The US stock market is cruising along near all-time highs. The S&P 500 is up more than 40% over just the last year alone. And it’s now priced higher than it was before the pandemic.

I don’t think a lot of people expected the market to rebound so quickly off of the pandemic crash, but here we are.

Yet a lot of individual stocks within the market have not yet recovered their prior highs. Some stocks are still down significantly compared to early 2020.

That’s even while their businesses have basically fully recovered. Some businesses are doing even better now than they were before the pandemic. Business recovers. Stock doesn’t recover. Yep.

That disconnect could be an opportunity for investors. And that’s what I’m talking about here.

Today, I want to tell you about three high-quality dividend growth stocks that are still priced below their pre-pandemic highs. Ready?

Let’s dig in.

Stock #1 Priced Below Pre-Pandemic Highs: Lockheed Martin Corporation (LMT)

Lockheed Martin is the largest prime defense contractor in the world.

Sovereign defense products and services have always been necessary and always will be necessary. That’s just human nature. Investing in these businesses is almost a total slam dunk over the long run. However, sometimes you’re offered a particularly good opportunity with them, and that could be what you’re looking at with Lockheed Martin.

This stock is currently priced around $385/share. But it was well over $400/share in early 2020.

Get this. Lockheed Martin produced $21.95 in EPS for 2019, so going into 2020 that’s the earnings number. The company has logged $24.78 in EPS over the last 12 months. EPS is up more than 10% compared to early 2020, yet the stock is down more than 10%. That’s the advantageous disconnect I’m talking about.

Lockheed Martin is a very high-quality dividend growth stock.

Fundamentally, the business is excellent. They’ve increased their dividend for 18 consecutive years, with a 10-year DGR of 14%. The stock yields 2.7%, which is very attractive in this market. Lockheed Martin is actually one of my top five stocks for 2021. Even though it’s up more than 8% YTD, it still looks like a bargain.

Stock #2 Priced Below Pre-Pandemic Highs: Pinnacle West Capital Corporation (PNW)

Pinnacle West is a fantastic Arizona-based utility company.

Electricity? That thing that makes our society work? Yeah, gotta have it. And so utility companies are about as sure a thing as you’ll find in the business world. What’s also sure? The fact that this stock has not yet recovered its pre-pandemic pricing.

This stock was priced at over $100/share in early 2020. Now? It’s around $86/share.

The company is earning more today than it was earning in early 2020. It came into 2020 with EPS of $4.77. EPS is now near $5.00. Not a huge jump, sure. I wouldn’t expect one for a utility. However, while earnings have gone up, the stock has gone way down. That’s where the opportunity could be.

Pinnacle West also offers a market-beating yield of 3.8%.

Whereas the market is at all-time highs and offering a yield of below 1.5%, this stock is well below it’s all-time high and gives you a yield almost three times higher than that. The company has increased its dividend for nine consecutive years, with a five-year DGR of 5.7%. Very respectable for a higher-yielding utility stock. It’s up about 8% YTD, but it has to go a lot higher before even breaking even – and I think it’ll do just that.

Stock #3 Priced Below Pre-Pandemic Highs: W.P. Carey Inc. (WPC)

W.P. Carey is a global real estate investment trust.

W.P. Carey is about as solid as they come. They own properties ranging from self-storage to government offices. They do all the hard work in real estate so that you don’t have to. You just sit back and collect your check. As nice as that sounds, it’s made to be even nicer when you see that the stock isn’t even close to where it was before the pandemic hit.

The stock is priced at about $75/share now. It was almost $90/share in early 2020.

So the stock is well off of where it was before, but the business really isn’t. Now, this name is different from the other two in the sense that the business has taken a very slight hit. The business has almost fully recovered. So W.P. Carey produced $5.00 per share in AFFO for FY 2019, so that’s the earnings picture for early 2020. They’re currently guiding for $4.79 at the midpoint for AFFO/share for this fiscal year. We’re talking a small business difference of less than 5%, yet the stock is off about 20%.

W.P. Carey has increased its dividend for 24 consecutive years and offers a market-smashing yield of 5.6%.

That yield is four times higher than what the broader market offers. And while the market is bumping up against all-time highs, this stock is very much not doing that. The five-year DGR is only 1.7%, but you don’t need huge growth when you’re getting a near-6% yield. This stock is up less than 7% YTD, although the huge yield means it’s not a compounder that’ll see explosive moves in the stock. It’s a great income producer, though. And it’s available for well below where it was at pre-pandemic on both a price and valuation basis.

— Jason Fieber

P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.

Source: DividendsAndIncome.com

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