These 3 Rising Dividend Plays Come Cheap

In an environment where yield is hard to come by, dividend paying stocks have been a great place to turn. Rising dividend plays, companies that have a track record of increasing their dividend payouts, have been among the best performers.

So far this year the Nasdaq U.S. Rising Dividend Achievers index is up 29% outpacing the S&P 500 which is up 25%. The alpha relates to a heavy weighting in the financial sector, but several unsuspecting technology stocks have outperformed too. Oracle, Accenture, and NetApp have all produced total returns of 35% or more.

To qualify for rising dividend achiever status, a company must exhibit a pattern of higher dividends over the last five years. It must also have positive earnings, a healthy cash-to-debt ratio, and a dividend payout ratio less than 65%. Only 50 names make the grade.

This exclusive club contains a mix of growth and value stocks. Focusing on the value style, there are some that are trading at attractive P/E multiples. These are three that offer excellent potential for income accumulation at a low price.

Is Louisiana-Pacific Undervalued?

Louisiana-Pacific (NYSE:LPX) makes sustainable wood materials, framing, and siding for the residential and commercial construction markets. Its earnings per share (EPS) are on pace to triple this year due to strong demand from homebuilders and industrial construction customers. Less than 10% of profits are slated to be paid out as dividends. This is a good thing as it means there is a lot of room for dividend increases.

The company has raised its dividend in each of the last three years. The 1.1% yield won’t get the blood boiling but with Louisiana-Pacific you are signing up for a long runway of dividend growth. A cash-to-debt ratio of 170% means there is plenty of financial flexibility to cover interest expenses, pursue growth opportunities, and hike dividends.

At 5x forward earnings Louisiana-Pacific is the least expensive name in the Rising Dividend Achievers index. This combined with the high quality financial statements make it a great foundation for a long-term income portfolio. 

Is it a Good Time to Buy HP Stock?

HP (NYSE:HPQ) may seem like a dinosaur in today’s high flying technology world, but the stock still offers a tremendous bang for the buck. The computer and printer maker is a beneficiary of a work and learn from home trend that is driving demand for desktops, laptops, and printing supplies. This year earnings are expected to be up sharply from pre-pandemic levels and further profit growth is expected in 2022.

This means that HP’s five-year dividend increase streak is likely to be extended. Its modest 19% dividend payout ratio also foretells a path of healthy dividend growth. Better yet, the 2.4% dividend yield is one of the highest among S&P 500 technology components and comes with a solid dose of growth.

In the near-term HP will be challenged by supply constraints and higher commodity prices that may limit sales and profitability. But these issues aren’t likely to effect HP’s ability to pay and raise dividends. The balance sheet includes $3.4 billion in cash and a manageable debt level.

What you won’t get with HP is high growth akin to the company’s early days or that of other tech names. What you will get is steady earning growth stemming from global PC demand that should translate to long-term capital appreciation and dividends. The stock’s pullback from its all-time high of $36 presents a compelling entry point for a tech legend trading at just 8.5x forward earnings.

Is it Too Late to Buy Best Buy Stock?

A decade ago, no one wanted anything to do with the falling knife that was Best Buy (NYSE:BBY). Now investors can’t get enough of the consumer electronics retailer. Its stock has recovered from a low near $11 to a record high above $130. So, it’s probably too late to get in, right? Maybe not.

That’s because Best Buy shares are still cheap at 13x forward earnings. The company is one of only two retailers in the Rising Dividend Achievers index with Williams Sonoma the other. It also boasts one of the highest dividend payments at $2.80 per share and with a 28% payout ratio is well positioned to stretch its eight-year dividend hike streak.

It may be hard to fathom why a big box retailer like Best Buy is doing so well in a consumer spending environment dominated by Amazon and other online storefronts. Well, if you can’t beat ‘em, join ‘em. Management has done a good job of growing Best Buy’s digital sales and reducing costs in recent years to make it a force to be reckoned with again. Meanwhile, expanded tech support offerings to go along with competitive prices have lured consumers back to Best Buy.

In the near-term Best Buy will get a boost from the holiday shopping season with Black Friday deals set to start next week. Longer term though, it will look to derive growth from entering new markets and product categories. Stores recently started selling electric bikes, mopeds, and scooters which have become popular with younger consumers.

Best Buy stock is trading near an all-time high right now but is still a good buy given the valuation and income stream ahead.