3 Under-The-Radar Dividend Growth Stocks Offering Yields Up to 5.4%: Flowers Foods (FLO), International Business Machines (IBM) and Iron Mountain (IRM)

Dividend growth investing is a fantastic long-term investment strategy. It’s a strategy that kind of automatically funnels investors into some of the world’s best businesses.

After all, it takes a special kind of business to be able to consistently pump out ever-higher profits and dividends. You can’t just send out higher and higher cash dividends to shareholders for decades while running a poor business. It doesn’t work like that.

But as great as many high-quality dividend growth stocks are, they’re also well-known. Of course, they’re well-known for good reason. Because they’re world-class enterprises that make for excellent long-term investments.

Hard to keep a secret like that, right? But what if you’re looking for some under-the-radar dividend growth stocks that don’t get a lot of attention?

And what if you’re also looking for a market-beating yield of 3.5%, 4.5%, or even 5.5% – depending on your risk tolerance? I’ve got you covered.

Today, I want to tell you about three under-the-radar dividend growth stocks offering market-beating yields. Ready? Let’s dig in.

Under-The-Radar Dividend Growth Stock #1: Flowers Foods (FLO)

Flowers Foods is a consumer goods company with a market cap of $5 billion.

This is a small bakery business, owning brands like Dave’s Killer Bread and Tastykake. A business can’t get much easier to understand than this. You’re primarily investing in bread here, which is a basic food staple. Despite the simplicity, consistency, and solid brands, the company is rarely talked about. And that arguably keeps the valuation low and the yield somewhat high.

The stock yields a market-beating 3.5%.

That’s almost three times that of the S&P 500’s lowly yield of 1.3%. On a low-risk, easy-to-understand bakery business. Plus, this is a dividend that’s been increased for 20 consecutive years, with a 10-year dividend growth rate of 8.7%. And with the dividend only taking up about 64% of free cash flow, I suspect there’s plenty more dividend increases to come.

This stock is almost flat on the year, and the valuation looks reasonable.

Most basic valuation metrics are right in line with recent historical averages. For example, the five-year average yield for the stock is 3.5%. That’s where we’re at right now. And the current P/CF ratio of 12.6 is very close to its own five-year average of 12.8. This is an under-the-radar, easy-to-understand, low-risk dividend growth stock offering a 3.5% yield, pretty nice growth, and a reasonable valuation. Don’t overlook it.

Under-The-Radar Dividend Growth Stock #2: International Business Machines (IBM)

IBM is a global technology company with a market cap of $125 billion.

IBM is not as obscure as Flower’s Foods, I’ll give you that. But IBM definitely gets overshadowed by a lot of other tech companies. And maybe that’s for good reason. IBM has floundered a bit in recent years. But there’s still a lot to like about this stock, not the least of which is its yield.

IBM’s stock yields a very attractive 4.7%.

We’re talking almost four times the broader market’s yield. And with 26 consecutive years of dividend raises, and a five-year dividend growth rate of 5.4%, it’s not like the yield is all you’ve got. Now, growth has slowed of late. No doubt about it. But for income, you could do a lot worse than IBM. And this big dividend is easily covered by free cash flow.

IBM has performed decently this year, up 13%. But the valuation remains rather compelling.

Pretty much every basic valuation metric indicates undervaluation. The current yield is 20 basis points higher than its five-year average. The lowly P/CF ratio of 7.1 is well below what almost every other tech stock commands, and it’s also significantly lower than the stock’s own five-year average P/CF ratio of 8.0. On top of all of this, IBM has a new CEO, new growth plans, and an upcoming spin-off to get things moving in the right direction.

Under-The-Radar Dividend Growth Stock #3: Iron Mountain (IRM)

Iron Mountain is an information management company with a market cap of $13 billion.

Iron Mountain is actually a real estate investment trust, but it doesn’t get nearly the same kind of attention that a lot of other REITs get. Now, their corporate name implies exactly what they’ve historically offered: extremely safe storage facilities for information. As information has gone increasingly digital, Iron Mountain has responded in exactly the way you’d wish for them to respond – by investing in data centers. Meanwhile, the stock offers an iron mountain of a dividend.

This stock yields a market-smashing 5.4%.

That’s more than four times higher than the broader market’s yield. Now, that yield comes with some drawbacks. Namely, higher risk and lower growth. Indeed, there are valid questions about how its investments in data centers will work out, as well as what kind of terminal decline some of its legacy assets face. However, you’re getting compensated with a huge dividend in the meantime. And they’ve increased their dividend for 10 consecutive years, with a five-year dividend growth rate of 5.3%. And their FFO/share guidance for this year shows a payout ratio of slightly over 70%. High, but not dangerously so.

This stock is up 60% YTD, so some investors have clearly already caught on.

Yeah, although I rarely hear anyone talk about this stock, it’s obvious that some investors have been quietly accumulating shares. Despite that, the stock doesn’t look explicitly expensive. It’s just that it’s gone from extremely cheap to a valuation that is more in line with some other REITs out there. For example, its P/CF ratio is 14.2. Even after its big run this year, there’s nothing extreme about that cash flow multiple. A lot of other REITs command cash flow multiples of over 20. I’d prefer to see a pullback here, as I’m sure you would. But if a pullback does come, take a good look at Iron Mountain.

— Jason Fieber

P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.

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