These Top-3 Stocks Offer High Dividends at Undervalued Prices
As the average dividend yield in the S&P 500 remains low, income investors can turn to these three under-the-radar high-yield names.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
The average dividend yield in the S&P 500 Index remains low at 1.3%. As a result, income investors should focus on higher-yielding securities if they want additional income from their stock portfolios.
Even better, investors can buy high-yield stocks when they are also undervalued, which could lead to high total returns in the coming years.
The following three undervalued, high-dividend stocks have yields above 5%, and high total return potential.
1. CVS Health Corp. (CVS)
CVS Health Corporation CVS is an integrated healthcare services provider that operates a pharmaceutical services business, along with the country’s largest chain of pharmacies. The company operates more than 9,900 retail locations, 1,100 medical clinics and serves more than 102 million plan members. CVS Health Corporation generates annual revenues of about $369 billion.
On November 6, 2024, CVS Health Corporation reported third quarter results for the period ending September 30, 2024. For the quarter, revenue grew 6.3% to $95.4 billion, which was $2.74 billion ahead of estimates. Adjusted earnings-per-share came to $1.09.
Revenues for Health Care Benefits were up 25.5%, while total memberships grew 5.4% to 27.1 million. Commercial memberships improved 3.3% to 18.9 million while Government memberships grew 10.8% to 8.2 million. The medical benefits ratio, which calculates the amount of premiums used to pay medical benefits, increased 950 basis points to 95.2%.
CVS Health Corporation’s most compelling competitive advantage is its entrenched position in the pharmaceutical retail industry. The industry is highly regulated, which makes it difficult for new competitors to enter into the industry and gain market share.
In addition, the company is one of the largest pharmacies in the United States (along with Walgreens Boots Alliance), which allows it to capture economies of scale and pressure its suppliers into delivering better prices. CVS Health Corp controlled more than a quarter of the retail pharmacy market share as of the most recent quarter.
On December 5, 2023, CVS Health Corporation raised its quarterly dividend 10% to $0.665 per share, the company’s third consecutive increase. With a forward dividend payout ratio of 45%, the dividend payout appears secure at the current level. CVS stock currently yields 5.4%.
2. Bank OZK (OZK)
Bank OZK OZK, previously Bank of the Ozarks, is a regional bank that offers services such as checking, business banking, commercial loans and mortgages to its customers in Arkansas, Florida, North Carolina, Texas, Alabama, South Carolina, New York and California. The bank was founded in 1903 and is headquartered in Little Rock.
In mid-October, Bank OZK reported results for the third quarter of 2024. Total loans and deposits grew 15% and 20%, respectively, over last year’s quarter. Net interest income grew 6% over the prior year’s quarter, despite higher deposit costs. Earnings-per-share grew 4%, from $1.49 to a new all-time high of $1.55, and exceeded the analysts’ consensus by $0.01. Bank OZK has exceeded the analysts’ consensus in 16 of the last 18 quarters.
Bank OZK has posted record earnings-per-share and record net interest income for eight and nine consecutive quarters, respectively. Bank OZK is an exemplary bank and hence we are confident in its prospects. Management still expects all-time high earnings-per-share in 2024 and a recovery of net interest margin from mid-2025 thanks to lower interest rates and deposit costs.
Bank OZK is a strong dividend growth stock. On October 1, 2024, Bank OZK announced a $0.41 quarterly dividend, representing a 2.5% raise over the last quarter’s payment and a 10.8% raise year-over-year. This marks the company’s 57th consecutive quarter of raising its dividend.
The bank is well positioned in its key markets, due to the opening of new branches and inorganic growth. Bank OZK is the largest bank in its home state of Arkansas. Given also a long history and strong performance during the last financial crisis, Bank OZK is an attractive financial stock. Bank OZK was very stable during the last financial crisis, as one of just a few banks which managed to grow profits.
OZK stock currently yields 3.5%.
3. NACCO Industries (NC)
NACCO Industries NC is a holding company for The North American Coal Corporation, which incorporated in 1913. The company supplies coal from surface mines to power generation companies. NACCO Industries is the largest lignite coal producer in the U.S. and ranks among the top ten of all coal producers.
NACCO Industries operates in the states of North Dakota, Texas, Mississippi, Louisiana and on the Navajo Nation in New Mexico. The company produces annual revenues of about $250 million.
On November 1, 2024, NACCO Industries reported third quarter results for the period ending September 30, 2024. For the quarter, revenue decreased 4.5% to $46.5 million while earnings-per-share of $2.14 compared favorably to -$0.51 in the prior year. Coal revenue was lower by 5.1% to $17.7 million while total tons delivered improved 1.3%. Unconsolidated coal deliveries grew 4.5% to 5.8 million tons while consolidated coal deliveries declined 24.5% to 474,000 tons.
Deliveries from the North American Mining segment were down by 22% to 12 million tons while revenue grew 49% to $32.3 million. Mineral Management revenue grew 54% to $8.8 million due to significantly higher volumes. The company expects to generate significant positive net income in 2024.
NACCO Industries does have some opportunity for growth. For example, the company entered into an agreement in Q2 2020 to become the exclusive contract miner for the Thacker Pass lithium project in northern Nevada. Construction commenced on March 2, 2023 with the production of lithium expected to begin in 2027.
Adjusting for its spin-off history, NACCO Industries has raised its dividend for 39 consecutive years. This is an impressive growth streak given the extreme cyclicality in the company’s earnings history. We expect a dividend growth rate of 5% going forward. NC stock currently yields 3%.
At the time of publication, Ciura had no positions in any securities mentioned.