Dividend Diamonds in the Rough: 7 Overlooked Stocks With Huge Payout Potential

Stocks to buy

Instead of buying popular stocks with high dividend yields, you may want to take a look at some of the overlooked dividend stocks instead. With these more under-the-radar plays, there may be greater potential with these stocks compared to the more widely-followed high-yield dividend stocks.

In other words, beyond just the prospect of steady gains through dividends, overlooked high-yield stocks can have substantial upside potential as well. With fewer market participants following them, they can often be undervalued, whether relative to comparable stocks or undervalued compared to growth prospects and/or future catalysts.

Over a long time frame, the gap between trading price and underlying value can narrow substantially. In turn, this could potentially produce above-average gains to go alongside above-average yields. Taking a look at stocks with annual dividend yields of 5% or greater, the following seven overlooked dividend stocks stand out as top names in this category to buy.

Alliance Resource Partners (ARLP)

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Alliance Resource Partners (NASDAQ:ARLP) is a master limited partnership (MLP) specializing in the mining and sale of thermal and metallurgical coal. With the green revolution well underway, coal may seemingly be an energy source on the way out.

So far, however, global coal consumption has started to decline substantially. In fact, coal usage has increased in recent years. Few may know this, but those in the know who have invested in ARLP stock and other undervalued coal plays are profiting handsomely from this knowledge.

ARLP has gained more than 31% over the past 12 months, and shares have a forward distribution yield of 11.68%. This level of payout has held steady for over a year after being increased by 40% in early 2023. To top things off, uncertainty about coal’s future remains factored into ARLP’s valuation. The stock trades for only 6x forward earnings.

DHT Holdings (DHT)

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DHT Holdings (NYSE:DHT) is a name I’ve discussed several times before in past coverage of the best energy stocks. However, besides being a top choice in its sector, DHT is also one of the top overlooked dividend stocks to buy.

Based in Bermuda, this company owns and operates a fleet of crude oil tankers. DHT stock has a forward dividend yield of 9.52% and trades for only 9x forward earnings. Yes, the shipping industry can be quite cyclical, with changes in demand leading to big swings in charter rates and profitability.

Nevertheless, market conditions have remained favorable for tanker owners like DHT. As favorable demand trends persist, the company is likely to sustain its high rate of payout. With this stock, there is also potential for organic growth. Earlier this year, this company announced it ordered four new VLCC tankers for its fleet.

Kronos Worldwide (KRO)

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Kronos Worldwide (NYSE:KRO) manufactures titanium dioxide pigments. In recent years, the company has experienced a big drop in sales. That resulted in Kronos going from being profitable to becoming unprofitable on an operating income basis.

In turn, this called into question whether KRO’s high dividend was at risk of a cut or suspension. Yet, while all of this weighed on KRO stock during late 2022 and most of 2023, since late last year, Kronos’ prospects have improved substantially. The dividend has stayed as-is, and shares have rallied more than 63% over the past 12 months.

KRO’s latest quarterly earnings release has fueled the latest rally. Kronos has swung back to profitability. Sell-side forecasts call for a further rebound in the quarters ahead. With a forward dividend yield of 5.89% and the potential to keep climbing back towards prior price levels, consider KRO a buy.

Bank of NT Butterfield & Son (NTB)

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Bank of NT Butterfield & Son (NYSE:NTB) is a leading offshore bank. Headquartered in Bermuda, Butterfield provides personal and business banking services in major offshore financial centers.

Besides being a more interesting bank stock due to the nature of its business, NTB stock is also interesting in terms of its high yield and low valuation. Shares currently have a forward dividend yield of 5.2%. This dividend has not been raised for many years. Still, with a payout ratio of 39%, it’s likely sustainable.

Trading for 7.6 times forward earnings, NTB trades at a big discount to more well-known bank stocks, which have forward earnings multiples in the 10 to 15 range. For the preceding quarter, NT Butterfield reported higher-than-expected revenue, as well as a substantial earnings beat. According to InvestorPlace Earnings, earnings per share (EPS) came in at $1.17, versus consensus estimates calling for EPS of 97 cents.

Opera (OPRA)

This isn’t the first time I’ve pointed out Opera (NASDAQ:OPRA) as being one of the top overlooked dividend stocks. Back in March, I discussed how shares in this Norway-based browser provider were a great opportunity for yield and price appreciation.

Flash forward to now, this largely remains the case with OPRA stock. After dipping lower temporarily, shares have been bouncing back more recently. While not certain, investors may be taking heed of a recent buy recommendation from Seeking Alpha contributor JR Research.

On May 25, JR Research argued that Opera was an “AI growth stock priced like a value play.” Only time will tell whether OPRA becomes the next hot AI stock. However, with a valuation of just 16.1 times forward earnings and a trailing 12-month (TTM) dividend yield of 5.45%, it certainly still represents good value at current prices. Consider it a buy.

Stellantis (STLA)

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Stellantis (NYSE:STLA) is a global automotive holding company. Best known for its ownership of Chrysler, Dodge, Jeep and Ram in the U.S., Stellantis is also the parent company of European automakers like Fiat, Opel and Peugeot.

Thanks to its margins-focused management, which has prioritized maximizing margins instead of market share, Stellantis has reported high profitability since the start of the post-pandemic auto market boom. Concerns about a downturn for the sector have weighed on STLA stock, but as it falls out of favor, you may want to go contrarian on it.

For one, STLA is already priced for disaster. Shares trade for just 4x earnings. While you wait for Stellantis’ already profitable EV segment to continue taking off, you can collect STLA’s high dividend. At current prices, shares sport a forward yield of 7.4%. Earlier this year, the company raised its regular dividend by 16%.

Townsquare Media (TSQ)

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As a micro-cap stock classified as being in a declining industry, Townsquare Media (NYSE:TSQ) is not surprisingly one of the overlooked dividend stocks. Yet, while much of the broad market may not even be aware of it, you may want to take a closer look.

Why? For one, TSQ stock may be classified as a radio stock, but radio is no longer its main business. According to a May 2024 investor presentation, Townquare’s Digital segment generates a majority of revenue and operating income. Trading for only 8x forward earnings, as Boyar Research argued in a March 2024 write-up on TSQ, this $11 per share stock may have an intrinsic value topping $25 per share.

As for the dividend? TSQ has a forward yield of 7.14%. If concerned about dividend cut risk, keep in mind that Townsquare earlier this year raised its quarterly payout by 5.3%.

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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