Dividend stocks — particularly the undervalued variety — offer tremendous relevance for market cycles that appear poised to transition from risk-on to risk-off sentiment. As such, targeting passive-income providers may be too conservative at this juncture. For instance, with the S&P 500 index gaining just over 15%, retail investors seem more than happy to bid up the capital market.

Nevertheless, the official June jobs report provided a possible clue regarding the trajectory of future monetary policy. True, the economy “only” added 209,000 new employment opportunities, which came in conspicuously below economists’ consensus forecast. At the same time, investors must digest two factors: one, the unemployment rate dipped to 3.6% from 3.7% in May, and two, the pace of wage growth remained steady on a month-to-month basis.

Put another way, more dollars (through an increase in employment) are chasing after fewer goods (via increased competition). That’s about as classic of an inflationary environment as one can get. And unfortunately, this canvas clashes sharply with the Federal Reserve’s efforts to curb rising prices through benchmark interest rate hikes.

Fundamentally, then, investors may want to prioritize passive income as growth-centric enterprises may subsequently suffer from higher borrowing costs. To help navigate what could be incoming uncertainty, investors should consider harnessing the power of the below undervalued dividend stocks.

BP (BP)

Headquartered in London, England, BP (BP) is an oil and gas stalwart, ranking among the world’s seven oil and gas supermajors. Although a supremely relevant entity, the Fed’s efforts to contain historically high inflation led to rising interest rates. In turn, the hawkish monetary policy impeded progress for energy and commodities-related industries. As a result, BP only gained about 3% for the year.

Still, the popularity and adoption of remote work may be coming to an end. For example, The Wall Street Journal recently showcased the story of insurer Farmers Group, which under new leadership reversed course on its remote operations policy. Other major companies have implemented similar action, which over time may facilitate increased traffic levels. Cynically, that should be beneficial for BP stock.

What makes BP a particularly attractive example of undervalued dividend stocks is that in order to grab its yield of 5.22%, investors only need to pay a trailing-12-month (TTM) earnings multiple of 4.2. In contrast, the integrated oil and gas sector’s average TTM earnings multiple stands at a higher 6.71.

Devon Energy (DVN)

Based in Oklahoma City, Oklahoma, Devon Energy (DVN) is an energy firm engaged specifically in hydrocarbon exploration in projects located in the U.S. Again, as with BP above, Devon aligns itself with a relevant industry. However, the Fed’s efforts attacking soaring consumer prices put a damper on fossil fuels. Since the beginning of this year, DVN stock gave up nearly 16% of its equity value.

Moreover, if the central bank raises interest rates, on paper, this action could hurt the hydrocarbon sector even more. Nevertheless, DVN may rank among the undervalued dividend stocks to buy because of rising fundamental relevancies.

Earlier this year, CBS News reported that a Canadian accountant was caught committing “time theft” or performing non-work-related functions while claiming to work. With employers increasingly suspicious about remote productivity claims, the possible return to the office could lift traffic volumes, benefitting DVN and its peers.

Currently, Devon shares trade at a trailing earnings multiple of 5.33x. In contrast, the oil and gas production and exploration sector features an average earnings multiple of 20.68x. As for passive income, Devon’s dividend yield stands at 9.23%.

Clearway Energy (CWEN)

Princeton, New Jersey-based Clearway Energy (CWEN) is one of the largest developers and operators of clean energy in the U.S., with more than 5.7 gigawatts of wind, solar and energy storage in operation. Unfortunately, Clearway has struggled this year, with CWEN stock down almost 14% since the January opener. In the trailing 12 months, CWEN gave up more than 21% of equity value.

Although running on the riskier side of the spectrum, Clearway also makes a case for undervalued dividend stocks to buy for contrarian investors. True, investors took a dim view of the company because it reported breakeven profits for the first quarter of 2023. At the same time, Clearway posted revenue of $288 million, up almost 35% on a year-over-year basis.

At the moment, the market prices CWEN at a trailing earnings multiple of 5.25x. However, the general utilities sector prints an average earnings multiple of 20.53x. Thus, investors would be getting quite a discount with Clearway. In addition, the company offers a dividend yield of 6.65%, a generous source of passive income difficult to overlook.

Pactiv Evergreen (PTVE)

Calling Lake Forest, Illinois home, Pactiv Evergreen (PTVE) represents one of the largest manufacturers of fresh food and beverage packaging in North America. From a cursory look, Pactiv would seem a relevant enterprise. After all, the company focuses on sustainability and recyclable products. Unfortunately, PTVE cratered since its 2020 initial public offering (IPO).

To be sure, Pactiv might not be the most appropriate name among undervalued dividend stocks to buy for risk-averse investors. However, those willing to dial up their risk-reward profile may have a compelling opportunity here. For one thing, in recent quarters, Pactiv has made a concerted effort to reduce its debt load. Also, on an annual basis, the company boosted its top line since 2020.

Narrative-wise, should a downturn materialize due to rising interest rates, Pactiv might benefit as consumers skip eating out at restaurants in favor of buying food at the grocery store. In turn, this action might boost demand for Pactiv products.

Presently, PTVE trades at an earnings multiple of 9.6x. That’s a sizable discount from the packaging and container sector’s average multiple of 13.23x.

Cal-Maine Foods (CALM)

Headquartered in Jackson, Mississippi, Cal-Maine Foods (CALM) is primarily engaged in the production, grading, packing and sale of fresh shell eggs, including conventional, cage-free, organic and nutritionally enhanced eggs.

According to its corporate profile, Cal-Maine is the largest producer and distributor of fresh shell eggs in the U.S. Primarily, it sells a majority of its shell eggs in states across the southwestern, southeastern, mid-western, and mid-Atlantic regions of the nation.

As multiple news agencies have reported, egg prices have soared across the country this year. Naturally, this unfavorable dynamic has not been good for CALM stock, which dropped almost 21% since the January opener. In the trailing 12-month period, Cal-Maine shares slipped a bit more than 16%. However, if the Fed manages to curb the acceleration of consumer prices, CALM could get interesting as one of the undervalued dividend stocks to buy.

Right now, the market prices the stock at a trailing earnings multiple of 2.83. Whether you look at the food processing sector (52.47 times) or the food wholesalers market (25.14 times), the associated average multiples run much higher than CALM’s multiple. Plus, with a dividend yield of 19.94%, the passive income might attract speculators.

CompX International (CIX)

Based in Dallas, Texas, CompX International (CIX) is a manufacturer of security products used in the recreational transportation, postal, office and institutional furniture, cabinetry, tool storage, healthcare and other industries. It also offers security-related applications for stainless steel exhaust systems, gauges and throttle controls for the recreational marine industry. In the trailing one-year period, CIX stock slipped more than 4%.

However, CIX also ranks among the more interesting undervalued dividend stocks to buy thanks to its resurgent performance so far this year. Since the January opener, CIX gained almost 21% of equity value. One major factor that keeps CompX on investors’ radar is that it has zero debt. Therefore, management enjoys flexibility as it faces potentially tricky waters.

Even better, the market prices CIX stock at a trailing earnings multiple of 12.2x. However, the business and consumer services sector runs an average earnings multiple of a much loftier 33.72x. Combined with a dividend yield of 4.60%, CompX may be one of the most underappreciated enterprises. Still, this perception may change as market participants seek out more reliable fare.

Park Hotels & Resorts (PK)

Arguably the riskiest idea among undervalued dividend stocks to buy, Park Hotels & Resorts (PK) is structured as a real estate investment trust (REIT). As its brand name suggests, Park Hotels commands a diverse portfolio of market-leading hotels and resorts with significant underlying real estate value. Per its public profile, Park’s portfolio currently consists of 60 premium-branded hotels and resorts with more than 33,000 rooms primarily located in prime city center and resort locations.

Fundamentally, PK presents a tricky concept for undervalued dividend stocks. On one hand, if the Fed aggressively raises interest rates, the subsequent rise in borrowing costs could lead to additional mass layoffs. At the same time, options traders have bid up PK stock because of its strong fiscal performances and favorable fundamentals, most notably the consumer phenomenon of “revenge travel.”

Should investors decide to pull the trigger, PK trades at an earnings multiple of 11.88x. In contrast, the average multiple for the REIT (operations and services) segment stands at 39.80x. While significantly undervalued, prospective buyers should also note that the dividend yield is only 2.10%.

This article originally appeared on Fintel

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