There’s a tricky thing about opportunities.

They’re all around us.

They’re practically everywhere.

However, it’s up to each of us to take advantage of these opportunities.

Life isn’t set up in a way to have opportunities come to your door and open up in front of you.

You have to do the work upfront.

But if you do that work and seek out the opportunities for yourself, the rewards down the road can be phenomenal.

This is never more evident or true than with dividend growth investing, which is a long-term investment strategy involving the buying and holding of shares in high-quality businesses paying shareholders steadily growing dividends.

You invest capital just once today, and you can then potentially get paid ever-more cash for the rest of your life – alongside watching your wealth grow ever-larger due to the effects of compounding.

Great businesses are money machines that compound money; they have the ability to turn one dollar into many dollars all while streaming more and more income along the way.

It’s almost like magic.

You can find hundreds of such businesses over at the Dividend Champions, Contenders, and Challengers list, which has curated data points on US-listed stocks that have raised dividends each year for at least the last five consecutive years.

Once I decided to go out of my way to seek out opportunities and take advantage of dividend growth investing for myself, my life totally changed for the better.

In my late 20s, I started 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.

My life was so radically altered by all of this that I was able to retire in my early 30s.

How?

Well, my Early Retirement Blueprint spills the beans.

Now, as powerful as great businesses can be, investing when the valuation is correct is crucial.

Price only tells you what you pay, but value tells you what 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.

Putting yourself out there and seeking opportunities is essential to positioning life for positive outcomes, and buying undervalued high-quality dividend growth stocks might be the most appropriate and effective way to do that.

Of course, being able to spot undervaluation means one already understands the whole concept of valuation in the first place.

If any help is necessary on that front, be sure to give Lesson 11: Valuation a read.

Put together by fellow contributor Dave Van Knapp, it “teaches” valuation using very simple terminology and even provides a template you can easily use 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…

TE Connectivity PLC (TEL)

TE Connectivity PLC (TEL) is an American-Irish domiciled technology company that designs and manufactures electrical and electronic components.

Founded in 1941, TE Connectivity is now a $60 billion (by market cap) connector powerhouse employing 80,000 people.

TE Connectivity became an independent entity in 2007 after its former parent, Tyco International, split into three companies (one of which became TE Connectivity).

TE Connectivity has two operating segments: Transportation Solutions, 54% of FY 2025 revenue; and Industrial Solutions, 46%.

In Transportation Solutions, the company largely supplies the automotive industry with a range of critical components, including connectors, relays, and sensors.

In Industrial Solutions, the company provides a variety of industries and end markets (such as aerospace, data centers, and the electrical grid) with products that connect and distribute power (such as cabling, connector systems, heat shrink tubing, and terminals).

That latter part of TE Connectivity is particularly interesting and relevant right now, as the company is providing the right products to the right industries at the right time.

We’re talking about components and systems for high-speed data transmission, power distribution, electrification, and thermal management in data centers.

As the massive AI buildout occurs, which is causing a huge spike in spending/investment across digital infrastructure and power supply, TE Connectivity is clearly a direct beneficiary.

Since many of the company’s components are both mission-critical and a very small portion of overall project cost, TE Connectivity’s expertise and product reliability gives it a huge boost over would-be competitors.

Simultaneously, the other part of the business is taking advantage of increasing content per vehicle and rising EV production.

Being exposed to multiple secular growth themes at the same time, it almost couldn’t be in a better business model at a better time.

While it has long been a very solid company with steady results, it has hit an inflection point over the last few years – showing a rapid acceleration of growth.

And this acceleration is expected to persist, which should mean great things ahead for the company’s ability to compound its revenue, profit, and dividend.

Dividend Growth, Growth Rate, Payout Ratio and Yield

TE Connectivity has already increased its dividend for 13 consecutive years.

Its 10-year dividend growth rate is 8.1%, which is very solid, but the more recent trend has been one of dividend growth acceleration.

For example, the last two dividend raises were both over 9%.

That’s fairly brisk, setting up a doubling of dividend income roughly every eight years.

And it gets stacked on top of the stock’s starting yield of 1.6%.

This market-beating yield, by the way, is 10 basis points higher than its own five-year average.

A lot of names in this company’s space are featuring yields well below average right now, so I think seeing an above-average yield is a nice change of pace.

A payout ratio of 28.8% reveals a very safe, well-covered dividend with lots of headroom for expansion.

We have the makings of a high-quality compounder here, which is going to be alluring for younger dividend growth investors who have the ability to let the compounding process play out and make them incredibly wealthy over time.

Revenue and Earnings Growth

As alluring as it might be, though, much of this is based on what’s already transpired in the past.

However, investors must always be thinking about what may transpire in the future, as the capital of today gets risked for the rewards of tomorrow.

As such, I’ll now build out a forward-looking growth trajectory for the business, which will be of use during the valuation process.

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.

And I’ll then reveal a professional prognostication for near-term profit growth.

Amalgamating the proven past with a future forecast in this way should allow us to judge where the business could be going from here.

TE Connectivity grew its revenue from $11.4 billion in FY 2016 to $17.3 billion in FY 2025.

That’s a compound annual growth rate of 4.7%.

Not bad.

However, if we zoom in, it’s clear to see an inflection point.

FY 2025 showed 8.9% YOY revenue growth, and Q2 FY 2026 (the most recent quarter) had 15% YOY revenue growth.

Meanwhile, earnings per share grew from $5.44 to $6.16 over the last decade, which is a CAGR of 1.4%.

Not impressive all all, right?

Well, first of all, this is largely due to accounting quirks.

Second of all, we see the same inflection occurring on the bottom line.

That Q2 report included a 24% YOY rise in adjusted EPS, which is incredible growth.

GAAP EPS growth was far more explosive, but that’s mainly due to those accounting quirks.

Looking forward, CFRA believes that TE Connectivity will deliver a 17% CAGR in its EPS over the next three years.

That 17% number crystallizes what’s happening here at TE Connectivity.

The shift in the business has been dramatic, and recent quarters are indicating an increase in the size and magnitude of this shift.

CFRA sees TE Connectivity as being strategically positioned in AI infrastructure and electrification, both of which are seeing massive investments (and which, in some ways, are complementary and reinforce each other).

On top of that, you have the classic exposure to auto, which is seeing a boost from more content per vehicle (driven by a steady move toward EVs and vehicles that are more autonomous).

The company’s technical leadership in connectivity is underpinning structural, secular growth across multiple verticals.

I think CFRA’s forecast is quite reasonable.

If anything, based on the last few quarters, it’s conservative.

High-teens EPS growth clearly sets the dividend up for at least low-double-digit growth over the near term, especially with the payout ratio already being so low and not in need of compression.

Assuming no major changes to multiples, that’s framing in a mid-teens type of annualized total return, which is, again, awfully appealing to those who appreciate compounding.

Financial Position

Moving over to the balance sheet, TE Connectivity has a very strong financial position.

Its long-term debt/equity ratio is 0.4, while the interest coverage ratio is over 40.

Its A- credit rating from S&P, which is toward the top end of investment-grade territory, further indicates just how much of a fortress the balance sheet is.

Profitability is outstanding.

Return on equity has averaged 20.8% over the last five years, while net margin has averaged 14.6%.

As good as both of these metrics are, I see both of them heading higher over the next several years as the business hits a new gear.

Overall, TE Connectivity is a wonderful business in the right places at the right time.

And with economies of scale, technological know-how, R&D, IP, switching costs, and reputational excellence, the company does benefit from durable competitive advantages.

Of course, there are risks to consider.

Litigation, regulation, and competition are omnipresent risks in every industry.

Competition, in particular, is a key risk here, as every market TE Connectivity caters to is extremely competitive.

Being a global company, it’s exposed to geopolitics and exchange rates.

Its global manufacturing footprint introduces supply chain risks.

Although it’s seeing a structural improvement in demand across the business, TE Connectivity is still exposed to macroeconomics and broad slowdowns (especially on the auto side).

The company is riding the AI wave right now, and any reversal in AI spending/demand would almost certainly be a major negative for the company.

I see some risks here, but TE Connectivity’s quality and growth shine bright.

The valuation, after a recent 20% drop in the stock, is also shining brighter than usual…

Valuation

The stock is now trading hands for a P/E ratio of 20.5.

For a company expected to grow at a high-teens rate over the coming years, that’s laughably low.

It puts the PEG ratio at nearly 1, which is shocking for what you’re getting.

Although this is basically in line with its five-year average, TE Connectivity is better and growing faster, making past comparisons somewhat inaccurate.

On the other hand, its cash flow multiple of 12.8 is lower than its five-year average of 14 – despite the improvement.

And the yield, as noted earlier, is 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 discount model analysis.

I factored in a 10% discount rate, a 10-year dividend growth rate of 13%, and a long-term dividend growth rate of 8%.

I’m assuming a continuation of the acceleration in dividend growth that’s been playing out over the last few years, culminating in a low-teens type of growth rate.

With the payout ratio being as low as it is, and with the business projected to grow even faster than this, I don’t see anything unreasonable about setting this kind of expectation.

From there, it’s natural to build in a slowdown as the company matures.

The DDM analysis gives me a fair value of $233.74.

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.

From my viewpoint, the recent 20% drawdown has created an attractive entry point.

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 TEL as a 3-star stock, with a fair value estimate of $220.00.

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 TEL as a 4-star “BUY”, with a 12-month target price of $260.00.

I’m very close to Morningstar on this one. Averaging the three numbers out gives us a final valuation of $237.91, which would indicate the stock is possibly 15% undervalued.

Bottom line: TE Connectivity PLC (TEL) is a high-quality company in the right places at the right time. It’s pulling levers across multiple secular growth themes, leading to a structural improvement across the business. It also has a fortress balance sheet and high returns on capital. With a market-beating yield, high-single-digit dividend growth, a very low payout ratio, nearly 15 consecutive years of dividend increases, and the potential that shares are 15% undervalued, long-term dividend growth investors could be getting a great deal and exposure to EVs, autonomous vehicles, electrification, rising power demand, and AI all in one shot.

-Jason Fieber

Note from D&I: How safe is TEL‘s dividend? We ran the stock through Simply Safe Dividends, and as we go to press, its Dividend Safety Score is 86. 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, TEL’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 TEL.