The broad market is running hot, but a handful of blue-chip dividend stocks were playing from behind going into the second half. Investors seeking a great deal have ample opportunity to go against the grain with the many fallen, stalling dividend payers that have what it takes to overcome hardships and continue rewarding investors with continued dividend increases.
Let’s check in on a trio of underappreciated and undervalued names that investors can still buy on the cheap this month as the S&P melts up, thanks primarily to a handful of big winners in big tech.
Constellation Brands
Constellation Brands (NYSE:STZ) is the iconic alcoholic beverage maker behind such brands as Corona and Modelo. Shares imploded back in January, bringing the year-to-date loss close to 25%. Altogether, this puts the name down more than 38% from its all-time high.
As shares sagged, though, the dividend yield has swelled, now just over the 2.5% mark. Additionally, investors have a rare opportunity to snag shares, not only while they’re in a historic rut, but at a nice discount to the price Warren Buffett’s Berkshire Hathaway (NYSE:BRK-B) has reportedly paid.
Indeed, it’s hard to know for sure how much the Oracle of Omaha and company paid up, but given the timing of their buying (through late last year), it appears investors have a shot at getting a better price of admission into the ailing alcohol company that’s experienced sales pressures and, more recently, tariff troubles.
Thus far, Berkshire’s bet isn’t looking too great, but only time will tell if they’re willing to double down at lower prices. Personally, I think the dip is more than worth buying in the face of a freshly lowered expectations. At the end of the day, Constellation has the brand strength to emerge from its latest bear market with strength.
PepsiCo
From one beverage company to another (Pepsi also sells snacks), we have PepsiCo (NASDAQ:PEP), which is also down over 30% from its high. The stock has a richer dividend yield (4.31%) and an extensive portfolio of consumer brands that I don’t think has lost all that much luster in recent years.
Of course, tariffs have the potential to hit Pepsi where it hurts, but I’m confident that management can dodge and weave past the punches thrown, just like Constellation and other affected consumer firms, which stand to take a tariff-induced hit to earnings.
It’s not just about ironing out the wrinkles in operations to extract synergies, though. It’s about having a game plan to stay competitive in the middle aisle of the grocery store. Furthermore, innovating in a way that encourages consumers to visit the middle aisle is a challenge that Pepsi must address. With solid managers, I think they’ll have little issue hitting and perhaps exceeding the now-lowered bar that stands in front of them as they run into the coming quarterly results.
If Pepsi can keep innovating, it’ll get its fizz back, even if more inflation is coming to the American supermarket in the second half.
The most compelling case for buying PEP stock has to be valuation. At the time of this writing, PEP shares trade at just shy of 20.0 times trailing price-to-earnings (P/E), or over 16 times forward P/E. That’s a below-market multiple to pay for one of the most solid dividend growers in the market, while it’s in one of its largest funks in more than a decade.
Deutsche Bank’s Steve Powers thinks the stock’s intrinsic value “exceeds its current trading price.” That means it’s time to buy, despite the negative headlines and calls for more downside amid some pretty tariff-fying risks. At just two times price-to-sales (P/S), I find PEP shares to be an absolute bargain for fans of the brand and the path forward.
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