Dividend stocks are an investor's steady companion, providing a reliable income stream while laying the groundwork for long-term wealth. These stocks reward shareholders with regular cash distributions that hinge on the company's performance and growth outlook, and are often a quite popular choice during times of market turbulence or economic uncertainty.
In 2023, dividend stocks haven't always been the top pick. As the pendulum of investor interest swung rapidly from growth-fueled artificial intelligence (AI) stocks to the historically high returns on fixed income assets, for a while it seemed that dividend-paying stocks just couldn't compete. The good news is, some top-quality dividend stocks are now trading at a relative discount, opening up an inviting entry point for long-term investors.
The picks highlighted here not only offer dividend payments, they've also got the earnings to back them up - plus, they've scored “buy” ratings on Wall Street. Here are two top value stocks for dividend investors right now.
Cigna Group: Portfolio Insurance for Income Investors
Cigna Group (CI) stands out as a major player in health services, dealing in health insurance and pharmacy benefit management. Its Evernorth subsidiary is the parent of Express Scripts, specializing in pharmacy services, while Cigna Healthcare offers insurance plans via employers and government programs.
The stock hasn't had the best run in 2023, off more than 12% since the start of the year. That compares to a gain of roughly 18% for the S&P 500 Index ($SPX).
Plus, with a forward P/E ratio of 11.59 and a forward P/S of 0.44, the stock now seems undervalued relative to its healthcare sector peers.
Cigna has a respectable track record of increasing its dividends, having done so for 3 consecutive years. Offering a quarterly dividend of $1.23 per share, CI offers a forward yield of 1.7% with a manageable payout ratio of 20%, allowing room for future growth. The next ex-dividend date is Dec. 5, 2023, with dividends payable on Dec. 21.
CI has been outperforming analysts' earnings expectations consistently for the past four quarters. In Q3 2023, they reported EPS of $6.77, beating the consensus forecast by $0.11. Additionally, Cigna raised its full-year 2023 EPS guidance to $24.75, thanks to lower-than-expected costs.
Looking ahead, analysts are forecasting EPS of $24.82 for FY 2023, followed by 13.7% EPS growth in FY 2024.
The company is taking steps to fuel growth, too. Cigna just expanded their Medicare Advantage plans to Nevada, and Express Scripts has rolled out a new pricing option for prescription drugs.
Among the 19 analysts following Cigna shares, the consensus leans towards a “moderate buy.” Nine analysts call it a “strong buy,” 1 opts for a “moderate buy,” and 9 suggest "hold."
The average target price for the stock is $351.70, indicating expected 23% upside over the next 12 months.
Deere & Company: Digging for Value in the Industrial Sector
Deere & Company (DE) is a major player in farm and construction equipment, crafting a wide array of gear like tractors, harvesters, loaders, excavators, and lawnmowers. It operates through three main segments: agriculture and turf, construction and forestry, and financial services.
The agribusiness stock has underperformed this year, taking a hit of 14.5% since the start of 2023. That said, at a forward P/E of 12.43, DE is priced at a discount to most of its industrial sector peers - suggesting the stock is undervalued at current levels.
In last week's earnings report, Deere reported better-than-expected results for the fiscal fourth quarter of 2023, comfortably beating Wall Street's estimates on both the top and bottom line. Earnings of $8.26 per share were up 11% from the same period last year, while adjusted revenue for the quarter arrived at $13.8 billion.
Despite the Q4 beat, DE sold off after earnings as investors responded to a softer forecast for 2024, with the company planning to reduce production in anticipation of weaker demand.
Accordingly, analysts have modest expectations for DE's earnings growth in the years ahead. EPS is expected to drop 5.4% in fiscal 2024 before rebounding by 1.1% in fiscal 2025.
Income investors should note that DE has been growing dividends consistently for the past few years, and currently pays $1.35 per share, representing a 1.46% forward yield. Plus, Deere maintains a low 14% payout ratio, leaving plenty of room for future hikes.
Among the 20 analysts tracking Deere & Company, the consensus leans towards a “moderate buy.” Currently, 11 analysts advocate a “strong buy” while 9 have a “hold” stance. The mean target price for the stock sits at $440.03, indicating an estimated 21% upside potential over the next 12 months.
