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Writer's pictureRealFacts Editorial Team

Value Investing: Top Dividend Stocks with Upside Potential



With the S&P 500 and the NASDAQ hovering around all-time highs and returning year-to-date gains of 17.34% and 24.40% respectively, it can be hard to find attractive investments. In addition to stock indexes being at all-time highs, many companies have delivered subpar performances this year due to the current economic conditions of high interest rates and variable consumer demand. Here are three companies that have been underperforming in the market this year but might make excellent buys due to their cheap valuations and dividend payouts.


PepsiCo

PepsiCo is a global food and beverage company with many popular products, from their famous Pepsi-Cola to Doritos. Pepsi differs from its competitor Coca-Cola in a few ways, first off Pepsi operates its own production facilities for many of its products instead of using the royalty/franchise method that Coca-Cola employs. Along with its own production facilities, Pepsi has a strong distribution network that allows them to deliver their products across the globe. This strong distribution network recently led them to partner with Celsius, an energy drink company that is growing rapidly.  Pepsi also is involved in a broader range of goods than Coca-Cola who mainly sticks to beverages whereas Pepsi is involved in the beverage, snack, and breakfast markets.  This has increased Pepsi’s revenue to be about 2 times Coca-Cola’s revenue but has led to a decline in Pepsi’s operating margin.


The current leadership at Pepsi has focused on growth through new product developments and strategic acquisitions like Celsius and Quaker Oats. Along with strategic acquisitions, PepsiCo has demonstrated effective management under its current CEO, as they have navigated the challenges of the post-COVID world.


Pepsi’s stock is currently trading right above its 52-week low, with a P/E ratio of 24.37 and a dividend yield of 3.35%. Pepsi has increased its dividend each year for over 50 years, making it a potentially attractive investment for a passive income strategy.


Deere

John Deere is a manufacturing company that produces agricultural, construction, and forestry machinery. They currently operate in over 30 countries and have a global market share of 25.3% in agriculture equipment. In the U.S., their position is even stronger, with a market share over 40%. Recently, John Deere’s stock has remained relatively flat despite record profits. This is mainly due to its cyclical nature that can cause profits to fall suddenly depending on economic factors. The current high interest rates have made many worried about Deere’s short-term outlook, but in the long run, Deere has a history of innovation and success. Currently, Deere is looking into automation and artificial intelligence to enhance its products and lead the industry into the future.


Deere currently has a dividend yield of 1.66% but also engages in stock buybacks. Over the past 5 years, Deere has decreased its outstanding share count by 12.5% and increased its dividend by 93.4%. Due to Deere’s strong history of innovation and dividends, this could be a good time to buy in.


Chevron

Chevron is one of the world's largest energy companies and is involved in a wide range of activities, from exploring and producing oil and natural gas to refining and marketing petroleum products, and investing in renewable energy and emerging technologies. Chevron’s stock performance for the past year has been stagnant, partly due to uncertainty around its acquisition of Hess. On the other hand, Chevron has the ability to improve and grow using previous acquisitions such as the Permian Basin and its financial health. Chevron’s financial prudence makes it a valuable asset if oil prices start to fall.

Chevron currently has a dividend yield of 4.22% and is trading at a P/E ratio of 14.20, making it a compelling long-term investment for passive income due to the high dividend yield and strong financial health.

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