Are These 3 Dividend Aristocrats Undervalued Hidden Gems?

Key Points

• Caterpillar, NextEra, and Clorox are undervalued dividend payers, representing potential investment opportunities during market declines.
• Dividend Aristocrats have a consistent 25-year track record of increasing dividends. These companies boast financial stability and profitability.
• Dividend Aristocrats have weathered various economic challenges, highlighting their consistency in rewarding investors.

If you look at MarketBeat's list of dividend aristocrats, you'll see a select group of publicly traded companies that have an outstanding track record of consistently increasing their dividend payouts for at least 25 consecutive years.

That list is stacked with plenty of familiar large caps, such as Lowe's Companies Inc. NYSE: LOW, Target Corp. NYSE: TGT,  Abbott Laboratories NYSE: ABT, McDonald's Corp. NYSE: MCD, PepsiCo Inc. NASDAQ: PEP, Johnson & Johnson NYSE: JNJ, Coca-Cola Co. NYSE: KO and Exxon Mobil Corp. NYSE: XOM, among many others. 

What makes these companies so special is their financial stability, history of profitability and commitment to rewarding investors through dividends. Think about what's happened over the past 25 years that could have caused a company to pause dividend increases, cut the dividend, or cancel it altogether.

Weathered Many Storms

There's been the dot-com meltdown, the September 11 attacks, the subprime mortgage crisis and subsequent market crash, the market decline of 2018, the Covid-19 pandemic, the market decline of 2022 and today's bout of inflation.

If you think about it, that makes the consistency of these dividend aristocrats all the more impressive. 

Recently, with the market off its August highs, several undervalued dividend aristocrats are presenting potential opportunities for investors. Those undervalued names include Caterpillar Inc. NYSE: CAT, NextEra Energy Inc. NYSE: NEE and Clorox Co. NYSE: CLX. 

Caterpillar: Double-Digit Earnings Growth Ahead

Caterpillar's analyst forecasts show a consensus rating of "hold" with a price target of $265.95, an upside of 6.82%. Wall Street expects the company to grow earnings by 45% this year and another 5% next year.

The stock is down 3.50 % in the past three months, falling 8.70% so far in October, but finding support right at its 200-day line. That support suggests big investors may be done with their selling and may signal a change in the stock's trend, particularly if the broader market also stops selling off. 

It also means the stock looks like a bargain relative to its earnings potential. 

Caterpillar is well positioned to continue being a leader in the global market for heavy machinery, as its gear is designed for various applications, including mining, energy, construction and even a global logistics and supply-chain management division to move parts and materials to their next destination. 

NextEra Trading Higher After Earnings 

NextEra stock gapped up at the open on October 24, following the Florida-based utility's third-quarter earnings report. The stock continued trending higher throughout the session and was trading 6.8% higher mid-session, near the high of its session range.

The stock corrected sharply in August and September, resulting in a three-month decline of 31.51% and a year-to-date decline of 36.70%. 

So what's the attraction here? Take a look at the NextEra dividend yield of 3.40%, which is a draw that helps to offset price depreciation. 

Utilities stocks are known as dividend payers because they typically have stable cash flows and lower capital requirements, allowing them to consistently distribute profits to shareholders in the form of dividends.

NextEra appears to have found a floor above its October 6 low of $47.15. MarketBeat's NextEra analyst forecasts show a consensus view of "moderate buy" with a price target of $75.23, an upside of 36.58%, suggesting that the stock is undervalued relative to its price potential in the next 12 to 18 months. 

Analysts expect the company to grow earnings by 8% this year and 9% next year. 

Clorox Underperforming Consumer Staples Sector

Like NextEra, the maker of bleach and disinfectant products is trading above early October lows. The stock is down 20.92% in the past three months, underperforming consumer staples stocks, as tracked by the Consumer Staples Select Sector SPDR Fund NYSEARCA: XLP. 

The company issued preliminary first-quarter results in early October, saying it expects organic sales to fall between 21% to 26%. Clorox said that will result in a loss of as much as 40 cents per share.

The company reports second-quarter results on November 7, after the closing bell. 

The company is well past sales declines due to Covid winding down after Clorox wipes flew off shelves in the early days of the pandemic. Instead, this decline is due to an August cybersecurity breach that resulted in some ordering systems being taken offline.

Clorox's dividend yield is 3.96%, and the company has increased its shareholder payout for 37 years.