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Here Are 2 Overlooked Dividend Stocks

By Jason Hawthorne – Aug 22, 2021 at 6:15AM

Key Points

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Do you like money?

The stock market can be entertaining. It can also make you money. Those two things don't always intersect. And many investors ignore profits and dividends in favor of the latest technology or compelling story from a charismatic CEO.

C.H. Robinson Worldwide (CHRW -2.09%) and Best Buy (BBY 0.15%) are largely ignored, and that's a shame. They each have growing dividends and solid businesses that should line shareholders' pockets for years. Here are a few reasons you should pay more attention to these under-the-radar stocks.

A shopper looks at televisions and monitors in a big box retail store.

Image source: Getty Images.

C.H. Robinson Worldwide

C.H. Robinson is a global logistics company. It contracts with transportation companies (73,000 in 2020) and helps efficiently and cost-effectively manage its customers' freight. Morningstar estimates the company's share of the domestic freight-brokerage industry has climbed from 13% in 2004 to about 18% in 2017. The market is still very fragmented. Since it is simply a middleman and doesn't own the trucks, planes, ships, or railroads, its costs can ebb and flow with demand. That can be a problem when inflation sets in.

Increasing costs have been crimping margins lately, but the company has the scale to manage near-term headwinds. And it is priced for the negativity. The current price-to-sales ratio is near its two-decade low.

CHRW PS Ratio Chart

CHRW PS ratio data by YCharts

In addition to the attractive valuation, the company has a 2.3% dividend yield. It's raised that payout for 24 consecutive years and will soon join the club of Dividend Aristocrats, companies that have done it for a quarter-century. Still, it pays out less than a third of its earnings in dividends. That leaves plenty of room for increases as long as the financials remain consistent. The company reported second-quarter results in July. And for the first six months of this year, revenue was strong but margins continued to suffer.

Period Revenue Operating Margin
1H 2021 $10.37 billion 4.7%
1H 2020 $7.43 billion 4%
1H 2019 $7.66 billion 5.9%
1H 2018 $8.20 billion 5%

Data source: C.H. Robinson Worldwide. 1H = first half.

Management continues to focus on balancing volume and profit. On the recent earnings call, CFO Michael Zechmeister estimated the company processed about $60 million in negative-margin loads last quarter. That is triple the $20 million he estimates existed each quarter since 2012. It's a good metric to track for shareholders concerned about profitability. 

Despite the concern, C.H. Robinson has the scale and experience to meet the challenge. Although Robert Biesterfeld only became CEO in 2019, he previously served as chief operating officer and has been with the company for 20 years. For now, this well-managed industry leader is on sale.

Best Buy

Best Buy is quite a turnaround story. The big-box retailer once given up for dead (and derisively called Amazon's showroom) is now thriving. In the early part of the last decade, revenue fell precipitously. In fact, sales dropped 22% between 2012 and 2017. That's when the business began to rebound. 

In the fiscal year ending Jan. 30, sales were up 12.6% year over year. Adjusted earnings per share increased 20%. That happened in a year that included a quarter where sales dropped 6% from the prior year due to pandemic shutdowns.

Revenue over the past 12 months is the highest since 2012. And shareholders have been rewarded. Setting aside special payouts in 2015 and 2016, this year marks the eighth straight year of dividend increases. The stock now yields 2.6%. That's double the S&P 500 index. Even more important, shares have climbed almost 250% over the past five years.

BBY Chart

BBY data by YCharts.

Management's initial projection for revenue growth this year was conservative: between negative 2% and positive 1%. After a strong first quarter, that outlook was upgraded to between positive 3% and 6%. Things continue to look up for the company despite many investors still thinking of it as being well past its prime.

Wall Street will be especially interested in the outlook when the company reports earnings on Aug. 24. That's because the most recent reading of consumer sentiment fell dramatically. It was even below the lows set early in the pandemic. If Best Buy can continue to put up growth numbers like these, it won't stay overlooked for long.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jason Hawthorne owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends C.H. Robinson Worldwide and recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

Stocks Mentioned

Best Buy Stock Quote
Best Buy
BBY
$86.60 (0.15%) $0.13
Amazon.com Stock Quote
Amazon.com
AMZN
$94.13 (-1.44%) $-1.37
C.H. Robinson Worldwide Stock Quote
C.H. Robinson Worldwide
CHRW
$96.71 (-2.09%) $-2.06
Morningstar Stock Quote
Morningstar
MORN
$249.60 (-0.15%) $0.38

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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