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The stock market has recently been on fire. What a difference just a few months can make. The stock market is at or nearing all-time highs, and it’s all about time in the market vs. timing the market.

Therefore, it may be difficult to find undervalued dividend stocks right now due to the market surging over 25% this year. However, you know we never back down from finding undervalued dividend growth stocks. Let’s dive into three dividend stocks that are on my watch list right now.

Dividend Stock Watch List

Dividend investing always happens -- whether the stock market is up or down, whether the Fed raises interest rates or lowers them, whether there is a recession or not, etc. It’s all about buying dividend income-producing stocks, which can often be the best source of passive income on your journey to financial freedom.

The stock market, specifically the S&P 500, is up 25% this year, coming close to all-time highs. The S&P 500 has fluctuated all year long -- just a few months ago, it was below 4,400, and even below 4,200. Cryptocurrency has also been on a tear recently, with the spot ETFs for Bitcoin rising, and the BTC halving supposedly coming in 2024, as they say.

Here is a chart of the S&P 500, with it moving up, down, up, down, and way up.

Now, here is the list of dividend stocks that are on my radar going into the month of January 2024. I typically like to keep it at 2-3 dividend stocks, narrowing focus to just a small set of stocks. Finding dividend stocks isn’t easy, but there are also other factors to consider, such as the composition of my portfolio by industry (i.e., am I overweight/underweight in an industry), as well as the level of exposure to one stock.

Therefore, the dividend stocks on my list cater to these factors and more. Now, here is the first stock on my list.

United Parcel Service (UPS)

I have officially achieved 100 shares of United Parcel Service due to the last dividend reinvestment. I was happy to cross the century threshold and complete the position, or so I thought.

Though I was initially buying UPS in the $140’s, shares often sprang up closer to the mid-$160’s, and they’ve come back to the mid-$150 range, as the stock was recently seen trading at around $157.23.

There has been quite the talk about their huge union deal/contract and that merchants don’t need UPS anymore. However, I noticed many brown trucks around the holiday season, and I am sure there is still quite the value in their logistics and data as well. I still do like the company, hence why they are on my watch list, and shares have come slightly down from mid-December.

Now, I want to show the numbers and discuss why I like the stock, even at recent prices. Therefore, lets run UPS through our stock screener, which is focused on the following 3 metrics:

1. Price to Earnings Ratio: Earnings is approximately $9.67 (down from the $10.34 reading previously expected) in earnings per share for 2024. Therefore, UPS is trading at ~16x forward earnings, which is still low, especially when compared to the 26x the S&P 500 sits at.
2. Payout Ratio: UPS’ current dividend payout ratio, using that metric, is actually at 67%. This is higher than the 60% we'd like to see from the $1.62 per share, per quarter dividend. Additionally, dividend growth may slow.
3. Dividend Growth: See the 10-year chart below. Over 13 years of growing dividends, at an average rate of almost 6.5%, is not too bad. Given high inflationary times, high interest rates, and the tightening of consumer spending, UPS keeping this streak alive is great.

The dividend yield is at 4.13%. It's hard not to like a company with this much history that is yielding over 4%, especially after the stock market has surged so much in the last month (5%). I’ll be watching. If they hit at or below $150, I’ll grab a share.

Hormel (HRL)

Hormel Foods was down over 30% this year and is a Dividend King, believe it or not. Many products are still in the store and in your cupboard – Hormel, Planters, Embasa, Skippy, Justin’s, and Jennie-o’s are a few of their name brands.

They also have been dealing with economic and labor headwinds, but this isn’t their first rodeo. That’s another reason why this global company has to be on the list, as well as the fact that they’ve served as a passive income machine for dividend investors. The five-year dividend yield average is only 2.32%, and they now yield 3.55%. Just think about that.

Time to look at the dividend metrics:

1. P/E Ratio: HRL analysts are expecting over $1.55 in earnings per share. That pegs the price to earnings ratio at 20.5x, which is higher than what I typically like to see (which is below 20x). It's less than the S&P 500, though.
2. Dividend Payout Ratio: Hormel stock pays a quarterly dividend of $0.2825 per share, per quarter, or $1.13 per year. This equates to a dividend payout ratio of 73%. This is another higher-than-normal dividend payout ratio.
3. Dividend Growth Rate: The five-year average dividend growth rate is 8%. I expect this to move lower with that higher dividend growth rate.

Lastly, we’ll take a look at the dividend yield. As an investor, you'll want to know how much owning this dividend stock pays you now. The yield for HRL is now at approximately 3.55%. Personally, I would love a higher dividend yield, as the dividend growth rate may be lower in the future.

Now, here is the third stock on my watch list.

Archer Daniels Midland (ADM)

As a Dividend Aristocrat sitting right next to the Dividend King on the list. Archer Daniels Midland sells their product across the world. The stock is down almost 20% this year, and I love that shares have been coming down closer to the $70 price point that I want them at.

This company boasts almost 50 years of dividend increases, consecutively. It also boasts a great balance sheet, so let’s see how this dividend stock stacks up:

1. P/E Ratio: ADM analysts are projecting $6.50 in annual earnings, producing a 11x price to earnings ratio. Plus, it appears to be gairly cheap right now.
2. Dividend Payout Ratio: ADM pays a $0.45 per share, per quarter dividend, or $1.80 annually. This equates to a 28% dividend payout ratio, which is rather low.
3. Dividend Growth Rate: ADM’s five-year dividend growth rate is over 6%. However, the last dividend increase was over 12%.

Lastly, the dividend yield for ADM is at 2.49%.

Other Dividend Stocks to Consider

Additionally, my eyes are on a few other stocks at the moment. These stocks are Johnson & Johnson (JNJ) and Main Street Capital (MAIN), I own each stock discussed, and I am constantly evaluating the stock market to see if there are any undervalued dividend stocks to buy.

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