3 Dividend Kings with a Royally Good Upside

Key Points

• Altria is trading at a deep value and could see its shares rise significantly while paying an 8% yield. 
• Sysco is trading below its 2019 levels while the market it serves (and its business) has normalized at higher levels.
• Tootsie Roll is a small-cap consumer staple chugging away with dividend payments and share repurchases. 

Dividend Kings are tried and true investments with a long history of sustained dividend payments and distribution increases. The kind of track records that help investors sleep soundly at night, but these stocks are not always easy to buy. Dividend Kings are in demand, meaning they can come with higher-than-average price multiples, which means it pays to buy them when they are down. Dividend Kings can fall from grace but don’t stay down forever.

Just like the Dogs of the Dow, the Dividend Kings with tarnish on their crowns in 2023 will rise to the top in the following years and deliver outsized returns while they do. 

Altria: Down But Still Driving Solid Cash Flows

Altria NYSE: MO shares hit the skids in 2022 following a downgrade to Equal Weight from Morgan Stanley. Analysts at the firm cited macro headwinds and a too-high valuation among their concerns for investors. The stock dropped more than 20% on the news but has found a bottom since. What the company has also done is outperform expectations. The quarterly results have been mixed, but the takeaway is that sluggish sales are offset by a widening margin and sufficient cash flow to sustain the dividend. 

Investors shouldn’t expect robust dividend increases from Altria, but a low-single-digit rate will likely be sustained. The company’s high payout ratio caps upside potential but is offset by an outlook for growth in e-cigarette sales. E-cigarettes are still a controversial market, but 1 provides a path away from smoking tobacco that does not include cannabis. 

Analysts are iffy on the stock and have it pegged at Hold with a price target about 7% above the 2022 price floor, but investor sentiment is high. Altria has been showing up on Marketbeat’s trending stock lists, a list tracking user engagement on the website. The stock’s low 8.5X earnings multiple and high 8.75% yield has renewed interest among retail investors.

Shares of Altria are trading near long-term lows. The floor for 2023 is near $42.50 and may be broken soon. In that scenario, support is likely near $41, where the stock would present a deeper value and higher yield. If the market finds support at or near current levels, the stock price could revert to the 150-day EMA by the time the company reports earnings in mid-October. 

Sysco Offers A Deep Value For Income Investors

There are headwinds in the economy and within the restaurant industry that Sysco NYSE: SYY primarily serves. Still, the takeaway from the industry is that it has normalized above the 2019 levels. This means that many are trending higher for restaurant stocks, and most are trading above their 2019 price points while Sysco, the #1 purveyor serving them, is not. Simply moving up to the 2019 trading levels would add 20% of value to the stock price. 

Coincidentally, the analysts trimmed their targets for the stock earlier this year to a level about 22.5% above the price action with shares near $71. There have been a few price target reductions in mid-2023 but not many, and they are small compared to what occurred earlier in the year. However, the brightest spot in the analyst data is the low target which is more than 10% above the action suggesting a firm floor for the market—the next catalyst for this 2.8% yielding Dividend King. 

Tootsie Roll Is Highly Valued But Trading At Reasonable Levels 

Tootsie Roll NYSE: TR Industries is a highly-valued consumer staple with a yield of only 1.0%, but it’s a solid play for income investors. The payout is less than half of the company’s earnings while growing the business, and the balance sheet is in great shape. Investors should not expect robust revenue, earnings, or distribution growth but slow and steady wins the race. The stock price has returned to more reasonable levels after popping in 2022; it is now at a 1-year low and may move lower, although it appears to be overextending. Tootsie Roll also repurchases shares.