5 Deep Value Dividend Stocks For Annual Portfolio Rebalancing

It is no secret that we are huge proponents of dividend investing. At Sure Dividend, we recommend investors buy and hold quality dividend growth stocks, such as the Dividend Aristocrats, to generate superior long-term returns.

But we also recommend investors focus on stocks that offer the highest total returns. In addition to dividend yield, we favor quality stocks that have future earnings growth potential, and also low valuation multiples as measured by the price-to-earnings ratio.

Buying stocks with high dividend yields is good–buying undervalued dividend stocks with growth potential is even better. With that in mind, it could be said that value investing and dividend investing go hand-in-hand. After all, as a stock price declines, its valuation multiple declines and its dividend yield rises, thus making shares more attractive on a total return basis.

With 2020 in the books, investors are looking ahead to what 2021 may bring. Stock prices remain near record highs right now, which makes value and dividend investing even more difficult. Valuation multiples appear stretched, while dividend yields have fallen–the average dividend yield of the S&P 500 Index is just 1.5% today.

Therefore, investors that are rebalancing their portfolios have fewer attractive stocks to choose from, due to broadly elevated valuations and reduced dividend yields. But the following 5 stocks offer deeply-discounted valuations, along with attractive dividend yields, that make them attractive for investors interested in high total return potential.

A number of criteria were applied in order to come up with the top 5 stocks. First, only large-cap stocks with market capitalizations above $2 billion were chosen. Next, only stocks in the 90th+ percentile for both valuation and total returns were allowed. In other words, these 5 stocks are among the 10% most undervalued, and also in the top 10% for total expected returns, in the Sure Analysis Research Database.

Lastly, to screen for attractive dividend payers with solid yields and safe payouts, only stocks with 3%+ dividend yields and Dividend Risk Scores of C or better were allowed.

Deep Value Stock #5: Lazard Ltd. (LAZ)

  • 5-year total expected returns: 12.9%

Lazard Ltd. is an international investment advisory company that traces its history to 1848. The company has two business segments: Financial Advisory and Asset Management. The Financial Advisory business includes mergers and acquisitions, debt restructuring, capital raising, and other advisory business. The Asset Management business is about 80% equities and focuses primarily on institutional clients.

By geography, Lazard’s revenue is about 60% Americas, 30% Europe and Middle East, and 10% Asia Pacific. At the end of 2020, Lazard had roughly $259 billion in assets under management (AUM). Lazard has an impressive track record of revenue growth over the past 15 years.

Source: Investor Presentation

Lazard reported a record fourth-quarter and full-year results on February 5th, 2021. For the quarter, company-wide operating revenue increased 20% to $849 million, while diluted adjusted earnings per share increased 82% due to rising assets under management (AUM), M&A deals, and debt restructuring.

For the year, company-wide operating revenue fell -1% to $2.52 billion, but diluted adjusted earnings per share grew 10% to $3.60 for 2020. Financial Advisory operating revenue rose 29% in 2020, while Lazard’s Asset Management operating revenue increased 12% for the year. Assets under management grew 4% to $259 billion for 2020.

Lazard’s competitive advantage is derived from its reputation, worldwide reach, long-term relationships, and ability to advise on complex transactions. The company is often the go-to firm for complex global M&A transactions and restructuring. Its reputation also allows it to attract top talent, which is important in the advisory business.

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Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities.

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