For investors, the cheaper we can buy a stock, the better.
The problem with buying cheap stocks is that it's hard. Usually, high-quality businesses that are trading at attractive valuations are receiving negative media attention, which makes them psychologically difficult to invest in.
In addition, cheap dividend stocks can be hard to find, especially in today's market - which is trading significantly above its normal valuation multiple.
Still, investing in cheap dividend stocks is very worthwhile. In today’s video, I am going to introduce 5 seriously undervalued dividend stocks that you can buy today.
For investors who prefer learning about investment opportunities through reading, we have provided a text summary of this video below.
Undervalued Dividend Stock #5: Walgreens Boots Alliance
Walgreens Boots Alliance (WBA) is the largest retail pharmacy in both the United States and Europe. The company has a presence in more than 25 countries and employs nearly 400,000 people. Walgreens reports in three business units: Retail Pharmacy USA, Retail Pharmacy International, and Pharmaceutical Wholesale. Walgreens has increased its dividend for 42 consecutive years, making it a member of the Dividend Aristocrats Index.
Here’s what Walgreens valuation looks like. Walgreens should deliver adjusted earnings per share of about $5.95 in fiscal 2018. Given the company’s current stock price, Walgreens is trading at a price-to-earnings ratio of just 10.7. For context, Walgreens has traded at an average price-to-earnings ratio of 16.7 over the last decade. Valuation expansion will likely be a meaningful positive contributor to this stock’s future returns.
Undervalued Dividend Stock #4: Fortis Inc.
Fortis (FTS) is Canada’s largest investor-owned utility business. The company has operations in Canada, the United States, and the Caribbean. While Fortis is a Canadian company, its shares are cross-listed on the New York Stock Exchange, where it trades with a market capitalization of US$13.5 billion.
Here's what Fortis’ valuation looks like. Fortis is likely to deliver adjusted earnings per share of about $2.60 in fiscal 2018. Given the company’s current stock price, this implies a price-to-earnings ratio of just 16.2. Fortis has traded at an average price-to-earnings ratio of 19.2 over the last decade. The company appears to be about 15% undervalued at current prices.
Undervalued Dividend Stock #3: Cardinal Health Inc.
Cardinal Health (CAH) is one of the “big three” drug distribution companies in the United States, along with McKesson (NYSE:MCK) and AmerisourceBergen (NYSE:ABC). Cardinal Health serves over 24,000 United States pharmacies and more than 85% of the nation’s hospitals. Cardinal Health has increased its dividend for 32 consecutive years, which makes it a member of the Dividend Aristocrats Index.
Here’s what Cardinal Health’s valuation looks like. The company is on pace to deliver adjusted earnings per share of around $4.90 in fiscal 2018. Based on the company’s current stock price, Cardinal Health is trading at a price-to-earnings ratio of around 10.2. Cardinal Health's historical average valuation multiple is 15.5. The company is profoundly undervalued at current prices.
Undervalued Dividend Stock #2: GameStop Corporation
GameStop Corporation (GME) is a global electronics retailer with more than 7,000 locations that generate around $9 billion in annual revenue. A lagging stock price caused by the threats to GameStop from eCommerce competition has resulted in a very cheap valuation and an exceptionally high dividend yield.
Indeed, GameStop’s low valuation is the defining characteristic of its investment thesis. The company should deliver around $3 of earnings per share in 2018. Its current stock price implies an earnings multiple of just 4.9. Even some mean reversion to a modest price-to-earnings ratio of just 10 would result in spectacular total returns for this undervalued dividend stock.
Undervalued Dividend Stock #1: Owens & Minor
Owens & Minor (OMI) is a healthcare logistics company that provides packaged healthcare solutions for hospitals and other medical centers. The company distributes approximately 220,000 different medical and surgical supplies to about 4,400 hospital systems worldwide.
Owens & Minor has become profoundly undervalued on fears that Amazon (NASDAQ:AMZN) and other ecommerce companies will permanently disrupt its business model. Here are what the numbers look like. Owens & Minor should deliver earnings per share of around $2 in fiscal 2018. Given the company’s current stock price, this implies a price-to-earnings ratio of just 8.6. Owens & Minor has traded at an average price-to-earnings ratio of around 18 over the last decade. The company appears to be trading at less than half of fair value today.
Disclosure: I am/we are long WBA, CAH, OMI.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.