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3 Top Dividend Stocks That Wall Street Is Sleeping On

By Kody Kester – Dec 9, 2021 at 7:20AM

Key Points

  • W.P. Carey offers investors a 5.3% yield at less than 16 times this year's AFFO per share guidance.
  • Aflac has a nearly 3% yield and is trading at barely 10 times 2022's average analyst EPS forecast.
  • BlackRock is the heavyweight champion of its industry, trading at a valuation in line with the market.

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Each of these three stocks offer investors safe and market-beating dividends at reasonable prices.

When the market pulls back amid fear of the unknown, even the highest-quality stocks aren't entirely safe. Investors were reminded of this reality in the days following the identification of the omicron COVID-19 variant late last month.

Despite strong gains to begin the first full trading week of December, the S&P 500 is still more than 3% off its 52-week high. This implies that there are still solid buying opportunities to be had for the discerning investor.

Here are three blue-chip dividend stocks to snatch up before they rally to new 52-week highs.

Person reviewing charts and paperwork.

Image source: Getty Images.

1. W.P. Carey: Approaching Dividend Aristocrat status

The first stock to buy before Wall Street catches on is the diversified real estate investment trust (REIT) W.P. Carey (WPC 2.73%), whose stock is currently trading 3.3% below its 52-week high. 

W.P. Carey signs triple net lease contracts with its customers. This means that its hundreds of tenants are responsible for the insurance, property taxes, maintenance, and utilities each month on W.P. Carey's more than 1,200 properties across the U.S. and Europe. 

W.P. Carey's tenants also cut base rent checks to the company each month, which has provided it with the cash flow necessary to raise its dividend for 23 years straight. This has the stock on track to become a member of the highly regarded Dividend Aristocrats in 2023. Dividend Aristocrats are S&P 500 components that have raised their dividends annually for at least 25 consecutive years.

W.P. Carey offers investors exposure to a variety of sectors, which should help the company to do well no matter what happens in the future. For context, W.P. Carey generates relatively balanced annualized base rent (ABR) from industrial, warehouse, office, and retail properties in its portfolio.

Despite W.P. Carey's excellent track record, the stock is priced at less than 16 times this year's midpoint on adjusted funds from operations (AFFO) per share guidance of $4.98. Against its dividend per share obligation of $4.20 this year, the 84% payout ratio suggests a fairly covered dividend. This explains how income investors can scoop up a safe and steady dividend grower with a 5.3% yield, which is quadruple the S&P 500's 1.3%. 

2. Aflac: A Dividend Aristocrat insurer

Like W.P. Carey, Aflac (AFL 0.56%), the supplemental insurer that provides a variety of insurance types to more than 50 million customers in Japan and the U.S., also has stock trading down somewhat from 52-week highs. 

Along with Aflac's 21.2% hike to its quarterly dividend last month, stock performance in recent weeks has pushed Aflac's dividend yield up to 2.8%. This dividend is arguably one of the safest in the world, which is supported by the fact that this was Aflac's 39th straight year of raising its dividend. Thus, the stock is easily a Dividend Aristocrat.

Aflac's dividend payout ratio is likely to be around 27.5% this year. Even with a massive increase in its payout, the payout ratio will only edge slightly higher to 30% next year due to analysts' forecasts of double-digit percentage growth in the company's non-GAAP (adjusted) earnings per share (EPS) to $5.33.

Analysts' robust growth estimates for Aflac next year stem from the expectation of interest rate increases, which will be a boost to the net investment income that the company earns from its $146 billion investment portfolio. 

Aflac is trading at a forward price-to-earnings (P/E) ratio of 10.5, which is considerably lower than the S&P 500's forward P/E ratio of 20.6. In light of Aflac's quality and significant discount to the broader market, I would argue that now is as good a time as almost any to buy shares of the stock.

3. BlackRock: The unstoppable asset manager

BlackRock (BLK -1.06%) is the largest asset manager in the world, with $9.58 trillion in average assets under management (AUM) as of the third quarter. BlackRock's stock price is nearly 5.4% off its 52-week high currently, which makes sense considering the recent weakness in equity markets.

An investment in BlackRock is really a bet that the single greatest wealth-creating vehicle in history known as the stock market will keep winning. This is a safe bet in the long run as corporate earnings gradually advance, and in turn, equity markets march higher over time. These rising markets should translate into higher AUM, revenue, and EPS for BlackRock.

The largely uninterrupted bull market in recent years has been a major catalyst for the company's fundamentals. As a result, BlackRock's EPS has grown at a 10% rate annually over the past five years.

Given the ongoing economic recovery from COVID-19, it's not too surprising that analysts are expecting a slight acceleration in BlackRock's EPS growth rate to 13% annually over the next five years.

Based on the average analyst EPS prediction of $38.76 for this year, BlackRock's payout ratio should be 42.6%. This leaves plenty of room for the stock's 1.8% dividend yield to grow going forward. 

Better yet, investors can buy this above-average dividend growth stock at an average price. That's because BlackRock's forward P/E ratio of 21.2 is just barely above the S&P 500's forward P/E ratio of 20.6. 

Kody Kester owns shares of Aflac, BlackRock, and W. P. Carey. The Motley Fool recommends Aflac. The Motley Fool has a disclosure policy.

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