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The average dividend yield in the S&P 500 Index remains low at just 1.3%. As a result, income investors should focus on higher-yielding securities, if they want additional income from their stock portfolios.Even better, investors can buy high dividend stocks when they are also undervalued, which could lead to high total returns in the coming years.After all, the goal of rational investors is to maximize total return under a given set of constraints. High dividend stocks can contribute a significant portion of a stock’s total return.With this in mind, we compiled a list of high dividend stocks with dividend yields above 5%. Interestingly, all returns come from only three sources:
Combined, these three sources make up total return.Historical total return, while interesting, is not what matters in investing.It’s expected future returns that we care about.And since total returns can only come from the three sources mentioned above, you can use the expected total return framework to clarify your thinking on where you expect total returns to come from.The following list represents the 10 most undervalued stocks in the Sure Analysis Research Database that also have yields above 5%.The list excludes MLPs, BDCs, and REITs, and also excludes international stocks. The 10 undervalued hidden gems below are sorted by expected return from valuation changes, from lowest to highest.
Undervalued Hidden Gem #10: Verizon Communications (VZ)
Verizon Communications was created by a merger between Bell Atlantic Corp and GTE Corp in June 2000. Verizon is one of the largest wireless carriers in the country.Wireless contributes three-quarters of all revenues, and broadband and cable services account for about a quarter of sales. The company’s network covers ~300 million people and 98% of the U.S.On January 24th, 2025, Verizon announced fourth quarter and full year results. For the quarter, revenue grew 1.7% to $35.7 billion, which beat estimates by $360 million.
Source: Investor PresentationAdjusted earnings-per-share of $1.10 compared favorably to $1.08 in the prior year and was in-line with expectations. For the year, grew 0.6% to $134.8 billion while adjusted earnings-per-share $4.59 compared to $4.71 in 2023.For the quarter, Verizon had postpaid phone net additions of 568K, which was better than the 449K net additions the company had in the same period last year. Retail postpaid net additions totaled 426K.Wireless retail postpaid phone churn rate remains low at 0.89%. Wireless revenue grew 3.1% to $20.0 billion while the Consumer segment increased 2.2% to $27.6 billion.Click here to download our most recent Sure Analysis report on VZ (preview of page 1 of 3 shown below):
Undervalued Hidden Gem #9: Pfizer Inc. (PFE)
Pfizer Inc. is a global pharmaceutical company focusing on prescription drugs and vaccines. Pfizer formed the GSK Consumer Healthcare Joint Venture in 2019 with GlaxoSmithKline plc, which includes its over-the-counter business.Pfizer owns 32% of the JV, but is exiting the company, now known as Haleon. Pfizer spun off its Upjohn segment and merged it with Mylan forming Viatris for its off patent, branded and generic medicines in 2020.Pfizer’s top products are Eliquis, Ibrance, Prevnar family, Vyndaqel family, Abrysvo, Xeljanz, and Comirnaty.
Source: Investor PresentationPfizer’s current product line is expected to produce top line and bottom-line growth because of significant R&D and acquisitions.As a result, Pfizer’s current product line is growing, offset by considerable declines from COVID-related therapies. Future growth will come from increasing sales for approved indications, extensions, R&D, and bolt-on acquisitions.Pfizer is one of the largest pharmaceutical companies in the world. As such, it has scale in R&D, manufacturing, regulatory affairs, distribution, and marketing around the world.This gives Pfizer the ability to bring new therapies to market, partner with smaller companies, or acquire entire companies outright. The current pipeline is robust, and some will likely be blockbuster drugs even after attrition.Click here to download our most recent Sure Analysis report on PFE (preview of page 1 of 3 shown below):
Undervalued Hidden Gem #8: Hooker Furnishings Company (HOFT)
Hooker Furnishings is a designer, marketer and importer of casegoods (wooden and metal furniture), leather furniture, fabric-upholstered furniture, lighting, accessories and home décor for residential, hospitality and contract markets.The company also domestically manufactures premium residential custom leather and fabric-upholstered furniture.Hooker Furnishings is the largest supplier of casegoods and upholstery in the U.S. and has access to more than 75% of all retail furniture distribution.
Source: Investor PresentationIn early December, Hooker Furnishings reported (12/5/24) financial results for the third quarter of fiscal 2025. Net sales decreased -11% over the prior year’s quarter due to sustained headwinds in the housing market and loss of sales due to the bankruptcy of a customer.The combination of high interest rates and high home prices have been exerting pressure on the business of Home Furnishings over the last two years.As a result, the company switched from earnings-per-share of $0.65 to a loss per share of -$0.39 and missed the analysts’ consensus by a massive $0.67.Click here to download our most recent Sure Analysis report on HOFT (preview of page 1 of 3 shown below):
Undervalued Hidden Gem #7: Kraft Heinz Co. (KHC)
Kraft-Heinz is a processed food and beverages company which owns a product portfolio that includes food products such as condiments, sauces, cheese & dairy, frozen & chilled meals, and infant diet & nutrition.The company was created in 2015 in a merger between Kraft Food Group and H. J. Heinz Company, orchestrated by Warren Buffett’s Berkshire Hathaway and 3G Capital.The Kraft-Heinz Company reported its third quarter earnings results on October 30. The company reported that its revenues totaled $6.38 billion during the quarter, which was down 2.9% year-over-year.
Source: Investor PresentationOrganic sales were down by 2.2%. This was a weaker performance compared to the previous quarter, when organic sales had declined by just 0.5%.Kraft-Heinz generated earnings-per-share of $0.75 during the third quarter, which was above the consensus estimate. Earnings-per-share were up 4% versus the previous year’s quarter.Management stated that they see organic net sales declining by around 2% in 2024, while management is forecasting earnings-per-share to come in between $3.01 and $3.07 for the current year.Click here to download our most recent Sure Analysis report on KHC (preview of page 1 of 3 shown below):
Undervalued Hidden Gem #6: FMC Corp. (FMC)
FMC Corporation is an agricultural sciences company that provides crop protection, plant health, and professional pest and turf management products. Through acquisitions, FMC is now one of the five largest patented crop chemical companies.The company markets its products through its own sales organization and through alliance partners, independent distributors, and sales representatives. It operates in North America, Latin America, Europe, the Middle East, Africa, and Asia.The company remains well positioned in its markets and was able to increase prices in all regions. We expect rising demand from agricultural markets that will drive strong sales of fertilizer in the years ahead. Growth from emerging markets should also be strong.Pricing gains along with strong volume growth of higher-margin products have supported FMC’s revenues and earnings. The company’s robust research and development pipeline will support stable growth in the years to come.Click here to download our most recent Sure Analysis report on FMC (preview of page 1 of 3 shown below):
Undervalued Hidden Gem #5: Western Union Company (WU)
The Western Union Company is the world leader in the business of domestic and international money transfers. The company has a network of approximately 550,000 agents globally and operates in more than 200 countries.About 90% of agents are outside of the US. Western Union operates two business segments, Consumer-to-Consumer (C2C) and Other (bill payments in the US and Argentina).Western Union reported Q3 2024 results on October 23rd, 2024. Company-wide revenue decreased 6% and diluted GAAP earnings per share increased 70% to $0.78 in the quarter compared to $0.46 in the prior year.
Source: Investor PresentationRevenue fell on challenges in Iraq despite higher retail, branded digital transactions, and Consumer Services volumes. Volumes are generally higher, but revenue is flat to declining in most geographies.CMT revenue fell 9% on a year-over-year basis even with 3% higher transaction volumes. Branded Digital Money Transfer CMT revenues increased 9% as volumes rose 15%.Click here to download our most recent Sure Analysis report on WU (preview of page 1 of 3 shown below):
Undervalued Hidden Gem #4: Wendy’s Co. (WEN)
Wendy’s is the second largest hamburger quick-service restaurant chain in the U.S. (up from #3 prior to 2020), with over 7,000 restaurant locations globally. The company was founded in 1969 in Columbus, Ohio. More than 90% of the company’s locations are in the United States.On October 31st, 2024, Wendy’s reported third quarter 2024 results for the period ending September 29th, 2024. The company’s global system-wide sales growth equaled 1.8% compared to growth of 4.8% in third quarter 2023.Global same-restaurant sales growth of 0.2% compared unfavorably to 2.8% in the same prior year period. System-wide sales of $3.64 billion compared to $3.58 billion earned in Q3 2023.Out of the 64 total new restaurant openings in the third quarter, the company had 31 net new restaurants, which compares unfavorably to last year’s 51 net new restaurants on 72 total new restaurants.The U.S. saw 2 net new restaurants closed, while 33 net new restaurants openings were international. The global re-imaging of Wendy’s was reported to be 89% complete as of 3Q 2024 compared to 83% one year ago.Click here to download our most recent Sure Analysis report on WEN (preview of page 1 of 3 shown below):
Undervalued Hidden Gem #3: Eversource Energy (ES)
Eversource Energy is a diversified holding company with subsidiaries that provide regulated electric, gas, and water distribution service in the Northeast U.S.The company’s utilities serve more than 4 million customers after acquiring NStar’s Massachusetts utilities in 2012, Aquarion in 2017, and Columbia Gas in 2020.Eversource has delivered steady growth to shareholders for many years.
Source: Investor PresentationOn November 4th, 2024, Eversource Energy released its third-quarter 2024 results for the period ending September 30th, 2024.For the quarter, the company reported a net loss of $(118.1) million, a sharp decline from earnings of $339.7 million in the same quarter of last year, which reflects the impact of the company’s exit from offshore wind investments.The company reported a loss per share of $(0.33), compared with earnings-per-share of $0.97 in the prior year. Earnings from the Electric Transmission segment increased to $174.9 million, up from $160.3 million in the prior year, primarily due to a higher level of investment in Eversource’s electric transmission system.Click here to download our most recent Sure Analysis report on ES (preview of page 1 of 3 shown below):
Undervalued Hidden Gem #2: Carters Inc. (CRI)
Carter’s, Inc. is the largest branded retailer of apparel exclusively for babies and young children in North America. It was founded in 1865 by William Carter. The company owns the Carter’s and OshKosh B’gosh brands, two of the most known brands in the children’s apparel space.Carter’s acquired competitor OshKosh B’gosh for $312 million in 2005. Now, these brands are sold in leading department stores, national chains, and specialty retailers domestically and internationally.On October 26th, 2024, the company reported third-quarter results for Fiscal Year (FY)2024. The company reported a decline in third-quarter fiscal 2024 results, with net sales down 4.2% to $758 million compared to the previous year’s $792 million.
Source: Investor PresentationThe company’s operating margin decreased to 10.2% from 11.8%, attributed to higher investments in pricing and marketing, despite a lower cost of goods.Earnings per diluted share (EPS) dropped to $1.62 from $1.78, reflecting softer demand in key segments.Click here to download our most recent Sure Analysis report on CRI (preview of page 1 of 3 shown below):
Undervalued Hidden Gem #1: AES Corp. (AES)
The AES (Applied Energy Services) Corporation was founded in 1981 as an energy consulting company. It now has businesses in 14 countries and a portfolio of approximately 160 generation facilities.AES produces power through various fuel types, such as gas, renewables, coal, and oil/diesel. The company has more than 36,000 Gross MW in operation.AES Corporation reported third quarter results on October 31st, 2024, for the period ending September 30th, 2024. Adjusted EPS rose 18% to $0.71 for Q3 2024.The company constructed and acquired 2.8 GW of renewable energy year-to-date, and is on course to add 3.6 GW of new projects online in 2024.
Source: Investor PresentationLeadership expects to achieve the high end of its 2024 guidance for adjusted EPS of $1.87 to $1.97 for the full fiscal year. Additionally, the company reaffirms it also still expects annual EPS growth of 7% to 9% from 2023 through 2027.The company is actively engaged in developing and acquiring new energy projects.It currently has a backlog of 12.7 GW of renewables. AES expects to complete the majority of these projects through 2027.Click here to download our most recent Sure Analysis report on AES (preview of page 1 of 3 shown below):
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