Looking beyond the biggest of the mega-cap tech stocks, 2023 probably hasn't been a very good year for your portfolio. That's not great for our current holdings, but if you have more money to deploy, and you're looking for dividends and bargains, there are opportunities. But don't just look for dividend stocks that have fallen to bargain levels lately. One of the top stocks on this list has actually had a pretty great 2023, but is still very cheap.
We recently asked three of our top Motley Fool contributors for their favorite dividend stocks that look like screaming buys, and they offered up semiconductor giant Texas Instruments (TXN 1.27%), midstream energy stalwart MPLX (MPLX 0.17%), and Prologis (PLD 0.69%), the industrial real estate giant.
Built for bigger things to come
Jason Hall (Texas Instruments): Say it with me, friends: Cyclical downturn, secular tailwinds. That's the story for Texas Instruments, the global leader in analog semiconductors. While companies like Nvidia and Taiwan Semiconductor are benefiting from the huge demand for chips to power the latest AI innovations, Texas Instruments is dealing with some weakness in its core industrial customers, not to mention a weird automotive market that's staring down its own downturn as higher interest rates squeeze consumers.
While that's not going to be great in the near term for Texas Instruments, this is exactly the sort of opportunity smart investors should seize.
Analog semiconductors are at the heart of industrial automation, and will see increased demand as more things become connected. Texas Instruments is not just idly waiting on the recovery, either. It's continuing to invest in a larger form factor in its foundries. That will drive its manufacturing costs down by double-digit percentages, increasing a cost advantage that is already the industry's best.
At recent prices, Texas Instruments shares trade for less than 17 times earnings and a dirt cheap 9.4 times operating cash flows. That's a 26% discount to its average earnings multiple, and a 31% discount to its average cash flow multiple over the past five years. Combine that with a dividend yield near 2% at recent prices, and investors can get paid to wait for the cycle to turn, and for Texas Instruments' profits -- and stock price -- to soar.
A high-yield choice (despite its 2023 performance)
Tyler Crowe (MPLX): OK, so this pick spoils our original headline construct -- stocks down in 2023 -- because MPLX's stock is actually up in 2023. However, its stock price is down 56% from its all-time high back in 2015. The oil and natural gas pipeline company was one of the many victims of the oil price crash of the mid-2010s. Here's the thing, though. The company has drastically improved its business since then, and at the current stock price, it offers a forward distribution yield of 9.5%.
Unlike most other oil and natural gas companies, which have significant exposure to oil prices, MPLX makes most of its money moving crude oil, natural gas, and refined products through its system for set fees. A lot of other pipeline and infrastructure companies do this, too, but what makes MPLX stand out is the management team's stewardship of shareholder capital. The company is majority owned by Marathon Petroleum (MPC -0.56%) and most of the product MPLX moves is to and from Marathon's refineries. For years, it has managed its finances rather conservatively with relatively low leverage (for a pipeline company) and ample cash coming in the door to cover its payout to investors.
Its capital spending plans as of late have been rather modest. For one, there isn't a great need for more oil and natural gas pipelines these days, and higher capital costs mean new projects have to achieve higher rates of return. Because of this, investors shouldn't expect much in terms of payout growth.
However, a 9.5% annual return from the current payout alone is a decent option today, and I think investors looking to bargain hunt for high yields might like the offering from MPLX.
An industry leader is on sale
Matt DiLallo (Prologis): Shares of Prologis have fallen about 20% from their 2023 peak, and are down by about 40% from their all-time high set in 2022. That sell-off has driven the giant industrial REIT's dividend yield up to 3.4%, its highest level in the last five years. Meanwhile, the decline has pushed its valuation to less than 19 times its core funds from operations (FFO). That's well below its average trading multiple over the past few years.
Prologis sells at an attractive valuation for a company with its growth profile. The REIT hasn't fully captured the surge in warehouse rental rates over the past few years because it leases its facilities under long-term agreements. That gives it lots of built-in rent growth as legacy leases expire and reprice to much higher market rates. The company estimates that there's currently a 62% gap between its in-place lease rates and current market rents. Because of that, Prologis believes its existing portfolio can grow its net operating income by 8% to 10% per year for the next several years.
Meanwhile, Prologis has two other meaningful growth drivers: development projects and acquisitions. It expects to start $3 billion to $3.5 billion of new developments this year, which will help grow its FFO. In addition, the company routinely makes value-enhancing acquisitions. It bought rival REIT Duke Realty for $23 billion last year and purchased a $3.1 billion portfolio of industrial real estate this year. Prologis has an elite balance sheet and a vast land bank, giving it plenty of capacity to expand its portfolio.
Prologis' growth drivers should enable the company to continue increasing its dividend. It has delivered 12% compound annual dividend growth over the last five years, outperforming its peers and the S&P 500. Given its current yield, valuation, and growth rate, Prologis looks like an extremely attractive investment opportunity these days.
