The US stock market is cruising along near all-time highs. But it’s a market of stocks, not a stock market. The market isn’t a monolith.
There are thousands of individual stocks that make up the entire US stock market. And many of those individual stocks are down significantly from recent highs.
Better yet, some of these stocks are dividend growth stocks. That’s my bread and butter. I invest solely in high-quality stocks that pay reliable, rising dividends.
What better way to prove your growing profit to shareholders than to send them regular proof of that via growing dividends?
And what better form of passive income than growing cash dividends from world-class businesses?
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 Amgen (AMGN).
Amgen is a global biotechnology company with a market cap of $118 billion.
This is one of the world’s biggest and best pharmaceutical companies. Everything about their fundamentals scream quality. They operate at a high level across the board. That includes their commitment to paying out a reliable, rising dividend to shareholders.
Amgen has increased its dividend for 11 consecutive years.
And I think that’s just the start of much more to come. Amgen will likely one day sport a multi-decade track record of consistently rising dividends. The five-year dividend growth rate is 15.2%. And with that double-digit dividend growth comes a very appealing yield of 3.4%. Also, free cash flow covers the dividend more than twice over. This dividend offers a lot to like. You know what else is likable? The markdown on the stock.
This high-quality dividend growth stock is down 25% from its 52-week high.
It’s currently priced at $207.84/share ,which pales in comparison to the 52-week high of $276.69. In my view, this is quality merchandise on sale. I analyzed and valued Amgen back in late June, showing why shares could be worth a bit over $262/each. So we could be looking at quite a bit of upside here. And while you wait for that upside to materialize, you’re collecting a market-beating 3.4% yield here.
Next up, let’s talk about Cardinal Health (CAH).
Cardinal Health is a healthcare products distribution company with a market cap of $14 billion.
Cardinal Health isn’t a household name, but it’s actually one of the biggest companies in the US by revenue. We’re talking annual revenue of over $160 billion. But because the margins are razor thin – think net margin below 1% – the sales multiple is very low. As a middleman distributor, you don’t get huge margins. Still, Cardinal Health does pay out a reliable, rising dividend to shareholders.
The company has increased its dividend for 25 consecutive years.
Yep. That makes them a Dividend Aristocrat. Now, recent dividend raises have been modest. The most recent dividend increase was only 1%. That’s because earnings growth has been challenged. On the flip side, the stock yields a market-smashing 4%. There aren’t many Dividend Aristocrats yielding over 4%, so that is notable. And free cash flow covers the dividend three times over. If all of that isn’t piquing your interest, maybe the pullback will.
This stock is 23% off of its 52-week high.
The 52-week high of $62.96 was reached back in the spring. But it’s a different world now. And shares are now trading hands for $48.54/each. Now, I will say that I personally sold out of Cardinal Health back in April when it was slightly over $61/share, and I alerted my Patrons about that in real-time. I just felt like the valuation and yield didn’t make sense with the lackluster growth. But after falling pretty significantly since then, it’s definitely more interesting than it was when I sold it. The P/CF ratio of 5.9 is well off of its five-year average of 8.6. If you’re looking for a 4%-yielding Dividend Aristocrat that’s nearly 25% off of its 52-week high, Cardinal Health should be on your radar.
The third dividend growth stock I want to highlight is HP Inc.(HPQ).
HP is a multinational information technology company with a market cap of $33 billion.
As one of the world’s largest computer manufacturers, HP prospers. After all, we’re in a world in which people are more reliant than ever on computers. It’s a very competitive and challenging industry, though. That said, HP continues to manage through it well and pay out a large, growing dividend.
They’ve increased their dividend for 11 consecutive years.
And unlike Cardinal Health, HP is growing its dividend at a blistering rate. The 10-year DGR is 16.7%. Even the most recent dividend increase was 10%. Now, it doesn’t offer the yield that Cardinal Health does – HP’s stock yields 2.7%. But that does beat the S&P 500’s yield twice over. And it’s paired with double-digit long-term dividend growth. Also, the dividend looks safe here, with a payout ratio of only 24.1%. Making things perhaps even more compelling is the way in which this stock has really pulled back, bringing the valuation down.
This stock is down 21% from its 52-week high.
You can almost think of the stock market like an ocean. People only pay attention to the surface. And the surface looks great, with the S&P 500, for instance, very close to its 52-week high. However, it’s the undercurrents you have to look at. Under the smooth sheen of the surface is a lot of volatility. This stock is a great example of that. Its 52-week high is $36.00. Shares are now priced at $28.28/each. Every basic valuation metric I look at is below its respective recent historical average. If you’re looking for a nice yield in the IT space, along with a sizable pullback, HP is definitely worth considering.
Let’s now discuss Medifast (MED).
Medifast is an American nutrition and weight loss company with a market cap of $2 billion.
We’re now in the small cap space here. But small isn’t necessarily bad. In fact, it’s quite often the opposite. Many small businesses naturally grow much faster than large businesses. Indeed, Medifast nearly doubled its revenue in the last two years alone. EPS is up more than sixfold over the last decade. With that strong business growth, it shouldn’t be surprising to see strong dividend growth.
This company has increased its dividend for six consecutive years.
A young dividend growth streak, but it does look promising. The three-year DGR is a very impressive 52.3%. That huge dividend growth has partly given rise to the 3% yield the stock now offers. Now, I wouldn’t expect that kind of dividend growth to persist forever. However, even the most recent dividend increase, which was announced back in March, came in at 25.7%. And even with all of that monstrous dividend growth, free cash flow still covers the dividend almost twice over. If that doesn’t entice you, maybe this will.
The stock has fallen 43% from its 52-week high.
Wow. This thing has fallen off a cliff. Since reaching its 52-week high of $336.99 back in May, it’s been almost a straight line down. Shares are now priced at $190.90/each. You’ve gotta feel for those who were paying over $300/share for this name only a few months ago, but their pain might be your gain. The valuation has become much, much more reasonable here. The P/CF ratio of 15.4 is significantly lower than its five-year average of 22.2. This company is involved in multi-level marketing, so keep that in mind. But if you’re fishing for a small cap dividend growth stock that’s more than 40% off of its recent high, this name might be worth snagging. Take a good look at it.
Last but not least, I have to to highlight South Jersey Industries (SJI).
South Jersey Industries is a natural gas utility company with a market cap of $2.5 billion.
We’re right on the edge of another small cap name here. But whereas Medifast is somewhat of a new kid on the block in terms of corporate history and the dividend growth track record, South Jersey Industries dates back to the turn of the last century. And they’ve been growing their dividend for decades.
This company has increased its dividend for 22 consecutive years.
Now, the company isn’t lighting the world on fire here with the dividend raises. The five-year DGR is only 3.4%. And the most recent dividend increase was 2.5%. This is because earnings growth has been almost non-existent over the last decade. However, what the company lacks in dividend growth, they more than make up for in terms of yield – the stock’s yield is a mouth-watering 5.5%. But with the dividend sucking up 75.6% of this year’s midpoint guidance for adjusted EPS, I wouldn’t expect any kind of dividend growth acceleration for the foreseeable future. It’s your classic income play. Well, maybe. Maybe not. Maybe it’s an upside play, too.
The stock is 25% off of its 52-week high.
South Jersey Industries reached its 52-week high of $29.24 in March of this year. Then it call came apart, with a stock offering and middling earnings results sending the stock into a downward spiral. This name is now at $22.05/share. The thing is, I almost always view short-term volatility as a long-term opportunity. South Jersey Industries might not be the highest-quality or most exciting business out there, but this 25% drop could be your long-term opportunity. The stock’s 5.5% yield isn’t just nice compared to the S&P 500; it’s 150 basis points higher than its five-year average. And the P/CF ratio of 6.6 is less than half that of its own five-year average of 14.0. If you’re searching for a natural gas utility business yielding 5.5% after a dramatic drop, South Jersey Industries might just be it.
— 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.
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Source: DividendsAndIncome.com