7 Seriously Undervalued Dividend Stocks to Buy for High Total Returns

Dividend Stocks

Editor’s note: This article was updated on June 28, 2022, to clarify a P/E multiple.

  • These are undervalued dividend stocks to buy before July 2022. These stocks have attractive dividend yields and also low valuation metrics, such as low P/E multiples, low P/book value ratios and low dividend coverage ratios.
  • Fidelity National Financial (FNF): This title, escrow and trust company will post slightly lower revenue but higher earnings-per-share growth by 2023. This gives this undervalued stock at a cheap 6.2x earnings and an attractive dividend yield of 4.7%.
  • HomeStreet (HMST): This Seattle-based bank is cheap with a 3.9% dividend yield, and trades at 6.8x next year’s forecast earnings and just 1.19x price-to-TBV per share. Moreover, its dividend is well-covered by forecast earnings.
  • Carters Inc (CRI): This baby and infant clothing retailer is very popular. Earnings are still forecast to grow 9.6% next year, putting it on a forward 7.6 P/E multiple. With a 4% dividend yield, a buyback program, and a target price over 150% higher, this is one of the most undervalued dividend stocks.
  • Starwood Property Trust (STWD): This mortgage REIT has an 8.6% dividend yield and trades at a cheap forward P/E multiple of 9.7x for 2023. This reflects a mild downturn in its mortgage originations, assuming a severe recession does not hit.
  • Store Capital (STOR): This investment property REIT has a dividend yield of 5.7%. This is well below its historical average of 4.56%. That implies a 25% upside in the stock, making it an undervalued dividend stock.
  • Jefferies Financial Group (JEF): This NYC investment bank yields 4.3% and trades below book value. Its forward P/E multiple is just 7.4x for 2023.

These are undervalued dividend stocks to buy before July 2022. These stocks have attractive dividend yields with low valuations. This includes low price-to-earnings (P/E) multiples, low P/book value ratios, solid earnings growth, and low dividend coverage ratios.

These stocks are overlooked by investors as they may be cheap for good reason. That could be due to a recession, stagflation, inflation, supply-chain disruptions to the costs of goods sold, slackening demand, or even labor and other capital shortages.

The point is, the reasons why these stocks are undervalued are reasonable. But in many cases, the stocks already incorporate much of this bad news into the price. That is why these stocks have good dividend yields.

And as long as their forecast earnings cover the dividends, then the stock has a natural tether to value even if those earnings fall. This helps ameliorate any further declines in the stock.

Let’s dive in and look at these stocks:

FNF Fidelity National Financial $37.59
HMST HomeStreet $36.35
CRI Carter’s $74.73
STWD Starwood Property Trust $22.24
STOR Store Capital Corporation $27.01
JEF Jefferies Financial Group $27.83

Fidelity National Financial (FNF)

Source: viewimage / Shutterstock.com

Dividend Yield: 4.7%

Fidelity National Financial (NYSE:FNF) is a profitable title, escrow and trust company. FNF stock is off 26.9% YTD as of the close June 24. At $37.59 with its $1.76 dividend per share (DPS), the stock has a dividend yield of 4.7%.

Maybe this is because Fidelity National is forecast to post slightly lower revenue in 2023. However, earnings-per-share (EPS) are forecast to rise 2.7% from $6.02 per share to $6.19 in 2023, according to Seeking Alpha.

This puts FNF stock on a very low price-to-earnings (P/E) multiple of just 6.2 times 2022 earnings.

Moreover, FNF’s average yield over the past four years has been 3.36%. This implies its target price is 39.3% higher at $52.38 per share (i.e., $1.76/0.0336).

That shows that FNF stock is one of the most attractive undervalued dividend stocks.

HomeStreet (HMST)

Source: MNR Media / Shutterstock

Yield: 3.9%

HomeStreet (NASDAQ:HMST) is a Seattle-based bank that makes commercial, mortgage, and consumer and retail loans. The stock is down 30% so far this year to $36.35, down from $52 at the end of last year.

That gives its $1.40 dividend payment a 3.9% dividend yield. This is well above the company’s historical four-year dividend yield average of 1.06%, according to Seeking Alpha. It’s also well above the three-year average of 2.4% calculated from data available at Morningstar.

Using the latter rate implies that its price target is $58.33 (i.e., $1.40/0.024), which is 60.5% over its previous close.

In addition, HomeStreet has a tangible book value (TBV) per share of $30.47. That implies its P/TBV per share is 1.19x. That is very cheap for a company whose earnings are forecast to grow by 25% to the year ending December 2023.

Moreover, it’s cheap given that its P/E ratio is just 8.6x this year and 6.8x next year’s forecast earnings. This makes HomeStreet one of the most undervalued dividend stocks.

Carter’s Inc (CRI)

Source: JHVEPhoto / Shutterstock

Yield: 4.01%

Carter’s, Inc (NYSE:CRI) is a baby and children’s clothing and outfit maker that yields 4.01% and is very cheap at just 8.4x earnings for 2022. Moreover, CRI stock is off over 26.5% YTD as of June 24 at $74.73 per share.

This infant clothing retailer is very popular and it is not going out of business, despite what might be implied by the performance of its stock.

For example, analysts forecast $8.94 per share for 2022, based on the average of 9 analysts’ forecasts. That puts the stock on a forward multiple of just 8.4x, a very inexpensive multiple. Earnings are forecast to grow 9.6% to $9.80 by the end of 2023, lowering the multiple to just 7.6x.

Based on its historical yield of 1.60% in the past four years, according to Seeking Alpha, the stock should be trading at around $187.50. That implies an upside of over 151% from here. Moreover, the company is also buying back its shares.

This shows that CRI stock is one of the most undervalued dividend stocks on this list.

Starwood Property Trust (STWD)

Source: Pavel Kapysh / Shutterstock.com

Dividend Yield: 8.6%

Starwood Property Trust (NYSE:STWD) is a mortgage REIT (real estate investment trust) operating in the U.S., Australia, and Europe. This means it originates, acquires, finances, and manages commercial first mortgages and other types of mortgages.

Analysts project a small decline in earnings per share in 2023 from $2.33 to $2.28, but these earnings more than cover its annual $1.92 dividend per share. It has been paying that dividend for a number of years. That gives the stock a solid 8.6% dividend yield going forward.

Moreover, this puts the stock on a cheap forward P/E multiple of just 9.5x for 2022 and 9.7x for 2023. Given its huge 8.6% yield, this makes it one of the most undervalued dividend stocks.

However, despite the good yield, investors should realize the vast majority of its revenue comes from commercial loan origination and resulting mortgages that it both sells and holds.

If the coming recession is mild, Starwood may not experience too severe a downdraft in mortgage originations. A certain amount of that is already implied in its lower earnings for 2023. If earnings come out lower from a bigger decline in mortgage originations, the stock could fall further.

Nevertheless, for the time being, the stock looks to incorporate most of the coming bad news. That makes it one of the undervalued dividend stocks.

Store Capital Corp (STOR)

Source: Shutterstock

Dividend Yield: 5.7%

Store Capital Corporation (NYSE:STOR) is a real estate investment trust (REIT). It leases single-tenant offices to commercial firms and stores. Its stock is down 21.9% YTD as of June 24 at $27.01. With its $1.54 annual dividend, STOR stock has an annual yield of 5.7%.

With a four-year yield average of 4.56%, according to Seeking Alpha, the stock is worth $33.77 per share (i.e., $1.54/0.0456). That represents a potential gain of 25%.

Moreover, the dividend has risen every year for the past seven years. In other words, the yield is too high now and the stock price is likely to rise to lower the yield to its historical average.

Moreover, the company’s earnings more than cover the $1.54 annual dividend. Its earnings are measured by its funds from operations (FFO). Analysts forecast its 2022 FFO will be $2.16 in 2022 and $2.24 in 2023.

Jefferies Financial Group (JEF)

Source: T. Schneider/ShutterStock.com

Dividend Yield: 4.3%

Jefferies Financial Group (NYSE:JEF) is an NYC investment bank that yields 4.31% based on its annual $1.20 dividend per share (DPS) and its price of $27.83 on June 24.

In addition, the stock has a tangible book value per share (TBVPS) is $35.79, according to Seeking Alpha. So at $27.07 at the close on June 13, the P/TBVPS is 0.76x.

Moreover, given that its forecast earnings of $2.93 for 2022 more than cover the dividend payment of $1.20, JEF stock has a payout ratio of just 40.9%. Moreover, with its 2023 earnings forecast at $3.76, the 2023 coverage ratio is 31.9%.

This shows that the stock is cheap at just 9.5x 2022 earnings and 7.4x 2023 earnings forecasts. Along with its 4.3% yield, its low valuation, and good earnings prospects, Jefferies is one of the most undervalued dividend stocks on this list.

On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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