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Investors are rethinking their portfolio strategies after a rough 2022. That includes a reassessment of risk tolerance. Many people are moving to more conservative holdings, understandably shaken by the magnitude and velocity of declines in growth securities in 2022.
This has created some unintended consequences to be aware of. Many safe haven companies in sectors such as consumer staples and utilities have run up significantly. The rush into safe dividend stocks has made valuations much less appealing in various sectors.
However, there are still plenty of good values in the dividend stock-paying arena. Investors just need to be a little more picky to make sure they are picking up dividend stocks that are still selling at an attractive price.
To be eligible for this list, a company needs to pay a decent starting dividend yield, 2.0% or more. And, it has to be undervalued. I’ll use Morningstar’s fair value price estimate as the benchmark there, with a dividend stock needing to trade at a meaningful discount to that Morningstar estimate to make this list. With the ground rules set, here are seven leading dividend-paying stocks trading at a discount today.
Park Hotels & Resorts
Bank of New York Mellon
Verizon Communications (VZ)
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Verizon Communications (NYSE:VZ) is one of America’s three large telecom operators. It is the most appealing dividend stock of the three. That’s because AT&T (NYSE:T) slashed its dividend not that long ago, while T-Mobile US (NASDAQ:TMUS) pays no dividend at all. Verizon, by contrast, has continued offering its usual generous dividend without interruption.
Verizon is an attractive dividend stock for several reasons. One, its industry is stable and recession resistant. People keeping paying their phone bills even in a recession after all.
There are also massive barriers to entry. Verizon and its competitors spend tens of billions of dollars to maintain and modernize their telecom infrastructure. Lately, Verizon shares have underperformed due to this spending. 5G rollout hasn’t delivered the expected level of returns as quickly as anticipated.
However, Verizon’s large investments over the past few years will eventually bear fruit. Meanwhile, shares trade for just 8x forward earnings and offer a 6.2% dividend yield. Morningstar currently assigns a $59 price target for VZ stock, which offers tremendous upside from today’s $42 share price.
Cisco Systems (CSCO)
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Cisco Systems (NASDAQ:CSCO) is the king of internet networking equipment. It was formerly a hot stock, with Cisco being one of the leading performers in the late 1990s internet boom.
Nowadays, Cisco is more of a stable growth and income sort of company. It has evolved from a hypergrowth firm to a dividend stock. But don’t mistake that for a lack of investment appeal.
Indeed, Cisco still generates more than $50 billion per year in revenues. And after a period of decline, Cisco is now growing revenues again. Its efforts to broaden its product offerings and earn more subscription revenues are starting to pay off.
CSCO stock has traded down more than 20% over the past year. That’s not too surprising given the plunge in the tech sector more generally. However, with that decline, Cisco now goes for less than 14 times forward earnings and offers a 3.1% dividend yield.
V.F. Corp (VFC)
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V.F. Corp (NYSE:VFC) is a leading multi-brand apparel company. Historically, the company’s strength is that it takes a conglomerate approach to the industry. It owns more than a dozen brands and is frequently buying and selling labels to maximize value for the firm.
This provides the company with internal diversification. When one brand is struggling, another one is usually doing well. For example, in 2022, The North Face performed well while Vans was stuck in a sales slump.
Investors have dumped VFC stock over the past 18 months or so, with shares now down 70% from their all-time highs. This seems like a dramatic overcorrection given VF Corp remains solidly profitable despite current supply chain and inflation headwinds.
VF has proven it can deal with adversity. It has increased its dividend for an amazing 50 years in a row despite a variety of economic downturns along the way. VFC stock is now a high-yielding option at a 6.9% dividend today.
Park Hotels & Resorts (PK)
Park Hotels & Resorts (NYSE:PK) is a real estate investment trust dedicated to the lodging sector. It operates 47 premium branded hotels and resorts that contain 30,000 rooms in total. Importantly, 88% of these rooms are in the luxury or upscale categories, which means Park can charge premium prices for its stays.
Park is an intriguing asset as it has been in transition. It was spun out of a larger company in 2017. It subsequently made a large acquisition in 2019, and has sold off various assets since then to refocus its portfolio on premium domestic hotels.
Park was supposed to begin to show the merit of this approach in 2020 and 2021. However, the pandemic hit, and demand for hotel rooms plummeted. Now, however, the travel industry has started to surge once again, with high-end travel faring particularly well. This should bode well for Park Hotels and Resorts.
Morningstar’s analyst Kevin Brown assigns PK stock a price target of $28 per share. That’s tremendous upside from today’s $12 share price. Brown arrives that price target with a fairly conservative assumption of a 12 times forward funds from operations ratio for Park’s shares.
AvalonBay Communities (AVB)
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AvalonBay Communities (NYSE:AVB) formed in 1998 with the merger of Avalon Properties and Bay Apartment Communities. In the ensuing 25 years, AvalonBay has become one of America’s largest landlords.
Currently, the company directly or indirectly owns nearly 300 different apartment communities. These, in turn, contain 88,405 different apartments. This gives AvalonBay a considerable amount of scale in terms of maintaining properties, finding tenants and expanding into additional markets.
Apartments are currently an attractive investment field. Rents have soared over the past few years as people have upgraded their living conditions. The surge in housing prices and rising interest rates, meanwhile, have made home ownership a more expensive prospect for many households. That causes folks to rent apartments from the likes of AvalonBay instead of buying their own single-family home.
AvalonBay shares have fallen a shocking 35% over the past year. This is primarily due to fears around rising interest rates and a slowdown in the housing market. However, thanks to favorable demographics, demand for apartments should remain strong despite near-term jitters. AVB stock currently yields 3.9%.
Bank of New York Mellon (BK)
Bank of New York Mellon (NYSE:BK), more commonly called BNY Mellon, is one of the world’s largest custodian banks. It, along with just a couple of other American firms, hold a dominant position in this category.
Custodian banks are attractive since they take minimal credit risk. Rather than relying on higher-risk loans for income, they earn a large portion of their revenues from charging fees for managing and safeguarding assets for governments, hedge funds, high net worth individuals and other such clients.
As you might expect, returns on custodian banking tend to be lower, since it is a low-risk business. However, the sector is one of the leading beneficiaries of higher interest rates. Custodian banks get to earn more interest on certain types of funds, and also are enjoying things such as reduced fee waivers on some fixed income products. This should lead to rising profits for BNY Mellon as interest rates settle at much higher levels than we’ve previously seen.
BK stock rallied to new highs in 2021. However, shares fell more than 23% last year, putting BNY Mellon back in the value bucket. Shares currently go for less than 10 times forward earnings and offer a 2.9% dividend yield.
Eastman Chemical (EMN)
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Eastman Chemical (NYSE:EMN) is a specialty chemicals company. The firm came about as a spinoff from the film and photography leader Eastman Kodak. Over the years, Kodak has largely faded into irrelevancy, however, the Eastman Chemical business has remained a winner.
Eastman Chemical has carved out a lane for itself by focusing on proprietary products where it has a technological edge and can charge higher prices compared to commodity chemicals.
On top of that, American chemical suppliers have a big advantage in 2023. That’s due to how the industry works. Chemical companies rely on petroleum and natural gas as base ingredients for many of their products. Furthermore, chemical plants are energy-intensive and have high fuel expenses. American operators have a massive edge over European and Japanese rivals now that fuel prices have soared overseas, but natural gas remains cheap in the American heartland.
Eastman Chemical is currently delivering tremendous profits thanks to advantageous conditions in the U.S. along with strong industrial demand. Regardless, EMN stock is down more than 25% over the past year as investors fret about a potential recession. This has put the stock at just 11 times forward earnings while offering a 3.6% dividend yield. Morningstar sees fair value way up at $130 per share versus today’s price of $89.
On the date of publication, Ian Bezek held a long position in VZ, EMN, VFC stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.
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