Economic and geopolitical uncertainty has led the S&P 500 index 18% lower so far this year. But many high-yielding dividend stocks have held up better than the broader market. This shows the market continues to have confidence in companies that continue to churn out safe and growing income, regardless of the environment.
Let's dive into two blue-chip high-yield stocks that look underappreciated by Wall Street.
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1. Prudential Financial
With a market capitalization of $37 billion, Prudential Financial (PRU 0.52%) is one of the world's largest asset managers and insurers.
The company had over $1.6 trillion in assets under management (AUM) as of last month, with clients ranging from retail investors (i.e., individuals) to institutional investors (e.g., pension funds). In addition, Prudential manages its own general account (its float for insurance operations).
Prudential's leadership as an asset manager has helped its AUM grow over the years steadily. For context, the company had $1.3 trillion in AUM five years ago.
With steady demand for Prudential's life and disability insurance products, analysts expect the company to generate 3% annual earnings growth over the next five years. Given Prudential's ability to often exceed analysts' expectations, I would actually be surprised if earnings growth was this low since Prudential's after-tax non-GAAP (adjusted) earnings per share have beat analysts' estimates in nine out of the past 10 quarters.
Prudential's 4.9% dividend yield puts the S&P 500 index's 1.6% yield to shame. And with the dividend payout ratio set to be 41.4% in 2022, investors can rest assured that the stock's dividend is secure.
Prudential's stock has fallen just 10% year to date, but it's still trading at a discount to its peers. Its forward price-to-earnings (P/E) ratio of 8.5 is below the life and health insurance industry average of 8.9, which making Prudential's valuation attractive and possibly a buy for the long haul. The stock's price-to-sales ratio of 0.6 is in line with its 10-year median of 0.6. Since the company's fundamentals appear intact, Prudential seems sensibly valued.
2. U.S. Bancorp
Few industries are as critical to the U.S. economy as banking. The industry provides credit to consumers and businesses, which in turn fuels economic growth. And with $567 billion in assets and nearly 2,300 banking offices around the country, U.S. Bancorp (USB -0.20%) is at the forefront of the banking industry.
U.S. Bancorp's net interest margin remained strong in the first quarter at 2.44%. Net interest margin is the difference between a bank's interest income from its loan customers and its interest expenses paid to its customers. And with interest rates rising to tame decades-high inflation, this should help the company to expand its net interest margin even further. Also, the company's investments in its payments business appear to be paying off. Analysts are forecasting that the regional bank's earnings will compound at 10.4% annually over the next five years.
Aside from its impressive earnings growth outlook, U.S. Bancorp provides investors with a market-beating 3.8% dividend yield. Since the stock's dividend payout ratio will be around 43% in 2022, the dividend should be able to be sustained through a recession.
U.S. Bancorp's stock has dipped 15% year to date, which is better than the broader market, and now also seem fairly valued with embedded growth expectations. At a forward P/E ratio of 11.1, the stock is trading just slightly above the regional bank industry average of 10.2. The market's expectations justifies a valuation higher than the industry average. And U.S. Bancorp's price-to-book-value ratio of 1.6 is moderately lower than its 10-year median of 1.9, despite a favorable environment of rising interest rates. All these factors point to a buy signal for this stock right now.
