3 undervalued dividend champions with high yield potential


Income investors sometimes choose the route of finding the best yielding stocks to meet their needs based on criteria such as dividend safety, dividend growth potential, or historical dividend streak. These can help investors find great dividend champions that will provide them with years of income.

In addition to dividends, investors should also consider the capital appreciation potential associated with dividend income. You can do this by choosing stocks with excellent dividends that also represent great value. In our view, these stocks provide the one-two punch of not only a strong income stream, but also the potential for significant capital appreciation.

The next three dividend champions they are undervalued and also have high dividend yields, leading to high total return potential.

SYK Stryker $209.55
DOV Dover Corporation $120.17
PII Polaris $102.10

Stryker (SYK)

Source: Sundry Photography / Shutterstock.com

Stryker (NYSE:SYK) is the world’s leading company in the field of medical devices. The company’s product lines include surgical equipment, neurovascular products and orthopedic implants.

The company continued to grow in 2022, even in a difficult macroeconomic environment. V last quarter, Stryker’s revenue rose 4.6% to $4.49 billion. Adjusted earnings per share (EPS) of $2.25 was flat year-over-year (YOY). Organic revenues increased by 6.1% compared to the previous year. MedSurg and neurotechnology had organic growth of 7.9%. Mako continues to have a growing install base, with installs up 19%. Orthopedics and spine grew by 3.9% due to increased volume of procedures in Europe, Canada, India and Japan.

Stryker also provided updated guidance for 2022. The company now expects organic revenue growth of 8% to 9%, up from 6% to 8% previously. Stryker now expects adjusted EPS to be in the range of $9.30 to $9.50 per year.

Stryker has grown its earnings per share at a rate of 11.6% per year over the past 10 years. It is likely that the company will be able to continue its 10% annual profit growth due to increased demand for Stryker’s products during the recovery from the pandemic.

Stryker has grown its dividend at an average rate of nearly 12% per year over the past 10 years, although that growth has slowed somewhat over the medium term. The company raised its dividend by 10.3% to be paid on January 31, 2022. It has now increased its dividend for 28 consecutive years. The stock is currently yielding 1.3%.

Based on 2022 estimates, the stock trades at 22.1 times earnings. We reaffirm that our 2027 earnings (P/E) target of 24.5 is more in line with the average valuation since 2012. If the stock returns to our price-to-earnings target by 2027, the valuation would be approx. 2% on the contrary. annual returns over this time period. Overall, total returns could exceed 13% due to EPS growth, dividends and an increasing P/E multiple.

Dover Corporation (DOV)

Logo for Dover (DOV) displayed on a smartphone screen.

Source: IgorGolovniov / Shutterstock.com

Dover Corporation (NYSE:DOV) is a diversified global industrial manufacturer with annual revenues of nearly US$9 billion. Dover consists of five reporting segments: Engineered Systems, Clean Energy & Fuels, Pumps & Process Solutions, Imaging & Identification, and Climate & Sustainable Technologies. Just over half of the revenue comes from the US, with the remainder from international markets.

On August 5, 2021, Dover announced that it was raising its dividend by 1% to be paid on September 15, 2021, marking 66 consecutive years of dividend growth. This is the second-longest streak of dividend growth among US companies. The stock is currently yielding 1.6%.

The company is effectively managing inflation while continuing to grow revenue. In the last quarter, revenues increased by 6.4% to $2.16 billion, while adjusted EPS increased 3.9% year-over-year to $2.14. Organic revenue remains strong as the company posted 7% growth in the second quarter. Engineered products grew organically by 19% as demand for waste management, vehicle services and industrial winches and automation continued to be strong. Dover’s backlog grew 30% year over year to $3.3 billion, indicating further growth in the coming quarters.

Dover reaffirmed guidance for 2022. Adjusted earnings per share are expected to be in the range of $8.45 to $8.65, with revenue expected to grow 8% to 10%. Dover also raised its organic growth forecast to 8% to 10% from 7% to 9% previously, indicating positive momentum to end the year.

Dover’s EPS has grown at 6% annually over the past decade. In the medium term, growth accelerated and amounted to more than 14% annually in five years. Dover did suffer some setbacks during the worst of the Covid-19 pandemic, but the company quickly recovered. We maintain our expected earnings growth rate of 8% per annum through 2027. The stock also appears undervalued, leading to total estimated returns of over 13% per annum over the next five years.

Polaris (PII)

Polaris All Terrain Vehicle (PII) close-up.

Source: Ken Wolter / Shutterstock.com

Polaris (NYSE:PII) designs, engineers and manufactures snowmobiles, all-terrain vehicles (ATVs) and motorcycles. In addition, related accessories and replacement parts are sold with these vehicles through dealers throughout the United States. The company operates under more than 30 brands, including Polaris, Ranger, RZR, Sportsman, Indian Motorcycle, Slingshot and Transamerican Auto Parts. The global powersports manufacturer, which operates in more than 100 countries, will generate $8.2 billion in sales in 2021.

Like many global manufacturers, Polaris is facing high costs due to inflation, which is squeezing margins. Fortunately, revenues continue to grow. In the last quarter, revenues increased by 8% to $2.06 billion, while adjusted earnings per share fell 10% year-over-year. Still, adjusted earnings per share of $2.42 for the quarter were 30 cents above expectations. The marine and off-road segments grew by 38% and 7%, respectively, to take the lead in the last quarter.

Supply chain constraints and inflationary pressures that impacted results are being offset by higher prices. Polaris also provided revised guidance for 2022. For this year, the company now expects revenue to grow 13% to 16%. Adjusted EPS is now expected to be in the range of $10.10 to $10.30. This should easily cover the dividend and allow for continued dividend growth even if EPS stagnates.

Polaris has increased its dividend for 26 consecutive years. With a projected dividend payout ratio of 25% for 2022, the dividend payout seems safe. Polaris enjoys a competitive advantage due to its brands, low-cost manufacturing and long history in its various industries, allowing the company to be the leader in ATVs and number two in snowmobiles and domestic motorcycles. This means that Polaris can remain profitable even in difficult operating environments.

The combination of 4% annual expected EPS growth, a 2.3% dividend yield and a significant boost from a rising P/E multiple could fuel 13% expected annual returns over the next five years.

As of the date of publication, Bob Ciura did not hold (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the writer and are the subject of InvestorPlace.com Publishing Guidelines.

Bob Ciura worked at A dividend, of course since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published in major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and others. Bob holds a BA in Finance from DePaul University and an MBA with a concentration in Investments from the University of Notre Dame.


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