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Four Dividend Kings Trading at or Below Fair Value

Jump into these stocks with long histories of paying out increasing dividends and low PE ratios

Until the recent stock market correction it’s been really difficult for investors to buy stocks with low price earning values (P/E). The P/E ratio is often used by investors to determine the market value of a stock as compared to the company's earnings. The P/E shows an investor what the market is willing to pay today for a stock based on its past or future earnings. A high P/E could mean that a stock's price is high relative to earnings and possibly overvalued. In 2021 the average price earnings ratio for stocks was well above 25, with many stocks trading well above that number.

But now with prices falling it becomes a bit easier to find stocks trading at or below fair value and with much lower price earnings ratios. Using this idea of fair or intrinsic value there are just four stocks in the list of 2022 Dividend Kings that should be on long-term value investors buy list.

These include:

  • 3M Company (MMM)

  • Johnson and Johnson (JNJ)

  • Abbvie (ABBV)

  • Target (TGT)

Why invest in dividend kings? One simple reason that is very important is price performance as measured by volatility. Stocks that pay dividends, consistently on average, tend to be less volatile than non-dividend-paying stocks. Dividend Kings are a select list of stocks that have a history of paying increasing dividends every year for at least fifty years. That means the perform well in periods of recessions, market corrections, and wars. Plus, with a dividend stream, reinvested to take advantage of the power of compounding, can help build tremendous wealth over time.

Each of these stocks are not only great dividend payers, but they can be defensive stocks to hold during any market downturn. With that in mind, let’s look a four dividend kings that are currently trading at or below a fair price.

3M Company (MMM)

Rated a Buy.

3M Company is one of my favorite stocks. I have owned shares for a long-time. 3M operates as a diversified technology company in more than 60 countries world-wide. The 3M dividend has been paid every year since 1916 and increased for 64 consecutive years; qualifying the company as a Dividend King, Dividend Aristocrat, and Dividend Champion. It has a current dividend of $5.96 per share.

At its current trading price of around $145 a share, it is trading at about a 20% discount to its intrinsic value of $195 and below a margin of safety price of $162. I use the Dividend Value Builder website to get these numbers.

I also review the company analysis at Sure where they are forecasting a growth rate of 5% per year for 3M over the next five years.

Johnson and Johnson (JNJ)

Rated a Buy.

Johnson & Johnson is one of the largest companies in the world. The company has a market capitalization above $400 billion. The company generates annual sales above $94 billion. Johnson & Johnson (JNJ) has increased its dividend for 59 consecutive years.

Johnson & Johnson operates a diversified business model, allowing it to appeal to a wide variety of customers within the healthcare sector.

At its current trading price of $163 compared to its intrinsic value of $150 it is nearly that area where it is selling at discount, so I would at least have this on a watch list. Its 52-week high is $176.63. One reason it may be a buy is its planned spinoff of its Consumer Health Division.

Abbvie (ABBV)

Add to Your Watch List

AbbVie is a global pharmaceutical company. It began trading as an independent company in 2013, after it was spun off from, Abbott Laboratories (ABT). While not a Dividend King due to the spin-off, AbbVie has generated strong growth since the spin-off. It grew revenue and adjusted EPS growth by 14.7% and 19% respectively, each year from 2013-2021.

AbbVie is coming off a multi-year period of excellent growth, thanks to the massive success of its flagship product Humira. At its current price of $148 it is trading just over it’s intrinsic value of $146 so it would be a better buy at closer to $112 (its margin of safety price).

Abbvie pays of a dividend of $5.23 a share, so if you want to own this dividend you may have to buy about the margin of safety price of $112. However, it is currently showing a 52-week of low price of $97.51.

More analysis at Dividend Value Builder and Sure Dividend.

I would at least have this stock on my watch list and see if I can pick it up at a bargain price.

Target (TGT)

Add to Your Watch List

Target recently increased its dividend by 32%, representing the company’s 50th consecutive annual raise.

The company was founded in 1902, and competes in the difficult retail industry. Its business consists of about 1,850 big-box stores, offering general merchandise and food, and also serve as distribution points for its e–commerce business. Target should produce about $106 billion in total revenue this year.

It is currently trading at about $219 a share vs. an intrinsic value of $206 and a margin of safety price of $187. For me, it is still on my watch list, but others might want to buy it for its dividend of $3,36, somewhat lower that than 3M, JNJ and Abbvie.

Target just recently announced significant increases in pay for most of its employees with a starting pay of up to $24 an hour for some employees. According to Great Place to Work® 2021 Global Employee Engagement Study 84% of employees at Target Corporation say it is a great place to work compared to 57% of employees at a typical U.S.-based company.

More analysis at Dividend Value Builder and Sure Dividend.

Market Corrections, Do You Sell, Buy or Panic?

Nobody like to see the value of their investments fall during a market correction and of course if you sell in the mists of a stock market panic, you are going to lose money and perhaps never return to what has consistently been an excellent path to wealth, over time.

Related Posts

Floyd is the author of Five Paths To Wealth, available as a paperback or ebook from Amazon. You can learn more about him at his author web site.

You can find how what readers are saying about Five Paths to Wealth by reading reviews at Good Reads.

Other books by Floyd Saunders include Family Financial Freedom and Figuring Out Wall Street.

Book cover design by Ashley Dameron


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