3 Undervalued Stocks to Buy for Dividend Income and Defensive Safety

With broader market volatility likely to emerge at some point amid geopolitical uncertainty, evolving monetary policy, and premium stock valuations across many growth sectors, defensive investments may become increasingly attractive.

Consumer staples companies have historically offered resilience during market downturns because demand for food and household essentials tends to remain relatively stable regardless of economic conditions.

Better still, investors don’t necessarily have to sacrifice income or valuation. To that point, Albertsons Companies (ACI), B&G Foods (BGS), and Nomad Foods (NOMD) all trade at modest stock prices and earnings multiples while offering dividend yields well above 3%.

For investors looking to build a defensive hedge within a diversified portfolio, these attractively valued consumer food stocks may deserve a closer look, with each sporting a Zacks Rank #2 (Buy) at the moment.

Albertsons: A Discount Grocery Giant Trading at a Bargain
Albertsons operates more than 2,200 grocery stores across the United States under well-known banners including Safeway, Vons, Jewel-Osco, Shaw’s, and ACME. Grocery retailers tend to perform relatively well throughout economic cycles as consumers continue purchasing essential food products even during economic downturns.

Furthermore, Albertsons has invested heavily in digital capabilities, loyalty programs, and private-label offerings, helping to strengthen customer retention while supporting profitability. Meanwhile, pharmacy services and fuel centers provide additional recurring traffic.

From a valuation standpoint, Albertsons stock remains inexpensive, trading at $13 a share and roughly 6X forward earnings while offering investors a 5% annual dividend yield. Plus, ACI has a 29% payout ratio that suggests there is plenty of cushion for future dividend hikes.

Although grocery retailing remains a competitive business with relatively thin margins, Albertsons’ stable cash generation and shareholder-friendly capital allocation make the stock an appealing defensive investment for income-focused investors.

Image Source: Zacks Investment Research

B&G Foods: High Yield Supported by Well-Known Brands
B&G Foods owns a diverse portfolio of recognizable pantry brands, including Green Giant, Cream of Wheat, Ortega, Crisco, Back to Nature, and Spice Islands. While inflation and higher interest expenses have pressured results over the past several years, management has focused on debt reduction, cost controls, and improving operating efficiency.

As inflation moderates and pricing pressures normalize, B&G could benefit from improving margins while continuing to generate steady cash flows from its collection of staple food brands.

The stock certainly stands out for income investors, currently yielding an eye catching 18% dividend yield, while trading at a discounted valuation compared to many consumer staples peers. At $4 a share, BGS trades at 7X forward earnings compared to its Zacks Food-Miscellaneous Industry average of 14X.

While it remains to be seen whether B&G Foods can sustain its elevated dividend, the risk-to-reward profile appears attractive thanks to the combination of its established brands and improving fundamentals, making BGS an intriguing higher-yield defensive play.

Image Source: Zacks Investment Research

Nomad Foods: Europe’s Frozen Food Leader
Nomad Foods is Europe’s leading frozen food company, owning popular brands including Birds Eye, Findus, iglo, Aunt Bessie’s, and Goodfella’s.

Frozen foods are benefiting from long-term consumer trends favoring convenience, affordability, and reduced food waste. These characteristics have helped Nomad generate consistent cash flows while maintaining healthy operating margins across multiple European markets.

Management has continued to expand through product innovation and strategic acquisitions while returning excess cash to shareholders through dividends and share repurchases.

Despite these strengths, Nomad stock is trading around $11 a share and just 6X forward earnings while offering a 6% annual dividend yield.

The company’s combination of recurring revenue, stable demand, disciplined capital allocation, and international diversification makes Nomad an appealing long-term holding for defensive investors.

Image Source: Zacks Investment Research

Why Consumer Staples Can Help Protect a Portfolio
Consumer staples have traditionally outperformed many cyclical sectors during periods of economic uncertainty because demand for everyday necessities remains relatively consistent. Grocery stores and packaged food manufacturers typically experience less volatility than discretionary retailers, technology companies, or industrial businesses.

For investors seeking additional stability, companies that pair durable cash flows with reliable dividend income can help reduce overall portfolio volatility while generating income regardless of market conditions.

Bottom Line
Building positions in high-quality consumer staples stocks can be an effective way to add a defensive hedge to an investment portfolio without paying premium valuations.

Albertsons, B&G Foods, and Nomad Foods fit that profile as they offer exposure to essential food products, dependable cash generation, and have dividend yields well above 3%. Meanwhile, their inexpensive earnings multiples provide an added margin of safety.

— Shaun Pruitt

Source: Zacks