Several undervalued stocks are expected to experience a strong rebound in the coming months, including Altria.
Tobacco company Altria (ticker symbol MO)
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Even after the trouble with Juul, the e-cigarette manufacturer, it appears that Altria (NYSE stock code: MO) is still undervalued. Over the past year, the stock has fallen by about 6%, with a forward valuation of only 9.3 times. At the same time, the stock's yield is as high as 8.1%.
Altria is increasing its focus on its non-combustible business, and its investments will be concentrated in this area over the next few years. However, the combustible portion of the business remains the driving force of cash flow. In the second quarter, its Marlboro brand cigarettes held 42.7% of the entire cigarette market.
It is important to note that Altria holds a 45% stake in Cronos (NASDAQ stock code: CRON). Federal legalization of cannabis would serve as a significant catalyst for CRON stock and benefit Altria.
Pfizer: This pharmaceutical company is not merely a one-trick pony, as Wall Street may have believed.
AT&T: $14 billion in free cash flow should provide enough flexibility for dividends and debt repayment.
Lockheed Martin Corporation (LMT) has stated that its backlog of orders worth $135 billion may increase due to the escalating geopolitical tensions.
Altria (MO) stock is currently undervalued with a yield of 8%, even after deducting regulatory factors related to JUUL.
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Generally speaking, the main reason for holding dividend stocks is to generate regular cash flow. In addition, dividend stocks are typically low beta stocks, which can help balance overall portfolio risk. However, this does not mean that dividend stocks cannot produce healthy capital gains.
Over the past decade, the Standard and Poor's 500 High Dividend Index has had an annualized price return rate of 6.95%, while the total annualized return rate has been 8.86%. It is evident that the price return has been strong.
As global markets face uncertainty related to inflation and recession, several dividend stocks have been revised and are trading at attractive valuations. These high-quality blue-chip stocks are simply a matter of time before they fill the valuation gap. In doing so, they may outperform the broader market.
By investing in the following four dividend-paying stocks, investors can position themselves for stable income and meaningful appreciation. Given the growth prospects for the underlying companies' revenue and profits, these dividend-paying stocks are worth holding for the long term.
Pfizer (PFE)
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Pfizer (NYSE: PFE) is one of the most attractive dividend stocks to purchase due to its low beta, strong 3.2% yield, and undervaluation. Over the past 12 months, PFE's stock price has only increased by less than 1%. Its forward P/E ratio is just 7.8, indicating significant potential for growth.
One reason for Pfizer's underperformance is investors' concerns over potential revenue declines in Covid-19 vaccine sales. However, the company's growth story is not solely tied to Covid-19. Pfizer boasts a rich pipeline of drugs, and as new candidates become commercialized, they will drive sales growth.
Pfizer generated $29.9 billion in free cash flow in 2021, which has allowed them to increase investments in research and development. At the same time, the company has been active on the acquisition front in recent quarters.
The PFE stock appears poised for an upward trend. Investors may take some risks to quickly gain capital returns in the coming months.
AT&T, one of the largest telecommunications companies in the world, has recently made headlines.
As the business continues to grow and with a forward P/E ratio of 7x, there are compelling reasons for the stock to rise by 20-30% from its current level, in addition to a forward annual yield of 6.2%. This data is sourced from Lester Balajadia / Shutterstock.com.
AT&T has witnessed a continued growth in both 5G and fiber optic users. The company seems poised to benefit from its significant investments in 5G. Currently, its 5G network covers over 255 million people, and it plans to "double its fiber coverage to reach over 300,000 locations.
AT&T has used the proceeds from the split of WarnerMedia to reduce its debt. The positive free cash flow provides flexibility for further debt reduction and dividend payouts. Management anticipates this year's free cash flow to be $14 billion USD.
Lockheed Martin Corporation (LMT)
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The stock price of Lockheed Martin Corporation (NYSE: LMT) has increased by 11.5% over the past six months. However, considering its forward price-to-earnings ratio of 16.1 and dividend yield of 2.6%, the stock appears to be undervalued.
The escalation of geopolitical tensions has made the defense sector attractive. As of June 26th, Lockheed Martin, with a backlog of almost $135 billion in orders, is in a favorable position to generate profits. The backlog provides cash flow visibility for the next 12 to 24 months.
Furthermore, I anticipate that the backlog of orders will increase in the coming quarters. Many European countries have failed to meet their defense spending targets. With the escalation of tension in the region, higher defense spending will benefit Lockheed Martin Corporation.
With a steady and healthy free cash flow, Lockheed's dividend is sustainable. The company reported a free cash flow of $1 billion in the second quarter of 2022, and management anticipates a free cash flow of approximately $6 billion for the year.
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