Dividend Diamonds in the Rough: 7 Undervalued Income Stocks

Stocks to buy

If you’re looking for investments that could generate more-than-satisfactory total returns, consider undervalued dividend stocks. With these types of stocks, you may have the potential to get the best of both worlds.

First, there are numerous undervalued stocks that sport above-average dividend yields. These payouts can provide a steady baseline of positive returns. Second, besides offering high-yields, many of these stocks are ripe for a market re-rating.

Re-ratings could come about via a variety of ways. For instance, price discovery. Another possible re-rating driver is the elimination of a macro/company-specific headwind affecting market sentiment. Massive re-ratings can take shape upon the emergence of a game-changing catalyst.

Taking a look at stocks with dividend yields of at least five percent, that are also trading at low price-to-earnings multiples, I have zeroed in on the following seven undervalued dividend stocks. Consider it one a strong opportunity at current prices.

Brandywine Realty Trust (BDN)

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Brandywine Realty Trust (NYSE:BDN) is a real estate investment trust that owns office properties across the United States, primarily in the Austin, Philadelphia and Washington, D.C. metro areas.

Like other office REITs, the impact of the Covid-19 pandemic on office building demand has affected Brandywine’s fiscal performance in recent years. This, coupled with the market’s uneasiness about the future prospects of the commercial office market, has led BDN stock to decline in value considerably over the past five years.

However, this has resulted in BDN falling to a rock-bottom valuation. At current prices, BDN trades at a 44% discount to book value. Shares also sport a forward dividend yield of 13.9%.

As I have argued previously, changes like a normalization of interest rates could dramatically improve sentiment for office REITs, including BDN. In turn, this may result in a massive rebound for shares.

B2Gold (BTG)

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If you’re bullish on a continued bull market for gold, B2Gold (NYSE:BTG) is definitely one of the best undervalued dividend stocks to buy.

At current prices, shares in this diversified and profitable producer have a forward dividend yield of 5.59%.

While the company has not raised its dividend since 2020, an increase to its payouts may come soon. The uptick in spot gold prices continues. As I’ve pointed out before, B2Gold has low, fixed production costs, resulting in a high level of operating leverage.

With this in mind, it makes sense that analyst forecasts call for BTG’s earnings to double in 2025, from 20 to 40 cents per share.

More important than the prospect of greater profitability to fund dividend increases, such a dramatic improvement in earnings will likely result in major price appreciation for BTG stock. Shares today trade for only 7.1 times 2025 estimated earnings.

British American Tobacco (BTI)

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British American Tobacco (NYSE:BTI) is one of the world’s largest tobacco companies. In the United States, BTI is the company behind Camel, Natural American Spirit, and Newport cigarettes.

It also manufactures non-cigarette nicotine and tobacco products, like the Vuse vaping device, as well as Velo nicotine pouches.

At current prices, BTI stock trades for only 6.3 times earnings. Shares also sport a forward dividend yield nearing 10%. Like with other big tobacco firms, this low valuation is reflective of continued concerns that profits from non-combustible tobacco profits will fail to outweigh declining volumes and earnings from the sale of cigarettes.

However, as Seeking Alpha contributor Juxtaposed Ideas recently argued, BTI’s non-combustible segment has reached positive operating margins sooner than expected. Similar to the situation with rival Philip Morris International (NYSE:PM) and its non-combustible segment, in time this unit could have higher margins than the legacy cigarette segment.

Pitney Bowes (PBI)

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Pitney Bowes (NYSE:PBI) stock is primarily an activist investing and turnaround play, but it is also one of the undervalued dividend stocks.

Even as PBI’s board, taken over by Hestia Capital in a proxy fight last year, works to implement a business transformation, this shipping and mailing products company has maintained its dividend.

At current prices, PBI stock has a forward dividend yield of 5.03%. In the near-term, investors can collect this steady, moderately high payout, but the big payoff will arrive, in the event Hestia’s efforts prove successful.

PBI’s latest quarterly earnings release included updates indicating that it is making progress implementing the transformation.

As laid out in a presentation Hestia Capital provided to shareholders during the 2023 proxy contest, the investment fund believes that its multi-leg turnaround plan could eventually send this $4 per share stock up to prices between $11.34 and $16.33 per share.

Sabine Royalty Trust (SBR)

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Sabine Royalty Trust (NYSE:SBR) owns oil and gas royalty and mineral interests. Paying out most of its cash flow as dividends, payouts from Sabine have totaled $5.92 per share over the past year. This gives the stock a trailing twelve month yield of 8.69%.

Yes, given how Sabine’s payouts fluctuate with changes in fossil fuel prices, the forward yield of SBR stock is subject to change.

However, based on the latest oil price trends, optimism may be warranted. Since February, crude oil prices have surged from the low-$70s to the high-$80s per barrel.

Last week, analysts at BofA raised their summer crude oil price forecasts. On a longer time frame, as JP Morgan analysts argued last November, we may be in the midst of an energy supercycle. All of this could mean higher payouts for SBR, and upward pressure on its share price.

Torm (TRMD)

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Alongside downstream energy stock Sabine, midstream energy play Torm (NASDAQ:TRMD) is another of the top undervalued dividend stocks. This U.K-based oil tanker owner has been benefiting from favorable industry demand trends since 2022.

With profitability improving dramatically during this time, Torm has been making monster dividend payments to TRMD stock investors. Shares currently have a trailing twelve month yield nearing 20%.

Although quarterly payouts have declined in recent quarters, don’t assume that this trend will continue indefinitely. Sell-side forecasts call for Torm to report earnings of $6.87 per share this year, and $7.40 per share in 2025.

This level of earnings could help support a double-digit yield going forward. Moreover, they may also provide a boost to Torm’s valuation. TRMD currently trades for only 5.1 times forward earnings. Compare that to peer DHT Holdings (NYSE:DHT), which trades for around 7.5 times forward earnings.

Vale (VALE)

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As discussed recently, Brazil-based mining giant Vale (NYSE:VALE) has big long-term potential with its “energy transition metals” business, but for now its shares remain under pressure, because of demand headwinds for its main business, the extraction of iron ore.

However if you’re patient enough to ride out this continued slump, an investment in VALE stock could prove very profitable. You can buy the stock today for less than 5 times earnings.

If demand normalizes for iron ore, and/or the company makes further progress building out its up-and-coming business segment, shares could receive a massive re-rating.

Alongside appreciation potential, VALE is also a high-yield dividend stock. The company recently declared a 54 cent per share dividend. VALE typically pays out dividends semiannually. While not certain another 54 cent dividend will be declared by year’s end, if this happens shares today have a forward yield of around 9.15%.

On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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