Get Paid To Wait: 13 Potential Dividend Opportunities

Get Paid To Wait

The Efficient Market Hypothesis tells us that share prices reflect all available information and therefore it is effectively impossible to consistently generate alpha. Academics have long accepted this theory and provided sufficient data to prove that it’s true. While there certainly are proponents of the theory, it also has its critics. Many famous investors disagree with the hypothesis and have track records that prove it cannot be true. Regardless whether you believe the stock market is efficiently priced, I believe most people would agree with me when I say that investors are not always rational. And herein lies the opportunity for the average investor that is willing to bet against the herd.

I use a simple method to seek out such opportunities. As a dividend investor, one way to gauge whether a given stock has steered off its rational trajectory is to compare its current dividend yield to the long-term trailing average. I typically seek out at least a 20% disconnect between these two data points. Finding these potential opportunities is easy, the hard part is figuring out which ones are most likely to revert back to “normal”. The premise is quite simple, you buy the given stock at a discount locking in an above average dividend yield, relative to what the stock has paid historically, and you wait for the valuation to correct. When the valuation corrects you capitalize on the share price appreciation, and while you wait for this to happen you collect a better than average dividend yield. I call this “getting paid while you wait”!

Let’s take a look at a handful of dividend stocks that may be potential opportunities right now.

Finding Potential Opportunities

Instead of randomly looking across all dividend paying stocks for these potential opportunities, it’s better to first screen for quality dividend growth stocks. I apply the following screening criteria:

1. The stock must trade on the NYSE or NASDAQ
2. Dividend Yield of at least 2.75%
3. Payout Ratio less than 100%
4. Positive 3, 5 and 10 year Dividend Growth Rate
5. Positive 5 year Revenue Growth Rate
6. Positive 5 year EPS Growth Rate
7. A Wide or Narrow Moat
8. A Standard or Exemplary Stewardship

These criteria typically yield a list of around 60-70 stocks on any given month. By setting up a portfolio on Seeking Alpha, you can quickly analyze how the forward dividend yield compares to the 4-year trailing average dividend yield for each of the chosen stocks.

I ran this screener at the end of February and analyzed the 61 stocks it presented to find the following potential opportunities as of 3/12/24.

Get Paid While You Wait Stocks

Here are the stocks that currently pay a forward dividend yield that is at least 20% higher than the trailing average.

1. Air Products and Chemicals (APD)

APD currently has a forward dividend yield of 2.86% relative to a trailing 4-year average dividend yield of 2.22%. This equates to a 28.7% discount. The company has a 41-year streak of dividend growth with a decent history of dividend increases. The most recent divided hike was below par, about 1.14%, relative to an average rate of growth around 10% during the last decade.

Year-to-date, the stock is down 10.57% and down 12.85% during the past year. Following the most recent earnings announcement, the stock fell quite sharply, it has since recovered around 10% but still appears undervalued relative to its historical valuation.

Rather than regurgitating what other analysts have already covered, here are two recent articles with a deeper review of APD to help you decide whether or not the company truly is a good opportunity right now.

Air Products and Chemicals: Betting On Tomorrow’s Air, Today

Opportunity Knocks: Why The Air Products and Chemicals Stock Implosion May Be a Gift

2. Best Buy (BBY)

BBY currently has a forward dividend yield of 4.92% relative to a trailing 4-year average dividend yield of 3.42%. This equates to a 43.95% discount. The company has a 13-year streak of dividend growth, the growth was robust but has recently cooled off. The most recent dividend increase saw the dividend rate increase by 2.17% that was lower than the prior year (4.55%) and two 20% plus increases in the years before.

Year-to-date, the stock is down 1.2% and up 2.07% during the past year. While these aren’t horrible returns, relative to the S&P 500 they are quite poor. Here are two contrasting views from fellow analysts to help you decide whether Best Buy presents a good opportunity to deliver more robust returns in the future, or not.

Buy: Best Buy: Capital Return Story Attractive With Possible Demand Recovery

Sell: Best Buy: Trends Continue to Decay

3. Bristol-Myers Squibb Company (BMY)

BMY currently has a forward dividend yield of 4.22% relative to a trailing 4-year average dividend yield of 3.20%. This equates to a 38.06% discount. The company has a 7-year streak of dividend growth but has paid a dividend for over 3 decades. The most recent dividend increase of 5.26% is in-line with the prior year.

Year-to-date, the stock is up 6.02% but still down 17.58% during the past year. Perhaps the ship has finally turned around and it’s time to jump aboard, here are a few articles to help you decide.

Bristol-Myers Squibb: Turnaround Expected

Bristol-Myers Squibb: Compelling Value From The New Products Portfolio And 4.5% Yield

4. Evergy, Inc. (EVRG)

EVRG currently has a forward dividend yield of 4.98% relative to a trailing 4-year average dividend yield of 3.77%. This equates to a 3.77% discount. The company has a 20-year streak of dividend growth with a 5-year dividend growth rate of 6.76%. The most recent dividend hike, November of 2023, clocked in a 4.9% that continues to see the long-term growth rate trend lower.

Year-to-date, the stock is down 1.78% and down 12.31% during the past year. Even worse, during the last 5 years the stock is down 9.62%. Here’s a link to the most recent coverage of the company.

Evergy: FCF Per Share Clamped With $9B Equity Holding Up $30B In Assets

5. FMC Corporation (FMC)

FMC currently has a forward dividend yield of 3.62% relative to a trailing 4 year average dividend yield of 2.08%.This equates to a 73.73% discount. The company has a 6-year streak of dividend growth with a very attractive 5-year dividend growth rate of 24.5%.

Year-to-date the stock is up 5.04% but it’s down 44.55% during the past year. The downward pressure on the stock is linked to its declining revenue that has rippled through its financials. Here’s some recent coverage to give you more insight on the company.

High Risk, High Reward – Why FMC Remains An Ultra-Deep Value Play

6. The Hershey Company (HSY)

HSY currently has a forward dividend yield of 2.75% relative to a trailing 4-year average dividend yield of 1.94%. This equates to a 42.22% discount. The company has a 14-year streak of dividend growth with a solid 5-year dividend growth rate of 11.16%. Recently, the company raised its dividend by 14.93%, breaking away from its typical third quarter increase schedule.

Year-to-date the stock is up 6.47% but it’s down 17.49% during the past year. Here are two views from fellow analysts if you’d like to dig more into this business.

Hershey: We Are Downgrading To Hold Based On The Outlook

Hershey: Q4 And Full-Year Results Highlight Solid Growth Despite A Tough Macro Environment

7. Alliant Energy Corporation (LNT)

LNT currently has a forward dividend yield of 3.87% relative to a trailing 4-year average dividend yield of 3.05%. This equates to a 26.89% discount. The company has a 20-year streak of dividend growth with a 5-year dividend growth rate of 6.20%. Recently, the company raised its dividend by 6.05%, right in-line with its long-term average pace of growth.

Year-to-date the stock is down 4.31% and it’s pretty much been stuck in a sideways pattern for the past year, with the 1-year return being -4.64%. Here’s a base case for why LNT may be a good opportunity right now.

Alliant Energy: A Consistent Grower

8. Morgan Stanley (MS)

MS currently has a forward dividend yield of 3.91% relative to a trailing 4-year average dividend yield of 2.93%. This equates to a 33.55% discount. The company has a 10-year streak of dividend growth with a very attractive 5-year dividend growth rate of 23.66%. A word of caution here is that perhaps the above average dividend growth during the last few years is driving some of the gap between the current and trailing dividend yields.

Year-to-date, the stock is down 4.33% and up 1.39% during the past year. The stock participated in the November-December stock rally but has given up some of those gains in Q1 of 2024. Here’s some good coverage of the company if you’d like to investigate further.

How Morgan Stanley Maintains Its Quality And Value In A Tough Market

9. NextEra Energy, Inc. (NEE)

NEE currently has a forward dividend yield of 3.56% relative to a trailing 4-year average dividend yield of 2.19%. This equates to a 62.67% discount. The company has a 28-year streak of dividend growth with a strong 5-year dividend growth rate of 10.86%. Most recently, the company announced another 10.16% dividend increase, keeping in-line with its long-term average pace of growth.

Year-to-date, the stock is down 2.37% and down 19.12% during the past year. The company is facing some difficulties with its renewable energy results but perhaps they are just a temporary setback. Here’s some recent coverage if you’d like to learn more about this company.

NextEra Energy: Valuation Much More Reasonable Versus Peers (Rating upgrade)

10. United Parcel Service, Inc. (UPS)

UPS currently has a forward dividend yield of 4.21% relative to a trailing 4-year average dividend yield of 2.99%. This equates to a 41.00% discount. The company has a 14-year streak of dividend growth with a strong 5-year dividend growth rate of 11.96%. Most recently it announced a lackluster increase of just 0.62% giving long-term shareholders a flashback of 2021.

Year-to-date, the stock is flat and down 13.70% during the past year. The company is facing some pressure from transportation costs and demand. Here are two opposing views to help you assess the outlook for the company.

Buy: UPS: Undervalued Dividend Giant With Upside Potential

Sell: United Parcel Service: Falling Retail Sales And Transportation Prices Add To Woes

11. WEC Energy Group, Inc. (WEC)

WEC currently has a forward dividend yield of 4.07% relative to a trailing 4-year average dividend yield of 3.03%. This equates to a 34.12% discount. The company has a 20-year streak of dividend growth with a respectable 5-year dividend growth rate of 7.15%. Most recently, it announced a 7.05% dividend increase, keeping in-line with its long-term pace of growth.

Year-to-date, the stock is down 3.67% and down 11.06% during the past year. Here’s a base case for why WEC presents a good investment opportunity right now.

WEC Energy Hasn’t Been This Attractive In 10 Years – Time To Load Up

12. Essential Utilities, Inc. (WTRG)

WTRG currently has a forward dividend yield of 3.41% relative to a trailing 4-year average dividend yield of 2.45%. This equates to a 39.11% discount. The company has a 32-year streak of dividend growth with a respectable 5-year dividend growth rate of 7.00%. The company is set to announce its 2024 dividend increase in Q3 and it’ll be interesting if we see another flat 7% hike, similar to the past 6 consecutive years.

Year-to-date, the stock is down 2.14% and down 13.59% during the past year. Here are two articles presenting a positive base case for WTRG.

Essential Utilities: A Water Utility Whose Yield Can Be Bought At A Rare Discount

Essential Utilities: A Cheap Pick For Steady Dividend Growth

13. Xcel Energy Inc. (XEL)

XEL currently has a forward dividend yield of 4.14% relative to a trailing 4-year average dividend yield of 2.82%. This equates to a 46.67% discount. The company has a 19-year streak of dividend growth with a good 5-year dividend growth rate of 6.47%. The company recently bumped its dividend rate by 5.29%, slightly slower than its long-term pace of growth.

Year-to-date, the stock is down 16.06% and down 20.41% during the past year. XEL has actually been dead money for the last 5 years, aside from the dividend, as the share price is down about 8% since early 2019. Here are two analysts presenting a positive outlook for the company.

Xcel Energy: Requests For Higher ROE, Beneficial Guidance, And Undervalued

Xcel Energy: Time To Buy This Dependable Dividend Stock

Final Thoughts

Finding these potential opportunities is the easy part, the hard part is determining which of them have the potential to revert back to “rational” valuations. Similar to any kind of investing, this approach carries risk, the main risk being that your assumption on the future outlook for the company pans out to be incorrect. Sometimes it may take months or years for these potential opportunities to payoff. A good question to ask yourself prior to adopting such a strategy is, am I willing to own this company for a prolonged period of time, regardless of how it performs relative to the market in the short term? If you can’t definitively answer this question with a resounding “yes”, you probably should not invest in the company you are considering.