growth Through Smart Acquisitions
PepsiCo’s growth often comes from strategic acquisitions and new product developments. Notable acquisitions include Quaker Oats and Gatorade under Nooyi’s watch. However, the biggest deal under Laguarta’s tenure is undoubtedly PepsiCo’s partnership with the energy drink company Celsius. In August 2022, PepsiCo invested $550 million in Celsius for convertible stock, which gave it an estimated 8.5% ownership in Celsius and a 5% annual dividend. This alliance places PepsiCo strategically in the growing energy drink market, with Celsius benefiting from PepsiCo’s robust distribution network.
All About Those Dividends
PepsiCo has a record of over 50 consecutive years of dividend raises, currently yielding 3.3%. Trading at a P/E ratio of 24.5 and hovering around a 52-week low, PepsiCo stands out as a compelling buy for long-term investors seeking reliable dividend income.
Analyst Ratings and Table Overview
| Consensus Rating | Average Price Target | Current Price | Potential Gain | Number of Ratings |
|---|---|---|---|---|
| Moderate Buy | $188.00 | $162.60 | 13.99% | 14 |
Summary of Analyst Outlook
Analysts have a Moderate Buy consensus rating for PepsiCo Inc. (PEP) stock. The average price target for the next 12 months is $188.00, representing a potential gain of 13.99% from the current price of $162.60. The consistency in these forecasts indicates a positive outlook for the company’s future performance.
Deere & Company (DE) – The Underrated Cash Cow
Cyclical, Yet Robust Performance
Deere, known for its cyclical nature, achieved record profits last year, even as its stock remained relatively flat. The agricultural and industrial machinery giant’s performance is inherently tied to expansion cycles and financing conditions in its customer base. Consensus estimates anticipate a medium-term earnings decline, positioning Deere as an undervalued stock with a low P/E ratio of 10.9.
Technological Innovations Leading the Way
Deere’s commitment to R&D, particularly in automation and AI, is establishing the company as a future leader in agriculture. Investments in autonomous tractors and automated farm tasks like crop spacing and fertilizer recommendations are set to enhance efficiency and profitability in the long term.
Rewarding Shareholders
Deere’s strategy combines dividends and share buybacks to reward shareholders. The dividend yield stands at 1.6%, but the company’s dividend has surged over 93% in the last five years, with a reduction in outstanding shares by 12.5%. This approach mirrors the aggressive buyback strategies of tech giants like Apple.
Analyst Ratings and Table Overview
| Consensus Rating | Average Price Target | Current Price | Potential Gain | Number of Ratings |
|---|---|---|---|---|
| Hold | $422.12 | $373.63 | 12.98% | 30 |
Analysts’ Outlook for Deere & Company (DE)
Consensus Rating: The consensus rating is 2.22, indicating a Hold recommendation.
Average Price Target: The average price target is $422.12, representing a potential increase of 12.98% from the current price of $373.63.
Performance: Deere has outperformed its overall industry in terms of earnings and sales estimates, beating its EPS estimate 100.00% of the time in the past 12 months.
Chevron (CVX) – Strong Buy from Wall Street—Your Call to Action!
Strategic Moves for Long-term Growth
Chevron’s planned acquisition of Hess and ongoing investment in the Permian Basin underscore its strategic expansion. These maneuvers are not just about increasing production; they are about securing Chevron’s growth trajectory for years to come.
Financial Prudence
Renowned for disciplined capital allocation, Chevron’s financial health makes it an attractive choice in a volatile market. Despite recent stagnation, its robust fundamentals are impossible to overlook.
Attractive Valuation
Chevron’s P/E ratio of 14.4 and its 4.2% dividend yield make it highly appealing for income-focused investors. The market’s current sentiment may be tepid due to ongoing acquisitions and industry dynamics, but savvy investors will see this as a buying opportunity.
Analyst Ratings and Table Overview
| Consensus Rating | Average Price Target | Current Price | Potential Gain | Number of Ratings |
|---|---|---|---|---|
| Strong Buy | $183.00 | $137.87 | 21.14% | 21 |
Summary of Analyst Outlook
Consensus Rating: The consensus rating for Chevron Corporation is Strong Buy based on analysts’ ratings.
Average Price Target: The average price target for Chevron Corporation is $183.00.
Current Price: The current market price of Chevron Corporation stock is $137.87.
Potential Gain: The potential gain based on the price target versus the current price is approximately 21.14%.
Number of Ratings: There are 21 analysts providing ratings for Chevron Corporation.
In summary, PepsiCo, Deere & Company, and Chevron are not just undervalued dividend stocks; they are powerhouse investments with solid management, strategic growth plans, and reliable dividend payouts. As we move through the second half of 2024 and beyond, these stocks offer a compelling mix of stability and growth potential for any investor’s portfolio. Now is the time to capitalize on these opportunities and fortify your path to financial independence.