Stock market liquidity has favored risk-on assets the past year, which has created an opportunity for many high-quality stocks to make a comeback. And while many investors have their eyes on growth stocks and others have gotten caught up in meme stock madness, there are still plenty of great values to be found among dividend stocks.
This article outlines three stocks that underperformed during the pandemic rebound, and which now hold a considerable value. In addition, they all provide attractive dividends due to their strong earnings. I thus think that these three stocks are of great value and are attractive options if you’re seeking income from dividends. If you’re an investor looking for assurance, then these picks are for you.
The three titans of the dividend world I chose are:
Dividend Stocks: Verizon (VZ)
Verizon is one of the leading utility stocks in the United States. The company is expanding vigorously with its attempt to deploy 5G across the country.
In addition, a recent sale of Verizon Media (including brands such as Yahoo and AOL) for $5 billion has freed up capital to either invest in growth acquisitions or expand on its existing operations. A long-time index beater, the stock has underperformed the market since the 2020 pandemic rebound. Markets have acted inefficiently, and utilities have been on the backburners.
I think it’s an ideal time for value investors to re-enter the fray.
Verizon released its Q1 earnings report in April, where it beat revenue estimates by $403.80 million and EPS estimates by 2 cents. Analysts expect the company’s revenue to grow 4.3% and its EPS another 3.9% this year. The stock’s currently trading at a P/E multiple of 12.5, which is considered very low relative to the S&P 500’s multiple, which recently exceeded the 45x mark.
According to the Gordon Growth Model, Verizon is set for an upside of around 12%. At the same time, its consistently strong earnings should ensure that its dividend yield of 4.4% remains sustainable, leaving smiles on the faces of its investors.
Petróleo Brasileiro S.A (PBR)
Petróleo Brasileiro S.A., otherwise known as Petrobras, is a stock that has started its ascend already after JP Morgan analyst Rodolfo Angele upgraded the stock from “neutral” to “overweight.” The company’s sale of unprofitable refineries as well as re-structuring has lowered risk. Petrobras has been printing money for years but has struggled with political risk as the company is 54% state-owned by Brazil. Recent re-structuring, pandemic re-openings, focus on pre-salt while carving out inefficient assets, and whispers that the crude price could reach $100 might further drive the stock price.
A P/E ratio of 6.8 is low relative to the market. In addition, Petrobras has a dividend yield of 3.30%, and the fact that the company hasn’t seen a negative free cash flow since 2014 signals sustainability for dividend investors.
Moreover, according to its free cash flows, its intrinsic value is $19.34, which could present investors with an upside of roughly 39% over the next 12 months.
Dividend Stocks: CVS (CVS)
This stock, which the famous “big short” investor Michael Burry has bought call options of over the last two quarters, resembles everything a value investor could possibly look for. CVS beat its Q-1 earnings estimates with a revenue beat of $740.57 million and an EPS beat of 27 cents. In addition, the company has a CAGR of 11.8% and a free cash flow yield of 11.4%—the dividend yield of 2.35% is well accompanied by a dividend growth rate of 5.23%.
A key value driver for the future is the company’s 25% CAGR in digitalization, which has received a boost during Covid-19. According to its latest 10-Q report, visits to its flagship digital properties have increased by 80% YoY, which adds to efficiency.
The forward P/E ratio of 11.2 signals value. According to the consensus on Wall Street, CVS is set for upside, with Merrill Lynch setting the latest price target of $103 at the end of May, which could provide investors with an upside of around 17%.
On the date of publication, Steve Booyens held a long position in PBR and VZ. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.