These 5 Dividend Growth Stocks Are Down More Than 20%

The stock market isn’t a monolith. It’s the aggregate of many, many individual stocks. Simply put, the stock market is a market of stocks.

And while the S&P 500 is still cruising along near all-time highs, many individual stocks have recently dropped significantly.

That’s despite many of the underlying businesses still doing quite well. So we have two disconnects.

We have a disconnect between business performance and stock performance.

And then we have a disconnect between individual stocks and the stock market. These disconnects could lead us to fantastic long-term opportunities.

Today, I want to tell you about five dividend growth stocks that are down at least 20% from their respective 52-week highs. Ready? Let’s dig in.

The first dividend growth stock I want to highlight is Amgen (AMGN).

Amgen is a global biotechnology company with a market cap of $115 billion.

This is one of the biggest and best biotechnology companies in the world. Amgen as a business continues to perform well. Yet Amgen as a stock has not been performing well at all. Not this year, at least. But what this lousy stock performance has done is, it’s resulted in a much higher yield for investors buying this stock now. And then you get to layer impressive dividend growth on top of that higher yield.

Amgen has increased its dividend for 11 consecutive years.

Amgen’s stock yields 3.5% right now. That’s nearly three times higher than what the S&P 500 yields. It’s also 80 basis points higher than the stock’s own five-year average yield, speaking on what I just mentioned about investors being able to get a much higher yield after the pullback. Then you’re looking at a five-year DGR of 15.2%, which is incredible growth with a yield this high. And with a payout ratio of 41.9%, based on midpoint adjusted EPS guidance for this fiscal year, the dividend is easily covered and positioned to continue growing.

It seems like nobody cares about any of that, though, as this stock is down 26% from its 52-week high.

Amgen’s 52-week high of $276.69 was reached in early 2021. It’s been almost straight down since then. Shares are now trading hands for under $204/each. I’m surprised about the poor performance of the stock this year – it’s down more than 10% in 2021. This is a very high-quality company across the board in terms of fundamentals. I’m actually working on a full analysis and valuation video for Amgen right now, so keep an eye out for that. Should be coming out imminently. Suffice it to say, I see Amgen as significantly undervalued right now. If you’re looking for a great healthcare business on sale, make sure to check out Amgen.

The second dividend growth stock I have to tell you about is Best Buy (BBY).

Best Buy is a consumer electronics retailer with a market cap of $27 billion.

Best Buy is one of those rare niche retailers that has been able to thrive in a new retail world where it’s become the very large haves and the niche have-nots. The biggest retailers, who can seemingly be everything to everyone, have shown how the big can get bigger. But Best Buy hasn’t backed down. And neither has their dividend.

This retailer has increased its dividend for 18 consecutive years.

The 10-year DGR of 14.2% is paired with a current yield of 2.5%. These are very, very good numbers, especially for a retailer. A lot of the high-quality retailers that I like and personally invest in offer much lower yields than this. This yield easily beats the market, although it is basically right in line with the stock’s own five-year average yield. The low payout ratio of 28.6% indicates no trouble at all with being able to continue paying and increasing the dividend.

This stock has cratered over the last week, and it’s now down 22% from its 52-week high.

This stock reached its 52-week high of $141.97 on November 22. A week later, we’re at less than $111/share. So what happened? Well, I’m not quite sure. The company reported a very solid Q3 report on November 23 that saw them beat both top-line and bottom-line expectations. They beat comp expectations, too. The only thing I can say is, the valuation was looking at bit stretched there before the drop. Most basic valuation metrics are now a lot more reasonable. For instance, the P/E ratio is 10.8 right now. The market seems to think this stock is Best Sell, but the business results are staying true to its name. Take a look at Best Buy.

Next up, let’s talk about Bristol-Myers Squibb (BMY).

Bristol-Myers Squibb is a global biopharmaceutical company with a market cap of $121 billion.

Yep. Another healthcare play here. Famed investor Benjamin Graham, the guy who taught Warren Buffett, once quipped: “In the short run, the market is a voting machine. But in the long run, it is a weighing machine.” Well, that adage couldn’t be more prescient here. While the market is voting in healthcare stocks with some exposure to the pandemic, anything else in healthcare is getting voted out. But over the long run, after the world gets back to normal, quality healthcare stocks that have been overlooked will have their weight measured and more properly valued. While you wait, Bristol-Myers Squibb is rewarding shareholders handsomely with a safe, growing dividend.

The company has increased its dividend for 12 consecutive years.

Like Amgen, Bristol-Myers Squibb has recently performed poorly as a stock. And that’s driven the yield up to levels that far exceed its average. The 3.6% yield this stock offers is 80 basis points higher than its own five-year average, not to mention being way higher than what the broader market offers. While the 10-year DGR of 3.5% isn’t great, there has been a huge acceleration in dividend growth – their most recent dividend increase was nearly 9%. And the payout ratio is only 26.3%, based on midpoint FY 2021 non-GAAP EPS guidance, which means there should be plenty more where that came from.

Surprisingly, this stock is down 22% from its 52-week high.

I say surprisingly because this stock wasn’t exactly expensive from the start. I’ll sometimes see stocks fall from 52-week highs pretty dramatically because they arguably should have never been there in the first place. But I don’t think the valuation for this stock was all that crazy at the 52-week high of $69.75. Shares are now going for less than $55/each, which shocks me. Check this out. The forward P/E ratio, based on midpoint adjusted EPS guidance for this fiscal year, is 7.3. That’s ludicrous. The P/CF ratio of 7.9 is less than half of the stock’s own five-year average P/CF ratio of 16.6. If you’re sleeping on Bristol-Myers Squibb, consider waking up before the market does.

The fourth dividend growth stock that’s pulled way back is Omnicom Group (OMC).

Omnicom is an advertising, marketing, and corporate communications company with a market cap of $14 billion.

No, I’m not talking about the new variant. I’m talking about Omnicom, a fantastic marketing business. Although, the market seems to be treating this stock like a variant, as it’s just trying to get far away from it. No matter. That kind of behavior is precisely what you want to see if you’re trying to accumulate. A lower price means more shares for the same amount of money. And more shares means… more dividends, which this company is all too happy to pay.

Omnicom has increased its dividend for 12 consecutive years.

The business took a hit in 2020. No doubt about it. But you know what didn’t take a hit? The dividend. They stayed true to that commitment to their shareholders, which I just love. The 10-year DGR of 13.2% is nice. Even nicer? The yield, which is 4.2% right now. That’s more than three times higher than what the S&P 500 yields. It’s also 90 basis points higher than the stock’s own five-year average. And there’s nothing unsustainable about it. The payout ratio is only 45.0%.

Despite great dividend metrics, the stock is down 22% from its 52-week high.

Omnicom isn’t the greatest business out there. It’s not the kind of investment I’d bet my life on. But this is a very, very good dividend growth stock, guys. And the market is treating it as if it’s garbage. The 52-week high of $86.38 was reached back in May, but shares are now going for less than $68/each. That’s a stunning fall. I actually analyzed and valued Omnicom back in late August, estimating intrinsic value at $85.40/share. This name has a ton of upside potential. Make sure it’s on your radar, if it isn’t already.

Last but not least, I have to highlight Scotts Miracle-Gro (SMG).

Scotts Miracle-Gro is a lawn and garden products company with a market cap of $9 billion.

What’s exciting about lawn and garden products? Well, a lot more than you might think. Scotts Miracle-Gro actually has a lot of exposure to the grow side of cannabis, through their Hawthorne business. And this business has been powering a ton of growth for the company as a whole. For FY 2021, the entire company showed 19% revenue growth. But Hawthorne specifically had 39% full-year sales growth for FY 2021. That kind of growth should translate to plenty of dividend growth.

The company has increased its dividend for 12 consecutive years.

And I think they’re really just warming up. I say that because the dividend is only sucking up 30.3% of their expected adjusted EPS for FY 2022. This gives them plenty of room for many more sizable dividend increases. The 10-year DGR is a very solid 12.3%, which is layered on top of the current yield of 1.7%.

This stock is amazingly down 37% from its 52-week high.

Now, maybe it got a bit ahead of itself when it ran up to its 52-week high of $254.34, which was reached back in April. But shares are now trading hands for less than $160/each. That’s put a lot of basic valuation metrics back into a pretty reasonable range. Based on the company’s midpoint adjusted EPS guidance for this coming fiscal year, the forward P/E ratio is 18.3. That’s not egregious at all for a company with exciting exposure to a cannabis market that’s showing a lot of growth and promise for more. This name is definitely worth taking a look at after the pullback.

— 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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