Early 2026 market volatility has reinforced the learnings of old lessons.
One of those old lessons is to stick to quality when making long-term investments.
I see the shares of questionable business models getting hammered left and right.
This is just one more reason why I abide by the dividend growth investing strategy.
This is a long-term investment strategy involving the buying and holding of shares in world-class businesses paying reliable, rising cash dividends to shareholders.
You can find hundreds of examples of such businesses by going over the Dividend Champions, Contenders, and Challengers list.
That list contains invaluable information on US-listed stocks that have raised dividends each year for at least the last five consecutive years.
Imagine what it takes to be able to reliably pay and increase cash payouts to your shareholders – year after year, no matter what.
That takes a business with a certain amount of resiliency, durability, and – going back to my initial point – quality.
And it’s those kinds of businesses that tend to make for great investments over time.
I’ve applied this straightforward line of thinking over the last 15+ years in building the FIRE Fund.
That’s my real-money portfolio, and it generates enough five-figure passive dividend income for me to live off of.
I’ve been able to live off of dividends since I quit my job and retired in my early 30s.
My Early Retirement Blueprint explains how that was possible for me (and how it could be possible for you).
Another lesson that’s been reinforced for me during early 2026, in addition to sticking to quality, is the importance of valuation at the time of making any long-term investment (since expensive stocks left and right have also been getting hammered).
After all, price is only what you pay, but it’s value that you get.
An undervalued dividend growth stock should provide a higher yield, greater long-term total return potential, and reduced risk.
This is relative to what the same stock might otherwise provide if it were fairly valued or overvalued.
Price and yield are inversely correlated. All else equal, a lower price will result in a higher yield.
That higher yield correlates to greater long-term total return potential.
This is because total return is simply the total income earned from an investment – capital gain plus investment income – over a period of time.
Prospective investment income is boosted by the higher yield.
But capital gain is also given a possible boost via the “upside” between a lower price paid and higher estimated intrinsic value.
And that’s on top of whatever capital gain would ordinarily come about as a quality company naturally becomes worth more over time.
These dynamics should reduce risk.
Undervaluation introduces a margin of safety.
This is a “buffer” that protects the investor against unforeseen issues that could detrimentally lessen a company’s fair value.
It’s protection against the possible downside.
Sticking to quality and being prudent around valuation by buying undervalued high-quality dividend growth stocks can not only help to avoid many of the pitfalls that befall market participants, but that behavior can also lead to abundant wealth, passive dividend income, and financial independence over time.
Of course, being able to recognize undervaluation first requires an understanding of what to look for in the first place.
Well, that’s where Lesson 11: Valuation comes in.
Written by fellow contributor Dave Van Knapp, it deftly explains the whole concept of valuation using simple language and even provides a template you can apply on your own.
With all of this in mind, let’s take a look at a high-quality dividend growth stock that appears to be undervalued right now…
Raymond James Financial Inc. (RJF)
Raymond James Financial Inc. (RJF) is an American multinational independent investment bank and financial services company.
Founded in 1962, Raymond James is now a $29 billion (by market cap) financial services mover and shaker employing nearly 20,000 people.
The company reports results across four segments: Private Client Group, 68% of FY 2025 revenue; Capital Markets, 12%; Bank, 12%; Asset Management, 8%.
Raymond James mainly creates revenue (via PCG) by providing financial planning, investment advisory, and securities transaction services through a large and developed branch office network throughout the US, Canada, and the U.K.
In doing so, and by offering a one-stop shop for wealthy clients through its full suite, Raymond James generates asset management and administration fees after acquiring fee-based accounts and placing them under administration.
Raymond James has approximately $1.8 trillion in assets under administration, which represents the underlying fee and compounding engine for the entire enterprise.
And this engine is expanding from two powerful forces working simultaneously.
First, there’s the nature of global capital markets, leading to higher asset prices over time (which lifts market values of AUA and then the fees applied to AUA).
Second, there’s the consistent net inflows of assets, increasing AUA yet again (and, thus, fees).
While Raymond James has no control over the first component, that second component is where the company shines.
Whereas a lot of legacy asset managers have struggled with persistent net outflows, Raymond James continues to attract assets via its relationship-heavy, client-first, advisor-centric model via a wide branch network.
The company recorded $52 billion in domestic PCG net new assets for FY 2025, and these assets tend to be sticky once in place.
These two forces are showing no signs of abating, indicating that Raymond James has plenty of ability to continue growing its revenue, profit, and dividend over the years ahead.
Dividend Growth, Growth Rate, Payout Ratio and Yield
The company has already increased its dividend for 14 consecutive years.
Its 10-year dividend growth rate of 15.3% is impressive, but what might be more impressive is the consistency – Raymond James consistently hands out double-digit dividend raises (often in a low-teens to mid-teens range).
However, when you’re getting this kind of dividend growth, the common trade-off one has to make is yield.
Unsurprisingly, that trade-off shows up in the stock’s lowish starting yield of 1.4%.
This yield is 10 basis points higher than its own five-year average, so there’s some solace there, but this kind of setup is probably more suitable for those with a long-term compounding mindset.
With a payout ratio of just 20.3%, that long-term dividend snowball compounding process still has a long hill in front of it.
For younger dividend growth investors who have the time and patience for the compounding process to unfold and work its magic, this dividend profile looks terrific.
Revenue and Earnings Growth
As terrific as it may be, though, much of this profile is built using past information.
However, investors must always be thinking about the future, as today’s capital ultimately gets risked for tomorrow’s rewards.
As such, I’ll now build out a forward-looking growth trajectory for the business, which will be useful when the time comes later to estimate intrinsic value.
I’ll first show you what the business has done over the last ten years in terms of its top-line and bottom-line growth.
I’ll then reveal a professional prognostication for near-term profit growth.
Lining up the proven past with a future forecast in this manner should give us the ability to roughly gauge where the business could be going from here.
Raymond James moved its revenue from $5.5 billion in FY 2016 to $15.9 billion in FY 2025.
That’s a compound annual growth rate of 12.5%.
Excellent.
I usually look for a mid-single-digit (or better) top-line growth rate out of a fairly mature company like this, but Raymond James is knocking it out of the park.
Meanwhile, earnings per share grew from $2.43 to $10.30 over this period, which is a CAGR of 17.4%.
Very strong bottom-line growth here, aided by expanding margins and steady buybacks.
What’s really incredible here is that the bottom-line growth was secular in nature, with only YOY decline over the last decade (which occurred in FY 2020 during the depths of the pandemic).
I must say, I’m a bit stunned by the consistent operational excellence.
Looking forward, CFRA believes that Raymond James will compound its EPS at an annual rate of 10% over the next three years.
I’m inclined to believe this is closer to a floor than a ceiling for Raymond James.
A 10% hurdle shouldn’t be hard to clear for a company that did north of 17% over the last decade.
CFRA highlights the company’s high-quality nature, complementary suite, numerous tailwinds gusting its way (e.g., fee gathering, rising capital markets), disciplined M&A (e.g., Clark Capital), and the employment of AI via the proprietary AI agent “Rai” (which is being used by 10,000 associates).
Raymond James has nearly perfected its client-first, advisor-centric model that leads to entrenched, sticky relationships, and using AI and strategic acquisitions to steadily increase its network and scale makes it nearly unbeatable.
With a 10% EPS growth forecast on the table, that positions the dividend for low-teens (or better) growth over the coming years (by virtue of the low payout ratio).
Pairing that with the starting yield gets one to a mid-teens type of annualized total return – before any kind of multiple expansion.
It’s one of the more appealing setups I’ve come across recently.
Financial Position
Moving over to the balance sheet, Raymond James has an outstanding financial position.
Its long-term debt/equity ratio is 0.3.
As good as that is, it belies the company’s true financial strength.
I say that because Raymond James is sitting on net cash.
The company’s credit ratings, which are at the higher end of investment-grade territory, further show what a strong institution this is: A-, Fitch; A3, Moody’s; and A-, S&P.
Profitability is robust.
Return on equity has averaged 18% over the last five years, while net margin has averaged 15.1%.
Fat margins, high returns on capital.
From top to bottom, this is a very high-quality business.
And with economies of scale, “sticky” assets, switching costs, a wide branch network, brand recognition in the industry (both for advisors and clients), financial expertise, and its one-stop shop full suite, the company does benefit from durable competitive advantages.
Of course, there are risks to consider.
Regulation, litigation, and competition are omnipresent risks in every industry.
I view this industry as especially regulated and competitive.
The secular shift toward passive funds is a serious pressure point (i.e., fee compression), although the company’s standing as a wider wealth management firm helps to mitigate this.
Raymond James is directly exposed to volatility across global capital markets, as well as macroeconomics, interest rates, and broader economic cycles.
The company also has exposure to geopolitics and currency exchange rates.
Raymond James must continue to attract advisors and clients in order to support AUM growth.
While I think it’s important to acknowledge the risks, the quality of the firm deserves acknowledgment.
And so does the valuation of the business…
Valuation
The stock is trading hands for a P/E ratio of 15.3.
That’s about half that of the broader market’s earnings multiple.
When you line this up against the EPS growth, we’re talking about a PEG ratio below 1.
The P/S ratio is barely above 2.
The P/CF ratio is less than 13.
And the yield, as noted earlier, is slightly higher than its own recent historical average.
So the stock looks cheap when looking at basic valuation metrics. But how cheap might it be? What would a rational estimate of intrinsic value look like?
I valued shares using a two-stage dividend discount model analysis.
I factored in a 10% discount rate, a 10-year dividend growth rate of 14%, and a long-term dividend growth rate of 8%.
I’m basically extrapolating the prior decade of demonstrated dividend growth into the next decade (albeit with a minor adjustment downward on a go-forward basis).
This modestly conservative extrapolation doesn’t seem unreasonable when we see how low the payout ratio is, how fast the business is growing (and is expected to continue growing), and how strong the balance sheet is.
I see this as a pretty realistic set of assumptions to make for the business.
The DDM analysis gives me a fair value of $193.14.
The reason I use a dividend discount model analysis is because a business is ultimately equal to the sum of all the future cash flow it can provide.
The DDM analysis is a tailored version of the discounted cash flow model analysis, as it simply substitutes dividends and dividend growth for cash flow and growth.
It then discounts those future dividends back to the present day, to account for the time value of money since a dollar tomorrow is not worth the same amount as a dollar today.
I find it to be a fairly accurate way to value dividend growth stocks.
I’m seeing quite a bit of positive daylight between price and value here.
But we’ll now compare that valuation with where two professional stock analysis firms have come out at.
This adds balance, depth, and perspective to our conclusion.
Morningstar, a leading and well-respected stock analysis firm, rates stocks on a 5-star system.
1 star would mean a stock is substantially overvalued; 5 stars would mean a stock is substantially undervalued. 3 stars would indicate roughly fair value.
Morningstar rates RJF as a 3-star stock, with a fair value estimate of $180.00.
CFRA is another professional analysis firm, and I like to compare my valuation opinion to theirs to see if I’m out of line.
They similarly rate stocks on a 1-5 star scale, with 1 star meaning a stock is a strong sell and 5 stars meaning a stock is a strong buy. 3 stars is a hold.
CFRA rates RJF as a 3-star “HOLD”, with a 12-month target price of $180.00.
Morningstar and CFRA are in perfect alignment. I’m not that far off. Averaging the three numbers out gives us a final valuation of $184.38, which would indicate the stock is possibly 16% undervalued.
Bottom line: Raymond James Financial Inc. (RJF) is a high-quality investment bank that has perfected its advisor-centric, client-first model, bolstered by its wide branch network and full suite of complementary capabilities. AUM is rising both organically and via the power of compounding, meaning the firm almost cannot lose over time. With a market-beating yield, double-digit dividend growth, a very low payout ratio, nearly 15 consecutive years of dividend increases, and the potential that shares are 16% undervalued, this might just be one of my best ideas in the financials space for long-term dividend growth investors who aren’t in dire need for immediate income.
-Jason Fieber
Note from D&I: How safe is RJF‘s dividend? We ran the stock through Simply Safe Dividends, and as we go to press, its Dividend Safety Score is 99. Dividend Safety Scores range from 0 to 100. A score of 50 is average, 75 or higher is excellent, and 25 or lower is weak. With this in mind, RJF’s dividend appears Very Safe with a very unlikely risk of being cut. Learn more about Dividend Safety Scores here.
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.
Disclosure: I have no position in RJF.
