Follow The Money To These Undervalued Dividend Growth Stocks
Kraft Heinz (NASDAQ:KHC), Reynolds Consumer Products (NASDAQ:REYN), and Newell Brands (NASDAQ:NWL) have more in common than their status as consumer-staples companies. Not only are they deep-values relative to the broad market and their industry group, they give a high yield, have safe distributions, an outlook for dividend growth, are in the midst of currently-successful growth initiatives, and the institutions are buying them.
In our view, that is a recipe for higher share prices because the only reason the institutions would be rotating into this sector is if they thought it would be moving higher. In a world where high-valued low-yielding, debt-laden growth companies are losing their value, that sounds like a great idea to us.
1. Kraft Heinz - The Deepest Value And Highest Yield
Kraft Heinz is the deepest value trading at 12.5X its earnings and yielding 4.6% with shares trading near $35. This company is also deep into a turnaround that we see leading the shares up by triple digits over the next few years.
The turnaround is centered on shedding underperforming assets, strengthening the balance sheet, and focusing on growth markets and labels the company can get behind. So far, those efforts have been paying off well with the company in the best position its been in since the merger seven years ago.
As for the institutions, this company is 61% institutionally-owned and ownership has been on the rise over the past year. The institutions have bought nearly 4.0% of the company in that time with 1.2% of the market cap purchased in the Q1 period of 2022 alone.
We think this trend will continue because it is a safer play, provides a yield well above the broad market and the10-year Treasury (which is going to be yielding more and more as the days go by).
2. Reynolds Consumer Products Gets Big Boost In Q1
The institutions are aggressively buying Reynolds Consumer Products, having purchased 7.0% of the market cap over the past year and 6.5% of that in the first 6 weeks of 2022. It is worth noting here that institutional activity picked up considerably in the middle of February just after the company reported earnings and has total ownership up to 27.15%.
In regards to the yield and value, this consumer staples company pays 3.18% while trading at 17X its earnings, making it less of a value, but a value nonetheless. The S&P 500 is trading at a higher multiple while yielding a third the rate and the highest valued consumer staples trade close to 30X earnings while yielding about 2% and sometimes less.
3. Newell Brands Guides Cautiously
This company not only beat on the top and bottom lines in Q4, but guided for margin expansion as well. The only bad news in the report is that revenue is expected below the analyst's consensus, but we see upside risk in the numbers. The supply chain is expected by many to start showing appreciable improvement in the 3rd quarter, possibly during the 2nd quarter, and we think that will be a boost to full-year results.
Turning to the yield and value, this company pays about 3.75% while trading at only 13X its earnings. While Newell Brands is not an active dividend-grower, we see improvement in the balance sheet, widening margin, and underlying strength in the economy to lead to an increase.
Regardless, the institutions are holding 87.73% of the stock and added 8.5% over the past year, 2.7% of that in the 1st quarter.
