3 Beaten-Down Dividend Growers for Income Investors

The bear market in 2022 has provided opportunities to buy solid companies at a discount. Fears about a recession and rising interest rates have punished equities. Although this is painful for existing buy-and-hold shareholders, investors can take this opportunity to add to holdings or start new positions.

Some investors are taking this opportunity to purchase growth stocks, but many people are already overweight on these stocks. Additionally, those seeking income must look elsewhere; stocks like Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), parent company of Google, do not pay dividends yet.

Consequently, I screened for stocks in bear market territory with a yield of more than 3.5%, a payout ratio of less than 65%, and that have increased the dividend for 10-plus years. I further narrowed the list by requiring a price-to-earnings (P/E) ratio of less than 18X.

Below, we will discuss these three beaten-down dividend growers:

Beaten-Down Dividend Growers: Whirlpool (WHR)

Whirlpool (NYSE:WHR) was founded in 1911. It is one of the largest appliance designers and manufacturers in the world. Whirlpool sells washing machines, dryers, refrigerators, ice makers, ovens, cooktops, microwaves, ranges, garbage disposals, and more. The leading brands of these appliances are Whirlpool, Maytag, KitchenAid, and Speed Queen, among others.

Whirlpool has grown organically and through acquisitions, acting as a consolidator in the industry. Today, some of its main competitors are AB Electrolux of Sweden, Haier of China, LG of South Korea, and Bosch-Siemens of Germany.

The company had revenue of $21.98 billion in 2021. Over the past 12 months, gross margins were in the high teens and operating margins were about 10%. Whirlpool is sensitive to the economic cycle, particularly the housing market. Many of its products are bought for new homes, during a sale of an older home, or for renovations. Hence, Whirlpool’s stock price is sensitive to higher interest rates and lower home sales.

Whirlpool has one of the highest dividend yields of the Dividend Contenders at 4.14%, more than triple the average of the S&P 500 Index. The company has increased the dividend for 12 consecutive years. The growth rate has been 6.9% in the past five years and 10.9% in the trailing ten years. The forward payout ratio is low at around 24%, indicating that it is safe and pointing to future increases.

Whirlpool’s stock price has declined by about 22% year-to-date (YTD), lowering the P/E ratio to about 6.9X, which is below the five-year and 10-year range. As a result, investors are getting a market leader with a 4%-plus yield and a low valuation.

T. Rowe Price (TROW)

T. Rowe Price (NASDAQ:TROW) is a primary player in retirement plans in the U.S. The company is known for its active mutual funds, mainly its stock and target date funds. The firm is one of the few that people can invest in for asset managers. Many others are not publicly traded or have been acquired in a consolidating industry. In addition, T. Rowe Price offers mutual funds to retail and institutional investors and sub-advisor services to other managers.

Total revenue was $7.67 billion in 2021 and $7.7 billion for the past 12 months ending Mar. 31, 2022. T. Rowe Price’s revenue and earnings depend on its fees because the company earns a percentage of assets under management, or AUM. At the end of June 2022, the asset manager had about $1.31 trillion in AUM, down from the high earlier in the year due to market action and net outflows.

T. Rowe Price is a popular Dividend Champion and Dividend Aristocrat because of its 36 annual dividend increases. The firm has sustained a double-digit dividend increase rate with the trailing 10-year growth rate at about 13.3% and the five-year growth rate at around 14.9%. Furthermore, the dividend is safe with a payout ratio of roughly 34%. Importantly, T. Rowe Price did not cut or suspend its dividend during the dot-com crash or the sub-prime mortgage crisis because it usually maintains a net cash position on the balance sheet.

The stock price is down around 38% YTD because of fears of the bear market. Consequently, the valuation has fallen to about 13X after accounting for lower earnings estimates. This value is below the range in the past five years and 10 years. Hence, investors are getting an undervalued stock with a dividend yield of 3.99%.

Beaten-Down Dividend Growers: Walgreens Boots Alliance (WBA)

Walgreens Boots Alliance (NASDAQ:WBA) is a pharmacy retailer founded in 1901. The company operates globally in nine countries through the Walgreens, Duane Reade, Boots, Benavides, and Ahumada brands. Walgreens has over 9,000 stores in the U.S. and 4,031 stores internationally. Walgreens sells prescription and over-the-counter drugs, as well as beauty, health, personal care, and food products.

Total revenue was $134.5 billion in the last twelve months through the U.S. Pharmacy, U.S. Prescriptions, U.S. Retail, International, and Walgreens Health businesses. The retailer grows organically by selling more items from its stores. Walgreens also expands by adding stores to its network. However, both growth avenues are relatively mature. VillageMD, Shields Health Solutions, and Walgreens Health Corners are its recent growth initiatives.

Walgreens is a long-time dividend growth stock. It has paid an increasing dividend for 47 years, making the company a Dividend Aristocrat and Dividend Champion. The lack of growth and difficulty executing after the merger with Boots caused the dividend yield to rise to 4.87%. However, the payout ratio is still relatively conservative at 36%. The dividend growth rate has been 5.2% in the past five years and 9% in the past decade, but is slowing.

That said, Walgreens is trading at a P/E of about 7.76X, below the five-year and 10-year averages. As a result, investors are getting a high-yield stock at a bargain valuation.

On the date of publication, Prakash Kolli held a long position in TROW. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. The author is not a licensed or registered investment adviser or broker/dealer. He is not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money. 

Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor and blogger on dividend growth stocks and financial independence. Some of his writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial blogs. He also works as a part-time freelance equity analyst with a leading newsletter on dividend stocks. He was recently in the top 1.0% and 100 (81 out of over 9,459) of financial bloggers as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.