The US stock market continues to defy gravity. Despite plenty of famous naysayers predicting a crash, it keeps grinding higher. This isn’t a surprise.
It’s been this way since I started investing more than a decade ago. I still remember when the Dow Jones Industrial Average passed 15,000 points for the first time in 2013. A lot of people thought it was due for a crash back then.
The market has more than doubled since then! All that said, this is the broader market we’re talking about. A lot of individual stocks within the market have corrected… and then some.
There are quite a few stocks out there down 20% or more from their recent highs. And I’m talking about dividend growth stocks there. These are stocks paying reliable, rising dividends.
So you get to collect safe, growing dividend income while you wait for the rebound to play out. Meanwhile, all else equal, a lower price results in a higher yield.
A higher yield and big potential upside? That’s a win-win. Today, I want to tell you about five dividend growth stocks that are down at least 20% from 52-week highs. Ready? Let’s dig in.
The first dividend growth stock I have to tell you about is Algonquin Power & Utilities (AQN).
Algonquin Power & Utilities is a utility conglomerate with a market cap of $9 billion.
With both renewable and regulated utility assets, mostly spread out across a wide swath of North America, this is a far-reaching utility business that has exposure to both traditional energy and the future of energy. They’re positioned well, no matter how fast or slow the clean energy transition plays out. And that bodes well for their ability to continue paying an increasing dividend.
This utility company has increased its dividend for 13 consecutive years.
The dividend numbers are pretty staggering. The stock yields 4.8%. That absolutely smokes the S&P 500’s yield. It’s also 50 basis points higher than the stock’s own five-year average yield. And the 10-year DGR is 11.8%. You’ll not often find a yield near 5% paired with a double-digit dividend growth rate. It’s extremely rare to see that. The one thing to watch out for is the dividend being barely covered by TTM adjusted EPS. On the other hand, that gap can widen quickly because the business is growing so fast. Q2 revenue was up 54% YOY, while adjusted EPS grew 67% YOY.
Despite all of that, the stock is down 20% from its 52-week high.
Shares are currently running a bit over $14/each. But the 52-week high is $17.86. The P/E ratio, using adjusted EPS, is slightly over 20 here, which is ludicrously low for a utility business with renewable assets growing this quickly. The five-year average P/E ratio for the stock is 23.1. And even that isn’t all that high for a business like this. I’m actually surprised that this stock is priced like this. It’s definitely worth taking a good look at after the 20% drop.
I now want to highlight Intel (INTC).
Intel is a multinational technology company with a market cap of $207 billion.
While Intel is not my favorite tech company by a longshot, it’s still an absolute behemoth in the chip space. It has scale where scale matters. And after a lot of setbacks at the business, they’re hungry for a turnaround. The good news is that the dividend hasn’t seen a setback at all.
Intel has increased its dividend for seven consecutive years.
The five-year DGR is 6.6%, which isn’t bad at all. Consider that the stock yields 2.7%. That’s a market-beating yield with solid dividend growth to boot. Keep in mind, this stock typically doesn’t offer a very high yield. Its five-year average yield is only 2.5%. And with a payout ratio of 27.0%, the company has plenty of room to hand out more dividend increases for years to come.
This stock has been beaten to a pulp, and it’s now down 26% from its 52-week high.
Compare the current pricing of under $51/share to the 52-week high of $68.49/share. Yeah, that’s a huge gap. Every basic valuation metric here is screaming cheap. For instance, the P/E ratio of 9.9 is well off of its own five-year average of 14.2. Even for a stock that’s often cheaper than the market, this is a notable discount. Intel is actually fundamentally excellent across the board. It’s only the competitive positioning that’s questionable. However, the discount is significant. And you’re collecting a safe, growing dividend here.
Next up, let’s talk about Leggett & Platt (LEG).
Leggett & Platt is a diversified manufacturer with a market cap of $6 billion.
Leggett & who? Yeah, I know. Not exactly a household name. But it doesn’t matter. Leggett & Platt is one of those under-the-radar, boring, watch-the-paint-dry type of businesses that just slowly makes their shareholders wealthy over the long run. You know what else this business does? It pays a safe, growing dividend.
The company has increased its dividend for 50 consecutive years.
Yep. This is a Dividend Aristocrat. With 50 straight years of ever-higher dividends, they may as well be a Dividend Aristocrat twice over. The 10-year DGR of 4.3% won’t knock you dead. But the stock does yield 3.8% here, which, by the way, is 50 basis points higher than the stock’s five-year average yield. So this one tilts a bit more toward yield than growth, which is perfect for a lot of income-oriented investors out there. And the payout ratio is 70%. A bit elevated, sure, but not dangerously so. This dividend is headed higher.
It’s almost unbelievable, but this Dividend Aristocrat is 25% off of its 52-week high.
The 52-week high of $59.16 was reached back in early May. Shares have had a bumpy ride – mostly downward – since then, and are now trading hands for about $44/each. That’s a stunning, and rather shocking, fall for a business that continues to perform well. Recent EPS guidance calls for 59.9% YOY growth compared to FY 2020, and 17.8% growth compared to FY 2019. With a P/E ratio of 15.1, which is lower than both the broader market’s earnings multiple and the stock’s own five-year average P/E ratio of 19.9, long-term dividend growth investors ought to consider this one.
I now have to talk about LyondellBasell Industries NV (LYB).
LyondellBasell is a multinational chemical company with a market cap of $31 billion.
This is one of the largest chemical companies in the world. Their chemicals and polymers are necessary for a lot of everyday end products the world needs, including furniture, packaging, and piping. That necessity translates over to a juicy, growing dividend.
The chemical company has increased its dividend for 11 consecutive years.
As with Leggett & Platt, the dividend growth isn’t super impressive. But a five-year dividend growth rate of 6.7% more than gets the job done when you’re getting a yield of 4.9%. That market-smashing yield is 70 basis points higher than the stock’s own five-year average yield. The dividend is also protected by a very low payout ratio of 26.4%, but it’s important to be mindful of the fact that the company’s earnings can be volatile.
This stock is down 21% from its 52-week high, and there could be a great long-term opportunity here.
I’m not saying it’s going to zoom right back up to its 52-week high of $118.02/share. But shares are currently trading hands for less than $93/each, which puts the valuation in rather attractive territory. Every basic valuation metric I look at is lower than its respective recent historical average. I already pointed out the yield difference. But then we have the P/CF ratio of 5.8 being well off of its five-year average of 7.0. Meanwhile, this income play is spitting out a big, growing dividend. If your portfolio needs yield, value, and chemicals exposure, this name should absolutely be on your radar.
Last but not least, let’s talk about Magna International (MGA).
Magna International is a mobility technology company with a market cap of $25 billion.
Magna might not be a household name, but this is is the largest automobile parts manufacturer in North America by sales of OEM parts. They supply their components to pretty much all of the world’s major auto manufacturers, including Tesla. With mobility’s future as bright as ever, the company’s dividend is also as bright as ever.
They’ve increased their dividend for 12 consecutive years.
Their five-year DGR of 12.7% is pretty impressive. And that’s the kind of growth you want to see with a stock that yields 2.1%. This is a compelling combination of yield and growth for patient investors who can let that compounding process play out over time. And with a payout ratio of just 29.1%, this dividend is positioned to continue growing for many years into the future.
This stock is down 20% from its 52-week high, and this could be a good entry point for long-term dividend growth investors.
At around $83/share, it sure looks a lot better than it did when it hit the 52-week high of $104.28 this past summer. Now, I wouldn’t say the stock is extremely cheap here. Most basic valuation metrics are actually still running a bit ahead of their respective recent historical averages, even after the 20% drop. But this is a great business that operates at a high level, and the valuation is more favorable now than it’s been in a while. I wouldn’t back up the truck or anything, but I think Magna is at least worth putting on the list for research after the five-month correction.
— Jason Fieber
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