3 undervalued dividend champions with high return potential

Income investors sometimes choose to find the best income stocks for their needs based on criteria such as dividend safety, potential for dividend growth, or historical dividend sequence. These can help investors find great dividend champions that will provide them with years of income.

In addition to dividends, investors should also keep in mind the potential for capital appreciation to accompany dividend income. This can be done by picking great dividend-paying stocks that also represent deep value. These stocks, in our view, not only offer a strong stream of income, but also the potential for significant capital appreciation.

The following three dividend champions are undervalued and also have high dividend yields leading to high total return potential.

SYK stryker $209.55
DVV Dover Corporation $120.17
IIP Polaris $102.10

Stryker (SYK)

Source: various photographs /

stryker (NYSE:SYK) is a global leader in the medical device industry. The Company’s product lines include surgical equipment, neurovascular products and orthopedic implants.

The company continued to generate growth in 2022, even in a difficult macroeconomic environment. Last quarter, Stryker’s revenue grew 4.6% to $4.49 billion. Adjusted earnings per share (PES) of $2.25 was flat year over year (YOY). Organic revenue increased by 6.1% compared to the previous year. MedSurg and Neurotechnology recorded organic growth of 7.9%. Mako continues to have a growing install base, with installs increasing by 19%. Orthopedics and the spine grew by 3.9% thanks to gains in the volume of procedures in Europe, Canada, India and Japan.

Stryker also provided updated guidance for 2022. The company now expects organic revenue growth of 8% to 9%, compared to 6% to 8% previously. Stryker now expects adjusted EPS to be in the $9.30 to $9.50 range for the year.

Stryker has grown EPS at a rate of 11.6% per year over the past 10 years. It’s likely the company can continue double-digit earnings growth on an annual basis due to increased demand for Stryker’s products during the pandemic recovery.

Stryker has increased its dividend at an average rate of nearly 12% per year over the past 10 years, although this growth has slowed somewhat over the medium term. The company has increased its dividend by 10.3% for the January 31, 2022 payment. It has now increased its dividend for 28 consecutive years. The shares are currently yielding 1.3%.

Based on estimates for 2022, shares are trading at 22.1 times earnings. We reaffirm that our price/earnings (P/E) target of 24.5 for 2027 is more in line with the average valuation since 2012. If stocks were to return to our price/earnings target by 2027, then the valuation would be around 2% favorable to annual returns over this period. Overall, total returns could exceed 13% on EPS growth, dividends and an expanding P/E multiple.

Dover Corporation (DOV)

The Dover (DOV) logo displayed on a smartphone screen.

Source: Igor Golovniov /

Dover Corporation (NYSE:DVV) is a diversified global industrial manufacturer with annual revenues of nearly $9 billion. Dover is comprised of five report segments: Engineered Systems, Clean Energy & Fuel, Pumps & Process Solutions, Imaging & Identification, and Climate & Sustainable Technologies. Slightly more than half of revenues come from the United States, with the rest coming from international markets.

On August 5, 2021, Dover announced that it was increasing its dividend by 1% for the September 15, 2021 payment, marking 66 consecutive years of dividend growth. This is the second longest streak of dividend growth among US companies. The shares are currently yielding 1.6%.

The company effectively manages inflation, while continuing to grow its revenues. In the last quarter, revenue increased 6.4% to $2.16 billion, while adjusted EPS increased 3.9% year-over-year (YOY) to $2.16 billion. .14$. Organic revenue remains strong, with the company seeing a 7% increase in the second quarter. Engineering products grew 19% organically as waste management, vehicle services, industrial winches and automation continue to see strong demand. Dover’s backlog grew 30% year-on-year to $3.3 billion, implying continued growth over the coming quarters.

Dover reaffirmed its guidance for 2022. Adjusted EPS is expected to be in the range of $8.45 to $8.65, with revenue expected to grow 8% to 10%. Dover also raised its organic growth forecast to 8% to 10% from 7% to 9% previously, indicating positive momentum to end the year.

Dover’s EPS has grown 6% annually over the past decade. Growth accelerated over the medium term, at an annual rate of more than 14% over the five years. Dover suffered some setbacks at the worst of the Covid-19 pandemic, but the business quickly rebounded. We maintain our expected earnings growth rate of 8% per year through 2027. The stock also appears undervalued, leading to estimated total returns of over 13% per year over the next five years.

Polaris (PII)

Close up of a Polaris All Terrain Vehicle (PII).

Source: Ken Wolter/

Polaris (NYSE:IPI) designs, engineers and manufactures snowmobiles, all-terrain vehicles (ATVs) and motorcycles. Additionally, accessories and related replacement parts are sold with these vehicles through dealerships located throughout the United States. The company operates under more than 30 brands, including Polaris, Ranger, RZR, Sportsman, Indian Motorcycle, Slingshot and Transamerican Auto Parts. The global powersports manufacturer, serving more than 100 countries, generated $8.2 billion in sales in 2021.

Like many global manufacturers, Polaris is experiencing high costs due to inflation, which squeezes margins. Fortunately, revenues continue to grow. In the last quarter, revenue grew 8% to $2.06 billion, while adjusted EPS fell 10% year-over-year. Still, the adjusted EPS figure of $2.42 for the quarter was 30 cents higher than expected. The marine and off-road segments grew 38% and 7%, respectively, to lead the way in the last quarter.

Supply chain constraints and inflationary pressures impacting earnings are offset by higher prices. Polaris also provided revised guidance for 2022. For that year, the company now expects revenue to grow 13% to 16%. Adjusted EPS is now projected in a range of $10.10 to $10.30. This should easily cover the dividend and enable continued dividend growth even when EPS is stagnant.

Polaris has increased its dividend for 26 consecutive years. With an expected payout ratio of 25% for 2022, the dividend payout looks secure. Polaris enjoys a competitive advantage through its brand names, low-cost production and long history in its various industries, enabling the company to be the leader in ATVs and number two in snowmobiles and snowmobiles. domestic motorcycles. This means Polaris can remain profitable, even in harsh operating environments.

The combination of expected annual EPS growth of 4%, dividend yield of 2.3% and a significant increase in an expanding P/E multiple could fuel expected annual returns of 13% over the next five years.

As of the date of publication, Bob Ciura held (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to publishing guidelines.

Bob Ciura worked at Safe dividend since 2016. He oversees all content on Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was a freelance equity analyst. His articles have appeared on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and many more. Bob holds a bachelor’s degree in finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.


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