WRB - 3 Discounted Dividend Aristocrats Too Cheap to Ignore
2024-07-12 11:58:06 ET
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Looking for discounted Dividend Aristocrats? You’re at the right place. Dividend Aristocrats are stocks with a track record of at least 25 years of consecutive dividend growth and usually have higher valuations.
Rather than being value or deep value stocks, they are more akin to the “wonderful business at fair price” stocks that investors like Warren Buffett like to focus on. However, even in this category of top-shelf dividend growth plays, few are currently changing hands at bargain prices.
Yes, just like with value stocks overall, this category has its own fair share of “dividend traps.” Even so, by whittling down our list to exclude these names, we can still hone in on a few plays that offer good value, steady growth, and ample outside potential.
For example, let’s consider the following three discounted Dividend Aristocrats. We will examine each and understand why value and dividend investors may be interested in acquiring them at current low prices.
Chubb (CB)
Chubb (NYSE: CB ) is a leading global property and casualty insurer. Earnings volatility is expected in the insurance sector, but Chubb has still achieved “Dividend Aristocrat” status.
In May, the company announced its 31st consecutive dividend increase , with the quarterly cash payout rising 5.8%, from 86 cents to 91 cents per share. At current prices, CB stock sports a 1.44% forward yield. That may not sound high, but with payouts rising at a mid-single-digit clip, these steadily increasing payouts can boost long-term total returns enormously. Chubb trades for 11.8 times forward earnings at a discount to peers like Travelers (NYSE: TRV ) and W.R. Berkley (NYSE: WRB ).
Given its lower valuation, plus the reputation and quality of its insurance business, Chubb may be a takeover target by a distinguished potential buyer no less. As you may have heard, Warren Buffett’s holding company, Berkshire Hathaway (NYSE: BRK-A , NYSE: BRK-B ), recently disclosed ownership of a 6.4% stake in CB. Consider that Berkshire owns a swath of insurance businesses. This could be the prelude to an outright purchase of the company.
Genuine Parts Company (GPC)
Genuine Parts (NYSE: GPC ) is a major wholesaler of automotive and industrial parts. The company may be best known for its NAPA auto parts brand. Formed nearly 100 years ago, GPC has implemented dividend increases for 68 years in a row.
With this, forget about GPC stock being merely a “Dividend Aristocrat.” With more than 50 years of dividend growth, it is one of the so-called “Dividend Kings.” Right now, GPC sports a forward yield of 3.05%. Dividends have increased by mid-single digits annually over the past five years. The most recent dividend increase for GPC took effect in February. That’s when the quarterly payout increased 5.26%, from 95 cents to $1 per share .
Over the past year, GPC has experienced a moderate pullback of around 21.5%. However, for new investors, there may be a silver lining. Genuine Parts now trades for a relatively low 13.2 times forward earnings. Better yet, as forecasts call for steady earnings growth in the coming years , living up to these forecasts could renew the market’s enthusiasm for GPC, leading to a big rebound on a re-rating back to a higher forward multiple.
JM Smucker (SJM)
JM Smucker (NYSE: SJM ) is another stock that has become a discounted Dividend Aristocrat following an extended price pullback. Shares in the branded food and beverage company, whose products range from Smucker’s jam to Folger’s coffee to Meow Mix cat food, have fallen by more than 25% over the past year.
As I discussed previously, investors bailed on SJM stock due to the impact of inflation on fiscal results , plus concerns about whether it was wise for the company to acquire Twinkies maker Hostess Brands last year. However, while sentiment has yet to return to fully bullish, recent results have likely helped assuage concerns. Back in June, the company reported better-than-expected earnings for the preceding quarter .
If fiscal results further improve, SJM may be in for a rebound due to earnings growth and market re-rating. The stock today trades for just 10.9 times forward earnings, a substantial discount to peers. In addition to appreciation potential, this Dividend Aristocrat has a 3.88% forward yield. Payouts have increased by an average of 4.51% annually over the past five years.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines .
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
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