If you think Wall Street insiders always keep stocks priced appropriately, think again. Plenty of tickers slip well below what could be considered a reasonable value, with the industry's professionals often choosing to remain silent rather than steer investors into them. Not even above-average dividend yields always prompt this crowd into pounding the table on these names, so to speak.
With that as the backdrop, here's a closer look at three top dividend stocks most of Wall Street seems to be ignoring. Now might be a good (if not great) time to step in.
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1. Franklin Resources: Dividend yield of 4.4%
You may be more familiar with Franklin Resources (BEN 0.41%) than you think. Namely, you may know it better as the Franklin Templeton mutual fund company, which currently manages roughly $1.5 trillion worth of investor assets. In addition to its flagship moniker, Franklin Resources also operates business through related entities like ClearBridge Investments, Brandywine Global, and Royce Investment Partners just to name a few.
The nature of the business can be unsettling. Most investors know all too well the stock market can be fickle, as can its investors. Any organization that relies wholly on the market perpetually faces the fallout of a market crash.
There's a slight misunderstanding in how the mutual fund business actually works, however. That is, funds don't necessarily need the stock market to always climb; mutual fund companies don't even really need the market to avoid moving lower. The only thing fund managers truly want is for the market to not crash so hard that it prompts investors to "cash out" of their mutual funds altogether.
See, funds generate revenue based on a percentage of the value of their total assets under their umbrella. Even if stocks tumble to the tune of 20% in one quarter, fund companies are still going to collect 80% of the prior quarter's management fee. The trick, so to speak, is convincing these investors to remain patient, and remain invested.
While there's no denying that the nature of the business makes for volatile revenue streams in the short run, in the long run, an ever-rising market translates into ever-rising growth and, therefore, ever-rising income that supports ever-rising dividends. That's why it's surprising investors have collectively let Franklin Resources' stock price sink more than 30% from November's high, which in turn caused its trailing dividend yield to reach 4.4%.
2. Automatic Data Processing: Dividend yield of 1.75%
Automatic Data Processing (ADP -0.54%) won't win any awards for big payouts; its current dividend yield is a modest 1.75%. It doesn't score particularly high marks for growth or value, either. While this year's projected top-line growth of 8.6% and next year's expectation of 7.1% growth is solid enough -- and driving comparable earnings growth -- the stock is priced at more than 30 times next year's estimated bottom line, so it feels uncomfortably expensive.
Where this company really comes through for shareholders, however, is on the payout growth front. In November, Automatic Data Processing raised its annual dividend payment for the 47th consecutive year, making it one of the market's most-tenured dividend-growth names. And, with more than a decade of nearly uninterrupted revenue growth under its belt (the COVID-19 pandemic's spread in mid-2020 is the only time in years that sales fell on a year-over-year basis), there's no reason to think the company can't keep this growth streak alive.
And this payout growth isn't insignificant. A $0.395 per quarter, per-share payout in 2012 to a quarterly payment of $1.04 per share now translates into average annualized dividend increases of a little more than 10%.
Automatic Data Processing is of course better known as payroll processor ADP, though it's hardly just a payroll processor anymore. Human resources, tax solutions, and benefits administration are just some of its repertoire these days. The recurring nature of the business lends itself to supporting reliable dividends.
3. Citigroup: Dividend yield of 4%
Finally, add megabank Citigroup (C 2.02%) to your list of top dividend stocks Wall Street is overlooking. The stock's 31% price slide from its high reached in the middle of last year has not only pushed its dividend yield up to 4%, but it has also dragged down shares to roughly 24% below analysts' consensus target price of $67.22.
It's not exactly unclear what's going on here. The global economy looks wobbly, and the lending market itself looks vulnerable. The Mortgage Bankers Association reports mortgage applications are down on the order of 40% from year-ago levels, while refinancing applications are off to the tune of 60%. And those alarming figures are made even more alarming by the fact that the Mortgage Bankers Association estimates the mortgage industry's loan origination profits fell 44% last year despite firm demand linked to low rates.
The kicker: According to data from mortgage industry research outfit Black Knight, mortgage delinquencies grew for the first time in nine months in February following January's surge in foreclosure starts.
All of a sudden, being in the banking business doesn't look all that exciting.
Don't read too much into the data, however. It's not necessarily the red flag it seems to be.
A great number of these problems were pent-up by collection and default moratoriums put in place at the height of the pandemic, not to mention the fact that so many lenders are still just behind on processing evictions and foreclosures. Also bear in mind that late 2020 and early 2021 saw exceptional demand for home purchases that now serve as an unfair comparison. The lending market will survive even if it's not quite as robust as it was just a year ago. Citigroup's banking and lending operation is no exception. Indeed, while total demand for loans may continue to weaken, higher interest rates mean lending itself is a more profitable venture now than it was when interest rates were lower.
