The Federal Reserve is raising interest rates in response to high inflation. Consequently, investors are selling because they fear high-interest rates will cause a recession, cautions Prakesh Kolli, editor of Dividend Power.

However, the current bear market has created some deals. Stocks overvalued for years are now undervalued or at least fairly valued. Moreover, dividend yields have risen to the highest in a decade for some stocks. Below we discuss 4 stocks yielding 4%+ that are also undervalued.

Realty Income (O)

Realty Income is a real estate investment trust (REIT) that operates under a single-tenant, triple-net lease structure. The company develops or purchases commercial real estate and rents to retail chains.

Under the net lease agreement, the lease is responsible for the monthly base rent and real estate taxes, property insurance, and maintenance. The average lease duration is about nine years and includes rent escalators. Total revenue was $2,788 million in the trailing twelve months. The current CEO is Sumit Roy.

The REIT is one of the five largest global REITs with properties in the U.S., U.K., and Spain. The company owns about 11,427 commercial properties and leases to ~1,125 clients. Realty Income’s occupancy rate median is 98.2%, much higher than its peers.

The top 10 clients are Walgreens, Dollar General, 7-Eleven, Dollar Tree/Family Dollar, FedEx, LA Fitness, Sainsbury, BJ’s, B&Q, and CVS Pharmacy. Also, the REIT has geographic diversification, with Texas, the U.K., California, Illinois, Florida, Ohio, and Georgia making up 44.8% of the rent base.

Realty Income is infamous as one of the monthly dividend stocks. The firm is also a Dividend Aristocrat with 29 years of consecutive increases. The forward dividend yield is 5.19% above the 5-year average of 4.35%. According to Portfolio Insight*, the dividend is growing at about a 3.4% annual rate in the past 5-years.

The REIT has one of the most robust balance sheets compared to its peers at an A3/A- upper-medium investment grade credit rating. Realty Income is undervalued, trading at a price-to-AFFO ratio of approximately 14.7X. This value is below its historical 10-year range.

Next Era Energy Partners LP (NEP)

NextEra Energy Partners LP is a clean energy limited partnership operating across the U.S. The company had an IPO in 2014 and is a publicly traded subsidiary of NextEra Energy.

The company owns and manages wind, solar, and storage projects. Also, it owns contracted natural gas pipelines in Texas and Pennsylvania. The partnership operates in the wholesale market, contracting out its clean energy power. Total revenue was $1,126 million in the last twelve months. The CEO is John Ketchum.

Although the company’s revenue has been growing, earnings per share has been more volatile because NextEra Energy Partners is growing rapidly and increasing its energy base. The partnership is expanding rapidly, adding between 22 GW and 30 GW from 2021 to 2024 in its pursuit of becoming a renewable and clean energy leader.

The partnership’s units yield 4.29%, above the 5-year average of 3.82%. In addition, the company is increasing the dividend at a double-digit rate of roughly 15% annually on average.

Although the credit rating is only BB from S&P Global, the company is a subsidiary of NextEra Energy, which has an A-, an upper-medium investment grade credit rating. NextEra Energy Partners has declined about (-15%) year-to-date, and the yield is up, making it an attractive stock to look at now.

AbbVie (ABBV)

AbbVie is a global R&D pharmaceutical company spun off from Abbott Laboratories (ABT) in 2013. The company is known for its blockbuster therapeutic, Humira, which treats autoimmune diseases.

Humira is the number two selling therapeutic globally. In addition, AbbVie has strengths in immunology and oncology. Other primary therapies include Synthroid, Rinvoq, Skyrizi, Imbruvica, Botox, etc. Total revenue was $40,560 million in the past twelve months. The CEO is Richard Gonzalez.

AbbVie grows organically through R&D. However; like most large pharma companies, it periodically acquires other companies for new technologies and platforms. For example, the firm acquired Allergan in 2019 for $63 billion. More recently, AbbVie has cut deals for Syndesi and Soliton, and it has partnerships with a number of other small companies.

The forward dividend yield is ~4.1%, much higher than the average dividend yield for the S&P 500 Index. The dividend has been growing at a solid double-digit rate of ~18% in the past 5-years but off a low base.

The moderate payout ratio of roughly 41% supports future growth and provides confidence about dividend safety.
Abbvie is undervalued now, with an earnings multiple of ~10X, below the 5-year and 10-year averages. As a result, investors should look at this Dividend Contender now.

Kimberly-Clark (KMB)

Kimberly-Clark is a more than a 100-year-old company that is well-known for its packaged consumer products. The company operates in three business segments: Personal Care, Consumer Tissue, and K-C Professional. Some leading brands are Huggies, Pull-Ups, Little Swimmers, Kotex, Depend, Poise, Kleenex, Scott, Cottonelle, etc. Total revenue was $20,133 million in the past twelve months. The CEO is Michael Hsu.

Kimberly-Clark only grows slowly through organic sales increases. It does so through new products and extensions. However, the company periodically buys large and small competitors like Thinx and Softex Indonesia. That said, many of the products it sells are necessities.

The dividend yield of ~4.21% is the highest in the past decade and nearly an entire percentage point above the 5-year average. However, the high payout ratio of roughly 73% means future dividend increases will probably be modest.

Despite the high payout ratio, the dividend safety is acceptable because of the consistent earnings and cash flow streams. Furthermore, Kimberly-Clark has an A/A2 upper-medium investment grade credit rating adding to the dividend safety. Kimberly-Clark is a Dividend King and trading at a P/E ratio of about 19.5X within its 5-year and 10-year ranges. The value is the lowest since the pandemic bear market.

Subscribe to Dividend Power here…