Thanks to the 2020 stock market crash fueled by issues like the novel coronavirus pandemic and an oil price war, it's easy to find quality businesses trading well below their 52-week highs. But considering the market's incredible run the last couple of years, many companies were trading at historically high valuations, and with the fall are now merely trading at similar valuations that could be had even just last year.
It's much harder to find stocks trading at multiyear low valuations while offering safe, high-yield dividends. That said, here are three diverse candidates for your watch list.
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1. Whirlpool: The home-appliance giant
Few companies enjoy the brand-name recognition of Whirlpool (WHR -1.01%). It's been in business in the U.S. for over 100 years, and its household appliances are now available around the world. Whirlpool earned $1.2 billion in net income in 2019, which was good for $18.45 per share. Granted, $511 million of that came from the sale of a business unit. But even adjusting for this, the stock still trades below 10 times trailing earnings. That's on the low end of where it usually trades.
Whirlpool just closed out an interesting 2019. Overall net sales fell 3%, reflecting business divestitures. But organic net sales actually rose 1.2% in the fourth quarter. While those aren't very impressive top-line statistics, the bottom line was much better. Despite a tariff war with China affecting Whirlpool's cost of materials, it delivered its most profitable year since 2016 through effective product pricing and cost structure improvement.
In light of the COVID-19 pandemic, it wouldn't be surprising to see Whirlpool's sales dwindle in the coming quarters. But it's hard to imagine the general populace simply abandoning household appliances; sales should return whenever retailers reopen stores to the public. Shareholders in the meantime can enjoy a safe dividend payout. It currently yields around 5%, but the company's payout ratio is a mere 26%. Even when accounting for the $511 million benefit in 2019, the payout ratio is still a conservative 44%.
In the near term, that payout should be safe from getting cut even facing a temporary sales slump. And long term, there's an opportunity for Whirlpool to keep growing this dividend, as it's done for seven straight years.
2. Restaurant Brands International: A franchiser with multiple revenue streams
Another stock that's trading at a rock-bottom valuation is Restaurant Brands International (QSR -0.30%), home of Burger King, Popeyes, and Tim Hortons.
When assessing value stocks, you can approach things from various angles, and no metric tells the complete story. The price-to-earnings ratio, price-to-sales ratio, and enterprise value to EBITDA all measure very different things. But this stock looks cheap by all three.
QSR PE Ratio data by YCharts.
Without a doubt, Restaurant Brands' business will be rocked by the reaction to the novel coronavirus. Restaurant companies are closing locations around the country to promote social distancing and slow the spread of COVID-19. And since Burger King is a global brand, sales will get hammered worldwide because quarantines are in effect in multiple countries. Even though 2020 is going to be rough, I'm assuming the company will live to see better days.
Let's not forget that just a few weeks ago, the company was riding high. For 2019, it reported 8% annual sales growth, and a 3% consolidated comparable-restaurant sales gain for all its restaurants worldwide. Burger King, riding the success of the Impossible Whopper, posted a 3.4% comps increase. Tim Hortons slipped 1.5%, although it remains widely popular in its home Canadian market.
But it's Popeyes, the company's smallest brand, that really shined. Its comps grew an astounding 12.1% on the year, including a double-take-worthy 34% in the fourth quarter alone, thanks to the launch of its new chicken sandwich. All told, the company gives investors the stability of mature brands like Burger King and Tim Hortons, while providing the growth of rising Popeyes. Once diners are allowed to return to restaurants, I have no doubt they'll return to all three of these chains.
Management is targeting a dividend of $2.08 per share in 2020 ($0.52 quarterly). That's good for more than a 6% forward yield at the moment. Admittedly, the payout ratio is high as Restaurant Brands only earned $2.37 per share on a GAAP basis in 2019. That high ratio could put pressure on the dividend if earnings take a significant COVID-19 hit in 2020. But again, I'm banking on the company returning to normal within a couple of quarters and prioritizing the dividend.
3. Caterpillar: An industrial Dividend Aristocrat
With the market crash, industrial stalwart Caterpillar (CAT -1.20%) is trading more than 30% down from its 52-week highs as of this writing. Trading at just 11 times trailing earnings and only 1.3 times sales, the stock is below where one historically finds it. And because of its fall, the dividend now yields north of 4%.
Caterpillar isn't a business that's going to light up the world; revenue growth can be meager to nonexistent. For 2019, revenue fell 2% year over year, and the outlook for 2020 was muted even before the coronavirus. That said, the company is highly profitable, delivering $10.74 profit per share for the year. That profit can swing in down cycles, but after 95 years in business, Caterpillar can manage.
So it may not be much of a growth company, but as far as dividend stocks go, few are better than Caterpillar. As a new member of the Dividend Aristocrat club, the company has raised its payout every year for 25 years. That's a streak it's worked hard for, and won't be eager to see slip away even if the COVID-19 pandemic challenges its bottom line. In other words, it would take prolonged extenuating circumstances to place the dividend in danger, and we aren't there yet.
