Most stocks are priced appropriately, most of the time. The so-called efficient market hypothesis says that all relevant information about a company is always quickly disseminated and then taken into account. There are no surprises waiting behind the scenes that will significantly alter the perceived value of a stock.
Sometimes, however, Wall Street doesn’t know how to interpret the information it has.
That could well be the case for a trio of dividend-paying stocks right now. These three names have either underperformed their peers in recent weeks or lost ground altogether. But that weakness overlooks a bunch of bullish tailwinds that Wall Street just doesn’t seem to have a firm grip on.
1. Western Union
Yes, Western Union (WU 0.88% ) is still around, although it is far removed from its established telecommunications roots since the 1800s. These days, the organization’s focus is on sending money from one place to another, from one person to another.
This company also seems a bit outdated, in a time when we have self-service options like PayPal Credits and Zella. But this sentiment is based on the mistaken assumption that the majority of the world has or even wants access to a digital payment platform. A lot of people don’t. Many people are still fond of cash or, in many cases, have no way of delivering money across borders that prohibit such digital transactions.
To that end, Western Union’s 600,000 global agents are located in more than 200 different countries, with most of these agents located outside of the United States. Each time the company sends money within this network, of course, it keeps some for itself. This is why it is well suited for paying dividends: it has reliable recurring income.
To that end, Western Union has not only paid a dividend every quarter for the past 10 years, but has also increased its annual payout in each of those years. That’s what makes the stock’s 30% pullback from April’s peak so surprising.
Don’t look a gift horse in the mouth, though. This sale pushed the stock’s dividend yield up to 5.2%.
2. Duke Energy
duke energy ( DUKE 0.42% ) wasn’t exactly set aside like Western Union; Shares of the utility giant listed exactly where they traded in the middle of last year. Given how much better most other large-cap utility stocks have performed during this time, it’s not out of place to suggest that Wall Street is indeed sleeping on this solid player.
If you’re not familiar with it, Duke Energy provides electricity to 7.8 million customers in six different states, mostly in the Midwest and South; it is also in the natural gas sector. These companies are even better suited to support dividends than is the money transfer industry. Indeed, consumers may be willing to postpone a vacation or skip a trip to the mall, but they will generally do whatever it takes to keep the lights on.
It doesn’t hurt that regulators rarely say no to a utility company’s request to raise rates. That’s how Duke Energy was able to pay out some sort of dividend every year for the past 96 years, and it’s been increasing its payout every year for over a decade. That still doesn’t qualify the title as a dividend aristocrat, but Duke is definitely moving in that direction.
In the meantime, the title is again moving in a bullish direction. Stocks are back in sight of record highs reached in August, with investors acknowledging that the current dividend yield of just under 3.8% is simply too good to pass up.
3. New York Community Bancorp
Finally, add New York Community Bank ( NYCB 1.25% ) to your list of dividend-paying stocks you should consider for your portfolio even though most other investors have lost interest. The stock’s pullback from its mid-January peak took it back to price levels seen in the first half of last year, pushing the well-protected dividend yield to just under 6%.
As far as banks go, it’s not one of the big boys. The $5.3 billion regional banking firm has just under $60 billion in assets, a fraction of the size of megabanks like JPMorgan Chase and Bank of America. Don’t let its small size fool you, though. The New York Community Bancorp still packs a punch! While the quarterly dividend per share has stagnated at $0.17, it has been paid out without fail since the start of 2016. Last year’s earnings of $1.20 per share – and even the inflated earnings of $1.02 per share of 2020 – are more than sufficient to cover the payment.
Here’s the kicker: rising interest rates may dampen demand for new loans, but assuming the rate hikes looming for this year are muted rather than stuffed down the throat of the economy, higher rates high should make New York Community Bancorp’s lending business even more profitable.
Just keep in mind that there is no dividend increase on the horizon for this stock; it’s a bit like owning a bond, even if it’s a high yield bond. This may not necessarily be a long-term holding, but more of a temporary holding meant to capitalize on the above-average performance that you won’t find in many other places right now.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.