Dividend stocks are chiefly appealing to income-focused investors. Value investors like value stocks, no surprises there. However, what if you were to combine both strategies, placing greater focus on stocks that offer a high dividend yield while at the same time trade at low valuations and/or have high upside potential?
Assuming you select high-quality names with strong catalysts, such a strategy could prove very profitable. Better yet, you may not have to turn every rock looking for hidden ideas Wall Street is sleeping on. In fact, there are three well-known blue chip stocks: Ford (F +1.17%), Target (TGT +0.06%), and Verizon Communications (VZ +1.15%) that meet these criteria.
Each one costs less than $100, making them very accessible to everyday investors as well. Let's explore each one, and see why you may want to consider them at current prices.
Image source: Getty Images.
Ford's bounce back may continue, as management calms down on its past EV mania
Several years ago, electric vehicle (EV) stocks were all the rage. At the same time, U.S. federal policy on energy was shifting toward regulations more favorable to the EV space than to the traditional auto business. As a result, automakers like Ford Motor Company aggressively expanded into EVs.
Fast-forward to now, however, and Ford's EV revolution has proven to be a bona fide bust. Even after several years of scaling up its Model e segment, the company's electric vehicle division continues to report quarterly operating losses exceeding $1 billion. However, moving forward, thanks to the Trump administration's lowering of emissions standards, Ford will be able to scale back EV production.
NYSE: F
Key Data Points
In turn, the automaker can get back to what it does most profitably: producing gasoline-powered trucks and SUVs. Walking back on EVs has resulted in Ford shares surging higher in recent weeks. Further upside may be in sight. While Ford currently trades at a valuation premium to Detroit peers like General Motors, its current forward P/E of 9.3 is still below the 10 to 15 times earnings that shares have regularly traded for in the recent past.
Ford currently has a forward dividend yield of 4.5%. In recent years, Ford has also issued special dividends . If the company repeats this in 2026, shares could have an effective yield exceeding 5%.
A turnaround or takeover could drive big upside for Target shares
Disappointment with recent results, coupled with uncertainty about future results, has led to an extended slump for Target shares. However, as a result of this negative sentiment, the stock is now down so low that it sports a forward dividend yield exceeding 5%.
Shares in the big box retailer also trade for only 11.2 times forward earnings. Compare that to competitor Walmart, which trades for nearly 34 times forward earnings. Now, I'm not saying that Target could eventually trade at a multiple on par with Walmart's current forward P/E. Still, a combination of modest valuation expansion, coupled with improved results, could lead to big gains for shares.
NYSE: TGT
Key Data Points
Right now, Michael Fiddelke, Target's current COO and incoming CEO, is implementing a turnaround focused on cost-cutting measures, as well as $4 billion in customer experience enhancements.
That's not all. There may be another possible catalyst for undervalued Target. As I discussed last month, the company could be on the radar of private equity firms as a possible takeover target (no pun intended). If shares continue to stay cheap, a bid could emerge, similar to what recently happened with another major retailer, Nordstrom. It's also worth noting that Target not only has a high-dividend yield, but a 50-year-plus track record of dividend growth, putting it in the Dividend Kings category.
Verizon's turnaround could get this perennial value trap out of its slump
Verizon Communications has long been one of the high-yield dividend stocks. Unfortunately, by having a high dividend yield while at the same time underperforming the market by a wide margin, shares in the telecom giant have admittedly been a bit of a yield trap, not to mention a value trap. Over the past five years, shares lost nearly a third of their value. Over the past decade, the stock fared better, but not by much, falling by nearly 10%.
Compare that to stock market indices like the S&P 500, which has tripled in value during this same time frame, even before accounting for dividends reinvested. So, why buy Verizon, this perennial value trap? There may be great promise with the company's turnaround plans.
NYSE: VZ
Key Data Points
Dan Schulman, who formerly ran PayPal, recently became Verizon's CEO. Right out of the gate, Schulman has aggressive plans to both reduce costs and get Verizon back into growth mode. Verizon's recently announced heavy layoffs, totaling 15,000, have made headlines, but the growth aspect to his turnaround plan has garnered less attention. In a nutshell, Verizon is shifting from selling its services on technological prowess to prioritizing the customer experience.
If this can lead to lower customer churn, if not net subscriber growth, investors' confidence in Verizon could renew. Shares could rise, both due to earnings growth and valuation expansion. Ahead of a rebound, you can scoop up a position in this stock, which currently has a forward dividend yield of around 6.6%.
