Hello, my name is Felix. I run a YouTube channel which I provide stock analysis. I also provide fair value prices as well as my recommendation, so come by and subscribe to my channel. I also run a website called Fiscal Voyage. I have been a Dividend Growth Investor for the past seven years, and I have made over $30k in total dividends plus capital appreciation in that time frame. I am currently projected to make $14,000 a year in growing dividends. I love undervalued dividend growth stocks in 2020, and I have three companies that present an opportunity for you for further research.
With the recent sell-off caused by the COVID-19 pandemic, there has been an excellent opportunity to purchase shares of high-quality companies that may be undervalued to their intrinsic price.
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Top 3 Three Undervalued Dividend Growth Stocks in 2020
The three top undervalued Dividend Growth Stocks that I find to be attractive right now are Walgreens Boot Alliance (WBA), Bank OZK (OZK), and Unum Group (UNM). All three of these great companies have grown dividends for at least 11 consecutive years.
Walgreens Boots Alliance, Inc. (WBA)
Walgreens Boots Alliance is a name I am sure you are familiar with, and this is the first of the undervalued dividend growth stocks in 2020. The company is the leading pharmacy retailer with over 10,000 stores across the U.S. For Fiscal Year 2019, the company generated $136.9 billion in sales. 74% of those sales were in Pharmacy and 26% in Retail.
The company has grown earnings at a Compound Annually Growth Rate (CAGR) of 12.2% over the last ten years. However, it has slowed down slightly over the past five years to 11.5%. Still, this is an excellent growth rate for such an established company like Walgreens.
The company has been growing dividends for 44 years straight. This makes WBA a Dividend Aristocrat. I do not see that slowing down as the company currently has a dividend payout ratio of only 33.4% based on Full Year 2020 expected earnings of $5.48 a share.
Since the high of $96.63 a share in 2015, shares of WBA now trades hands for $42.27 a share. This represents a loss of (50.9)%, including reinvested dividends. However, this presents a great buying opportunity has earnings are expected to pick up about 2%. What makes this stock attractive is the valuation based on its history.
Walgreen’s current forward price-to-earnings ratio or ‘P/E’ is 7.22. This is favorably compared to its 5-year P/E average of 18.4. If Walgreens were to revert to a P/E of 15, using expected earnings of $5.48, this would represent a price of $82.20 a share, which means that Walgreens is undervalued by 94.5%.
Bank OZK (OZK)
The second company in my top three list of undervalued dividend growth stocks in 2020 is Bank OZK. This a small bank compared to the likes of Bank of America, Wells Fargo, and others. Bank OZK is a regional bank headquartered in Little Rock, Arkansas, with more than 250 locations in ten states.
Last year the company made $984 million in revenue and $426 million in net income; this represents a CAGR of 19.8% and 23.4% over the last 10-years, respectively. The net margin for OZK for the previous year was high at 43.3%. This is much favorably than the big banks like Bank of America and Wells Fargo, whose net margin was 28.5% and 21.1%, respectively.
The company has also been growing its dividend for the past 24 years. This makes Bank OZK a Dividend Contender. Its five-year dividend growth rate average is 14.9%. The company just recently accounted for a dividend increase of 3.8% on April 1. This right in the middle of the COVID-19 pandemic. This shows me the high confidence that OZK management has on its future.
OZK also saws its share price drop significantly from a high of $54.87 in 2017 to now $22.67. This is a decrease of (56.8)% included reinvested dividends.
Because of the COVID-19 pandemic, earnings for this company are expected to drop by (54)% this year, from $3.30, in 2019, to $1.50. However, the share price for OZK was in the mid to low teens. These were prices I bought shares, and I still think there is value right now at $22.67.
The 5-year P/E average for OZK is 15.2. Based on 2020 expected earnings of $1.50, this would give us a price of $22.80. However, if we look further to 2021, analysts are expecting earnings of $2.36 a share. This would provide us with a fair price of $35.87. It is indicating that the Bank of OZK is 58.2% undervalued.
Unum Group (UNM)
The third and final company on my list of undervalued dividend growth stocks in 2020 is Unum Group. The company is an underwriting insurer that is the top disability insurer in both the U.S. and the United Kingdom. Unum Group also offers other insurance products such as accident, critical illness, and life insurance.
Unum has been growing earnings at an 8.3% rate over the past ten years. However, revenues have been flat in that same period. What makes this company attractive is the valuation and future earnings. For example, the company has a current dividend yield of 7.75%. Compared to its own 5-year dividend yield average of 2.55%. As you can see, at the current price of $16.15, you can obtain a three times higher yield than its 5-year average.
Usually, when an investor sees a high yield, like what we have with OZK, the investor would think that it is not safe. However, the company has a dividend payout ratio of only 22% based on 2020 forecasted earnings of $5.22. So not only is the dividend looks to be safe, but the company has been growing the dividend at a fantastic rate. For the past five years, the company has been averaging a rate of 14.9%. The most recent dividend increase was in July of last year for 9.65%. I am also expecting another dividend increase this time in July.
Earnings are expected to be slightly lower this year of $5.27 vs. last year $5.44, or a decrease of (3)%. However, the stock has a P/E of 2.74. This P/E is as if the company was going to file for bankruptcy. The 5-year P/E average for UNM is 12.2. Let’s say that the company hits a P/E of just 7, which is still under its 5-year average of 12.2. A 7 P/E with expected earnings of $5.27 would represent a price of $36.89.
Currently, UNM trades hands for $15.89. This would mean that the company is currently undervalued by 132%.
Thanks for reading about the Top 3 Undervalued Dividend Growth Stocks in 2020.
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My name is Felix Martinez, and I am a Dividend Growth Investor who has invested in dividend growth stocks for the past seven years. I also run a YouTube channel called FiscalVoyage. I have written for SeekingAlpha.com as well as SureDividend.com. I focus on undervalued dividend growth stocks with capital return and dividend income potential. Make sure to follow me on my YouTube Channel. See you there.