The S&P 500 just recently entered correction territory. That means it’s dropped 10% from its recent high.
But there are a lot of stocks out there that are down way, way more than 10%. Some of the high-flying “tech” stocks that were egregiously valued last year are down 50% or more.
Those bubbles are popping, and that’s overdue. But even some of the dividend growth stocks that I routinely make videos on are down 20% or more.
Yet these stocks, arguably, were never in bubble territory in the first place. And these big drops from heights that weren’t all that high to begin with could be huge opportunities.
As I always say, short-term volatility is a long-term opportunity. Today, I want to tell you about five dividend growth stocks that are down 20% or more from their respective 52-week highs. Ready? Let’s dig in.
The first dividend growth stock that I want to tell you about is Broadcom (AVGO).
Broadcom is a semiconductor and infrastructure software company with a market cap of $224 billion.
Broadcom is pretty much everywhere you want to be in tech. Let’s do a quick rundown for Broadcom’s exposure. Data centers, networking, software, broadband, wireless, and storage. There is no future in which society will need these technologies less. And so I find it hard to imagine any future in which Broadcom isn’t prospering and growing, which translates over to its dividend.
The company has increased its dividend for 12 consecutive years.
While that track record isn’t super lengthy, Broadcom more than makes up for it with huge growth numbers. Check it out. Their 10-year dividend growth rate is an astounding 43.6%. And you even get a rather appealing yield of 3.0% here. With free cash flow covering the dividend twice over, even after Broadcom’s most recent 13.9% dividend increase, the dividend is likely headed a lot higher from here.
The 52-week high of $677.76 seems like a faraway place with the stock now at under $542. But if you’re a long-term investor, this could be just the opening you need to initiate or add to a position in Broadcom. Most basic valuation metrics are getting pretty close to their respective recent historical averages. And that aforementioned 3% yield is actually 20 basis points higher than its own five-year average. I wouldn’t say that Broadcom is extremely cheap or anything, but it definitely looks much, much more attractive after the 20% drop. Take a look at this one, if you haven’t already.
Next up, let’s talk about Best Buy (BBY).
Best Buy is a North American consumer electronics and appliances retailer with a market cap of $25 billion.
Best Buy has surprised me. If you would have asked me five years ago, in 2017, where Best Buy would be in 2022, I would have said they might be struggling to survive with the onslaught of extraordinary competition from e-retailers. But I would have been wrong.
Because Best Buy isn’t just surviving but actually thriving. They’ve adopted an omnichannel approach and become an e-retailer themselves. And they’ve printed some really impressive numbers as a result. That impressiveness shows up in the dividend, too.
This retailer has increased its dividend for 18 consecutive years.
It gets even more impressive, though. The 10-year dividend growth rate is 15.8%. Yep. Best Buy is handing out some big dividend raises to their shareholders. And the stock even yields 2.8%. So you’re not giving up yield to get that growth. Plus, the payout ratio is just 27.1%. That’s extremely low. So even after all of that dividend growth, there’s almost certainly a lot more to come.
The 52-week high is $141.97. The stock is now at slightly over $101. That’s a pretty stunning drop for a company that is doing really well. But what has this drop done? Well, it’s made the stock look attractively valued. In fact, I recently highlighted it as an undervalued dividend growth stock in one of our weekly full analysis and valuation videos. In that video, I estimated fair value for Best Buy at slightly over $122/share, so there’s meaningful upside potential here.
I now want to highlight Comcast (CMCSA).
Comcast is a media and entertainment conglomerate with a market cap of $229 billion.
Comcast is a bit like Best Buy in that you have this old-school business model learning to be new cool by giving their customers what they want, when and how they want it. In the case of Comcast, that’s less video cable and much more broadband. All good, because Comcast is America’s biggest broadband provider. With reliable access to the Internet becoming as important as reliable access to water or electricity, that bodes well for their ability to grow revenue, profit, and the dividend.
The company has already increased its dividend for 14 consecutive years.
And I think there’s a lot more where that came from. The 10-year dividend growth rate of 16.3% is fantastic. And you’re getting a starting yield of 2.0% here. Don’t forget, Comcast is due to increase its dividend any day now, so that yield on a go-forward basis is set to be higher. With a low payout ratio of 32.2%, Comcast can afford to reward their shareholders handsomely.
This stock has been unjustly punished and is now down 19% from its 52-week high.
That video will be going live on the channel imminently. I have intrinsic value pegged at a bit less than the 52-week high, so the stock might have gotten a bit ahead of itself when it ran up toward that $62 mark. But way down here at $50 looks like the stock has swung way too far the other way. Comcast is very much worth considering buying right now.
Next up, let’s have a quick talk about Johnson Outdoors (JOUT).
Johnson Outdoors is an outdoor recreational products company with a market cap of $900 million.
I think Johnson Outdoors is an under-the-radar small cap gem. The business routinely puts up some great numbers pretty much across the board. Now, the pandemic was a boon for them. People wanted to enjoy outdoor activities like camping, fishing, and kayaking. All of that is right in the company’s wheelhouse. But even when the pandemic fully subsides, which it seems like we’re on the cusp of seeing, people won’t suddenly stop enjoying these activities. And so the company should continue to perform well for their investors, which includes their growing dividend.
The company has increased its dividend for nine consecutive years.
This isn’t a household name. But that lack of the familiar belies their dividend prowess. The five-year dividend growth rate is 23.0%. But wait, there’s more. As fantastic as that dividend growth rate is, it’s been accelerating. Their most recent dividend increase was an astounding 42.9%. Now, the yield of 1.4% doesn’t knock your socks off. But it doesn’t need to with this kind of dividend growth. And even after that massive dividend increase, the payout ratio is still only at 14.6%.
This stock is down a shocking 43% from its 52-week high.
That’s how it goes, though. The market often swings way past fair value in the short term, both to the downside and the upside. While I do think earnings here are going to come down, this stock’s P/E ratio is only 10.6. So there’s a rather large buffer there to absorb any significant drop in earnings. And that 1.4% yield is 60 basis points higher than its five-year average, which is noteworthy. This name ought to fly less under the radar than it’s been, especially after the recent drop.
Last but not least, I have to highlight T. Rowe Price Group (TROW).
T. Rowe Price is an investment management company with a market cap of $36 billion.
This company layers an attractive fee-based business model on top of exposure to global capital markets. And those markets are naturally headed higher over the long run. So it takes something great and makes it even better. This is a powerful combination, which has led to outstanding revenue, profit, and dividend growth for many years.
T. Rowe Price has increased its dividend for 35 consecutive years.
Yep. That makes them a vaunted Dividend Aristocrat. The 10-year dividend growth rate of 12.8% is paired with a yield of 2.7%. And I think that yield is somewhat misleading, as T. Rowe Price is due for a dividend increase within the next week or so. So on a go-forward basis, the yield is likely a lot higher than it looks. With the payout ratio sitting at just 32.6%, this upcoming dividend increase should be very healthy.
It’s pretty rare that a company of this caliber will fall so far, so fast. Indeed, the 52-week high of $224.56 was reached only a few months ago. I mean, this was a $200 stock as recently as late December. Yet the stock is now at a bit over $159.
One month later, you’re able to get the same exact equity in the same exact business for $40/share less. I like that setup. I analyzed and valued T. Rowe Price in late December, estimating intrinsic value for the firm at $221.76/share. So I thought the stock looked fairly valued at the 52-week high. But down here at below $160? I think it’s materially undervalued. If you haven’t already loaded up on this name, now is a good time to consider doing that.
— 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.
The BEST Source of PASSIVE IncomeWould you like to make money while you sleep and wake up to fresh money you didn't work for? Would you like to become financially independent and live off of passive income? Want to know the BEST form of passive income? I'm Jason Fieber, and I went from below broke at age 27 to financially free at 33 by living below my means and building passive income. I now get paid while I sleep, and I wake up to fresh passive income almost every single day. This is money I earn without having to do anything. No job to show up to. No work to do. I get paid for simply existing. Passive income is AWESOME. But not all "passive income" is the same. Some forms of passive income are definitely better than others. In this video, I talk about the BEST form of passive income. If not the best, it's definitely my favorite. After all, I'm able to live an early retirement dream lifestyle because of it!
