Dividend investing allows investors to generate passive income from holding onto shares of various corporations. You can choose from individual stocks, dividend funds or a combination of both.
While dividend funds require less research, you can realize higher returns if you look for dividend stocks. Investors seeking maximum returns from this strategy should focus on a corporation’s profit margins, financial growth and competitive moat. The dividend yield is less relevant and is a nice bonus.
Dividend income investors aim to receive as much cash flow as possible without as much regard for future growth opportunities. These investors should focus on a stock’s dividend yield and payout ratio. The latter is important because it indicates a dividend program’s sustainability.
Investors can choose from many dividend stocks, but these are some of the most undervalued dividend stocks to buy in April 2024.
American Express (AXP)
Source: Shutterstock
American Express (NYSE:AXP) trades at a lower valuation than other credit card companies. The stock currently trades at a 20 P/E ratio and management believes the corporation will achieve double-digit year-over-year revenue and earnings growth beyond 2026. EPS growth is supposed to exceed revenue growth for each quarter, indicating higher profit margins.
The credit and debit card firm increased its profit margins in Q4 2023. Revenue increased by 11% year-over-year while net income was 23% higher compared to the same period last year. American Express recently hiked its dividend by 17% to reach $0.70 per share. This development indicates that American Express can comfortably afford its dividends and raise its payouts in the future.
American Express’ 1.23% dividend yield is respectable for a dividend growth stock. The stock is already up by 20% year-to-date and has more than doubled over the past five years. Long-term profit margin expansion makes the current valuation look attractive compared to other credit and debit card firms.
Main Street Capital (MAIN)
Source: jittawit21/Shutterstock.com
Main Street Capital (NYSE:MAIN) caters to investors who want income right now and aren’t as concerned about growth. The stock has only gained 25% over the past five years but boasts a 6% dividend yield and monthly payments.
Investors should note that those dividends are non-qualified. That means you will have to pay income taxes on your dividends rather than the more favorable capital gains rate. Main Street Capital is a business development company that makes up for it with a high yield, but it’s good to know.
The financial firm makes its money by lending money to corporations in the lower middle market. This category consists of companies with revenue between $10 million and $150 million along with EBITDA ranging from $3 million to $20 million.
Main Street Capital generated an impressive 22.9% return on equity in the fourth quarter of 2023. The firm is putting its capital to good use while rewarding investors with a high yield and monthly payments. Main Street Capital isn’t the type of stock that outperforms the market, but it offers more stability than many stocks.
Stag Industrial (STAG)
Source: Shutterstock
Stag Industrial (NYSE:STAG) is another dividend stock that pays non-qualified distributions but makes up for it with a high yield and monthly payouts. The real estate investment trust specializes in industrial storage properties. The company has 569 buildings spread across 41 states to 112.3 million square feet.
The stock has gained 30% over the past five years and has a 36 P/E ratio. The corporation also has a $7 billion market cap. Cash net operating income was up by 10.0% year-over-year in the fourth quarter of 2023. Core funds from operations per share also increased year-over-year to the tune of 5.5%.
Most of Stag Industrial’s tenants stick around for a long time. These clients are large businesses that need warehouses to operate smoothly. The real estate investment trust maintained a 98.2% occupancy rate on its portfolio in the fourth quarter. Stag Industrial receives stable cash flow from its tenants and is better positioned for economic challenges than most dividend stocks.
On the date of publication, Marc Guberti did not have (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.