These 5 Dividend Growth Stocks Are Down More Than 20%

2022 has been a ride, hasn’t it? The first four months of this year have been brutal. How brutal?

The broader stock market is having its worst start to a year since 1939. Yeah, 1939. As in the Great Depression era. Some might call this terrible. I’d call it wonderful.

I always see short-term volatility as a long-term opportunity. If you’re young and still actively accumulating shares in great businesses, you should be happy to pay lower prices.

Price and yield are inversely correlated. All else equal, lower prices result in higher yields.

Plus, you’re typically locking in greater long-term total return potential and reduced risk.

So when I see high-quality dividend growth stocks down by 20% or more, I celebrate… and buy.

Today, I want to tell you about five dividend growth stocks that are down more than 20% from their recent highs. Ready? Let’s dig in.

First, I want to tell you about Apple (AAPL).

Apple is a multinational technology company with a market cap of $2.3 trillion.

Depending on the day and its stock performance, Apple is the largest company in the world by market cap. Even if the market cap takes a dip and it’s not the biggest on a particular day, I’d argue it’s still the best company in the world. But don’t take just my word for it. Warren Buffett has called Apple “probably the best business I know in the world.” If that isn’t a seal of approval, I don’t know what is. And why wouldn’t Buffett admire Apple so much? It does practically everything at a world-class level. And that includes paying a growing dividend.

Apple has increased its dividend for 11 consecutive years.

And I’m quite confident they’re just getting started with that. I have absolutely no doubt that Apple will become a Dividend Aristocrat in about 14 years. The five-year DGR is 9.2%. And with a payout ratio of only 15.0%, Apple could triple the dividend and still have a low payout ratio.

The one issue here, if there is an issue, is the yield. At only 0.6%, the low yield means you’re not getting a lot of income right now. But that yield is so low in part because demand for the stock is so high. This isn’t some high-yield junk stock. It’s a very high-quality compounder.

Buffett’s favorite business is down 22% from its recent high.

The stock’s 52-week high of $182.94 looks positively lofty compared to the current pricing of approximately $143. I smell an opportunity. So does Buffett. Even though Apple is by far the largest single position in the $300 billion common stock portfolio that he oversees, Buffett has been buying more Apple in 2022. Buffett is clearly buying the dip. Should you? Well, that’s ultimately your call.

But Apple is taking an incredible business model built on iPhones, tablets, computers, wearables, and services… and they’re soon going to be adding AR/VR and potentially even self-driving auto technology on top of it. Investing in Apple is investing in today’s best technology and tomorrow’s best technology. Most basic valuation metrics here have fallen into a range that are pretty close to their respective recent historical averages. As I’ve said before, this is a must-own stock for serious long-term dividend growth investors.

Next up, let’s have a quick conversation about JPMorgan Chase & Co. (JPM).

JPMorgan Chase is a financial holding company with a market cap of $366 billion.

This is the biggest bank in the US, with over $3.7 trillion in assets. It’s truly a juggernaut in the banking space. What’s key here is that JPMorgan Chase is so intertwined with the US financial system, it’s practically symbiotic with it. As the US and its financial might goes, so goes JPMorgan Chase. In my view, betting on JPMorgan Chase is almost akin to betting on the US. That’s been a great bet to make. Another great bet to make? That JPMorgan Chase will reward its shareholders with a large, safe, growing dividend.

The bank has increased its dividend for 11 consecutive years.

The only reason why JPMorgan Chase doesn’t have a much longer dividend growth track record is because of the disruption the financial crisis caused. A once-in-a-generation event that’s unlikely to be repeated. Even the pandemic didn’t cause the bank to cut the dividend.

The stock offers a 3.2% yield, which is way higher than the market’s yield. And with a 10-year DGR of 16.5%, you’re getting sizable double-digit dividend growth to go along with that big yield. The low payout ratio of 26% shows a well-covered dividend set to continue growing.

But nobody wants bank stocks right now. This stock is down 28% from its 52-week high.

When nobody wants stocks, that’s precisely when I like to buy. The last thing I want to do is chase the latest popularity contest winner, only to see my wealth crater when that popularity falters. This stock’s 52-week high is $172.96. That was when it was popular. And if you bought up there, you’re bummed. However, shares are now going for less than $125/each. It’s not so popular now.

That’s where the opportunity could be. We recently put together a full analysis and valuation video on the bank, showing why it could be worth $156.56/share. It looks undervalued here. If you haven’t yet taken a look at JPMorgan Chase, now might be a good time to do so.

The third name we have to talk about today is Lowe’s Companies (LOW).

Lowe’s is a large American home improvement retailer with a market cap of $121 billion.

Investing in Lowe’s is like investing in the American Dream. After all, a big part of the American Dream is homeownership. Many Americans want to own their shelter. Well, when you own shelter, guess what? That comes with upkeep responsibilities like repairs, maintenance, and upgrades. That plays right into the hands of Lowe’s. It also plays right into the hands of Lowe’s shareholders and their ability to continue collecting a growing dividend from the business.

The retailer has increased its dividend for 59 consecutive years.

This Dividend Aristocrat has one of the longest dividend growth track records in all of Corporate America. With more than 50 straight years of dividend increases, it’s a Dividend King. Think about all of the changes in retail, the US economy, interest rates, inflation, and everything else that have occurred over the last 60 years.

Yet Lowe’s dealt with it all and paid an increasing dividend straight through. That shows an incredible amount of resiliency. The 10-year DGR is an astounding 18.8%. And the stock even offers a market-beating yield of 1.7%. With the payout ratio at only 24%, based on midpoint EPS guidance for this fiscal year, this is one of the safest dividends in all of American retail.

This Dividend Aristocrat has cratered and is now down 29% from its 52-week high.

Yep. A big drop. But here’s the question. Would you rather pay 20% or 30% more for your food or gas? No? Well, why would you wish to pay 20% or 30% more for your stocks? My point exactly. The 52-week high of $263.31 is nowhere in sight now, with shares currently trading for about $186/each. However, this is why Lowe’s is once again on my radar in terms of its valuation.

Indeed, we recently put together a full analysis and valuation video on this world-class retailer, estimating its intrinsic value at slightly over $240/share. That video should be live soon, so keep an eye out for it. With such a big disconnect between price and possible value, this Dividend Aristocrat looks buyable again after its big drop.

I now have to tell you about Microsoft (MSFT).

Microsoft is a multinational technology corporation with a market cap of $2 trillion.

Another world-class tech company on the list today. With the Nasdaq down nearly 30% in 2022, this shouldn’t be a surprise. Now, Microsoft as a stock is volatile. Stock prices are partly manifestations of human emotions and reactions. However, Microsoft as a business isn’t very volatile at all. It tends to just steadily advance and progress, as the company is providing more products and services like Windows OS and Azure cloud across its tech ecosystem. That steady advancement in the business also results in a steady advancement of the dividend.

Microsoft has increased its dividend for 20 consecutive years.

Ol’ softy isn’t soft on its dividend. They continue to grow it reliably and aggressively. Their 10-year DGR is 13%. And with the payout ratio sitting at only 25.9%, in addition to billions of dollars in cash on the balance sheet, this is one of the safest dividends in the world. However, the stock yields just 1%. That’s not a lot of income. But this isn’t a stock you buy for income. This is a stock you buy for nearly relentless growth and compounding. And I don’t see that stopping any time soon.

This stock has been nearly impossible to take down over the last decade, but that’s recently changed. It’s down 25% from its recent high.

Its 52-week high of $349.67 is nothing more than a distant memory, with shares now currently going for about $261/each. Again, though, would you rather pay nearly $100 per share more or less for the same exact equity in the same exact business? If you’d rather pay $100/share more for your equity, just for the sake of feeling better because everyone is in a cheery mood at that particular time, I’m afraid that you’re going to have a tough time over the long run.

Now, I’d argue that the stock probably shouldn’t have ever been up at that $350 area. It looked overvalued up there. But after the fall? Most basic valuation metrics are indicating a fairly priced stock when you zoom out and look at the long-term averages for the multiples. The P/CF ratio, for instance, is 22.6. That’s basically right there with its own five-year average of 22.2. This could be a rare opportunity to invest in one of the world’s very best enterprises and get a wonderful business for a fair price.

Last but not least, let’s talk about Target (TGT).

Target is an American department store chain with a market cap of $71 billion.

Target is a great American retailer. So great, and so adored by shoppers, that its nickname “Tarjay” is a playful acknowledgement of its ability to deliver upscale merchandise at low prices. Target has been posting amazing numbers for years, with the last few years, especially during the pandemic, being particularly amazing. And that goes for the company’s dividend, too.

Target has increased its dividend for 54 consecutive years.

Another Dividend Aristocrat and Dividend King. The 10-year DGR is 11.1%. But speaking on what I just noted about particularly amazing numbers of late, Target’s most recent dividend increase came in at a jaw-dropping 32.4%. Plus, the stock yields a very respectable 2.3%. That’s a very nice combination of yield and growth. And with the payout ratio sitting at 25.5%, Target’s dividend is not only highly secure but highly likely to continue growing at a high rate for many years into the future.

However, the stock hasn’t exactly been hitting the bullseye. It’s down a stunning 43% from its recent high.

Target, umm, didn’t exactly hit the target with its Q1 report that missed bottom-line expectations by a wide margin and caused reassumptions about its near-term growth trajectory in the face of high inflation, supply chain woes, and merchandise mismatches. The stock dropped by 25% on earnings day alone. I don’t know about you, but I’d certainly rather buy after that kind of carnage than before. You want to get in after an expectations reset. Well, that’s exactly where we find ourselves now.

The 52-week high of $269.98 is long gone. Shares are now currently trading hands for about $154/each. That’s a drop of more than $100/share. Perhaps a bit sad for those that bought at the high. But for those that are looking to buy now, the situation looks more appealing. However, I’d actually say that the stock still looks a tad expensive here. Most basic valuation metrics are slightly above their respective recent historical averages. A 10% pullback from here, though, would make Target an interesting target for capital.

— 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.