Here’s an investing scenario that sounds like a winner: Buy undervalued stocks that are increasing their dividends.
If that sounds appealing, then you may want to take a look at General Mills Inc. (NYSE: GIS), Bank of America Co. (NYSE: BAC) and Skyworks Solutions Inc. (NASDAQ: SWKS), all stocks meeting that description.
That investment strategy can be a winner. Undervalued stocks that increase dividends offer a lower entry point, giving investors an opportunity to buy income-producing assets at a discount.
Dividend growth reflects a company's financial health and management's confidence in its future prospects. The combination of income and potential capital appreciation can be a significant boost to portfolio returns.
Additionally, dividend-paying stocks are often more stable because they deliver consistent income, financial health and investor confidence. That’s particularly appealing in uncertain markets.
Before making any decision about General Mills, keep in mind: The maker of Cheerios, Cocoa Puffs, Bisquick and the Annie’s and Betty Crocker brands, among other packaged foods, reports earnings on September 20.
If you’re primarily an income investor, and not seeking price appreciation as your main objective, you may not be looking to the earnings report as a catalyst for big gains.
General Mills hasn’t been following a recipe for success, in terms of stock performance. Shares are down 19.48% this year, trading at June 2022 levels.
MarketBeat’s General Mills dividend data shows a yield of 3.58%. It’s increased its dividend for two years in a row.
Despite the big stock slide, revenue has been growing and Wall Street expects yearly net income to increase by 4% this year and 5% next year.
Consumer staples stocks as a whole have been out of favor this year, after faring better in 2022 as safe havens versus riskier assets such as computer and technology stocks. As techs went back into rally mode and higher interest rates became an alternative to dividends, consumer staples were sold off.
Nonetheless, those looking for longer-term dividend stocks trading at attractive valuations might look to General Mills and its sector peers.
Bank of America
Finance stocks as a group are reliable dividend payers due to their stable cash flows and consistent profitability. For example, the Energy Select Sector SPDR Fund (NYSEARCA: XLF) has a dividend yield of 1.9%.
Bank of America, the fifth most heavily weighted stock in the sector, has a dividend yield of 3.33%. MarketBeat’s Bank of America dividend data shows a three-year track record of increasing its payout.
The stock is down 10.87% year-to-date.
If you have any doubts about Bank of America’s status as a promising value stock, look no further than one of its biggest shareholders, Berkshire Hathaway Inc. (NYSE: BRK.B), which takes a long view and seeks value.
Bank of America suffered recently along with other bank stocks as bond ratings agency Fitch said it may downgrade several banks.
MarketBeat’s Bank of America analyst ratings show a consensus view of “hold” with a price target of $35.98, an upside of 24.77%.
Morningstar analyst Eric Compton says Bank of America “has one of the best retail branch networks and overall retail franchises in the United States.” Compton sites the bank’s various revenue streams, including credit cards, commercial banking, and its Merrill Lynch franchise which includes a brokerage and advisory business.
Semiconductor manufacturers haven’t gotten the same love this year as chip designers like Nvidia Corp. (NASDAQ: NVDA).
In the case of Skyworks, there’s some good reason for that. Revenue and earnings declined in the past three quarters, and Wall Street expects net income to fall 34% this year and another 1% next year.
There’s one chief culprit behind Skyworks’ sales and revenue declines: In fiscal 2022, 2021, and 2020, sales to Apple Inc. (NASDAQ: AAPL) accounted for 58%, 59%, and 56% of the company’s net revenue, respectively.
If you take a look at the revenue column on MarketBeat’s Apple earnings page, you can spot year-over-year declines in the past three quarters as global smartphone sales slow.
Skyworks Solutions’ dividend yield is 2.77%; the company boosted its shareholder payout in each of the past nine years.
The stock’s share price has fallen 9.75% in the past three months but is still holding on to a 9.88% year-to-date gain. It’s been forming a base below a February 7 high of $123.69.
Investors don’t typically think of tech stocks as dividend payers, as it’s traditionally been a growth-oriented industry. That’s why it’s important for investors to cast the net wide when looking for income-generating stocks.