With tough times come tough measures, which helps to explain why a number of companies have initiated job cuts. However, organizations that already pay their shareholders dividends are reluctant to cut them, as such a move would yield substantial criticism. In other words, even when the going is tough, dividends may stick around. For savvy investors, looking at undervalued income stocks to buy for safety could be a smart move.
It’s not just about management being unwilling to sacrifice passive-income opportunities. Rather, companies that provide dividends tend to perform better during recessions than purely growth-oriented businesses. Even during the sharpest and deepest recessions in modern U.S. history, S&P 500 dividends only slipped by a modest amount.
Finally, the lion’s share of stable firms providing passive income streams to their stakeholders are tied to businesses with a strong and established track record. Instead of relying on aspirational narratives, these dividends come from actual net profits. Therefore, focusing your attention on undervalued income stocks to buy for safety is likely to be a wiser proposition than merely chasing discounted flavors of the week.
| SWX | Southwest Gas | $76.32 |
| SMG | Scotts Miracle-Gro | $80.75 |
| EMN | Eastman Chemical | $95.13 |
| CLX | Clorox | $138.99 |
| MAN | Manpower Group | $77.66 |
| PSX | Phillips 66 | $83.76 |
| LAMR | Lamar Advertising | $100.62 |
Undervalued Income Stocks: Southwest Gas (SWX)
Dividend Yield: 3.25%
An investor-owned utility firm based in Las Vegas, Nevada, Southwest Gas (NYSE:SWX) serves residential, commercial and industrial customers in parts of Arizona and California, along with its home state. Featuring a long history of dividend increases, Southwest’s relevant utility business has become even more so due to Russia’s invasion of Ukraine.
Since the crisis started, the natural gas spot price has been steadily rising. And after a few weeks of price declines, the commodity is on the move again.
This rise is occurring amid a heat wave in Europe combined with the Kremlin’s decision to cut gas outflows to Europe. In other words, allied nations will have to step up to help feed their European counterparts’ energy demand. While this will translate to higher energy prices for us back home, people have no choice but to pay, thus making SWX one of the undervalued income stocks to buy.
Scotts Miracle-Gro (SMG)
Dividend Yield: 3.27%
A few years ago when publicly traded cannabis firms first started making serious noise, transitioning an illicit endeavor into a legitimate, taxable one appealed to forward-thinking investors. Unfortunately, a tough administrative and legal environment, along with struggles of individual players, have made the botanical sector problematic.
Still, with speculation that U.S. legalization is on the horizon, a more conservative way to play the green sector is through Scotts Miracle-Gro (NYSE:SMG). In recent years, the lawn and garden giant has steadily made inroads into cannabis, particularly through acquiring companies specializing in hydroponics and lighting.
Chris Hagedorn, executive vice president of Scotts and division president of subsidiary Hawthorne Gardening Company, strongly believes that legalization is a matter of when, not if. To help investors sitting on the fence, Scotts commands 13 consecutive years of dividend increases, making for a strong case of undervalued income stocks to buy for safety.
Undervalued Income Stocks: Eastman Chemical (EMN)
Dividend Yield: 3.2%
A specialty materials firm, Eastman Chemical (NYSE:EMN) has suffered significant losses this year as investors shied away from businesses exposed to a potential incoming downturn. EMN shares are down 22% on a year-to-date basis. This compares rather unfavorably to the S&P 500 index, which has declined nearly 15% during the same period.
Still, the bearishness may be overextended with EMN, possibly making it one of the undervalued income stocks to buy for safety. Primarily, its core business of providing critical commodities to various enterprise-level clients is indelible. Unless you’re assuming that all commercial activity will plummet into nothing, Eastman’s phone will still be ringing.
Although the company did suffer a decline in revenue for 2020 (down nearly 9% year-over-year), Eastman bounced higher in 2021, delivering top-line sales of $10.5 billion. In the second quarter of this year, sales of $2.78 billion represented 5% YOY growth, again reflecting the relevance of the underlying business.
Clorox (CLX)
Dividend Yield: 3.4%
An early winner when Covid-19 first breached our borders, Clorox (NYSE:CLX) disinfectant products flew off the shelves. However, as people gradually became acclimated to the new normal, shares of CLX have struggled to gain traction. The security is down 21% YTD.
Nevertheless, Clorox may be poised to enjoy a second round of relevance. With cases of the monkeypox virus rapidly spreading, people are further incentivized to disinfect everything around them. Indeed, the federal government lists Clorox as one of the most effective disinfectants against viral pathogens.
Currently, CLX is one of the more intriguingly undervalued income stocks to buy for safety. Featuring strong profitability metrics combined with a deflated share price, contrarian investors may consider adding CLX to their portfolio before the bullish wave hits.
Undervalued Income Stocks: ManpowerGroup (MAN)
Dividend Yield: 3.5%
Admittedly, staffing services agency ManpowerGroup (NYSE:MAN) might not seem like one of the undervalued income stocks to buy. To be sure, MAN stock has printed more than its fair share of red ink, down over 22% YTD. However, the difference here is that in some job segments, employers are begging people to apply for open positions. Thus, an intermediary business like Manpower might not be so relevant.
Still, MAN could very well be one of the more undervalued income stocks to buy based on rising economic pressures. As stated earlier, many companies have been forced to lay off their employees. In addition to the pink slips in the technology sphere, NPR reports that the housing and blockchain industries are among the hotspots where layoffs are prevalent.
In other words, it’s not just menial or redundant positions that are getting axed, but rather high-paying opportunities. Amid the desperate search within a declining labor market, Manpower may become pertinent again.
Phillips 66 (PSX)
Dividend Yield: 4.63%
One of the hallmark pain points of the year so far has been skyrocketing gasoline prices. At one point, the national average price per gallon breached the $5 level, imposing significant challenges on everyday households. However, the cure for high prices is apparently even higher prices. With inflation taking its toll on the ability to pay, demand finally cooled.
Therefore, the discount in Phillips 66 (NYSE:PSX) – an energy firm that focuses on the downstream and midstream components of the hydrocarbon industry – is understandable. Moreover, at first glance, the cheapened PSX stock price might not be too appealing. With inflation hitting 9.1% in June (and with most of the cost spikes associated with energy), demand could potentially fall even further.
However, with President Joe Biden failing to secure major oil commitments from Saudi Arabia, the energy market is vulnerable to significant market pressures. Since the U.S. has a very poor relationship with Russia now, the supply-demand dynamic can again be thrown off course. If so, PSX would represent one of the undervalued income stocks to buy now.
Undervalued Income Stocks: Lamar Advertising (LAMR)
Dividend Yield: 4.77%
For the final idea on undervalued income stocks to buy, I’m going to dial up the risk-reward profile with Lamar Advertising (NASDAQ:LAMR). Specializing in outdoor advertising, Lamar operates billboards, logo signs and transit displays in the U.S. and Canada. Right from the get-go, LAMR sounds not like a viable opportunity.
To be sure, digital advertising has taken over the broader advertising ecosystem. Across all devices, the average internet user aged 16 to 64 spends six hours and 58 minutes online per day. Obviously, with that much influence, companies are directing their advertising dollars to where people are the most. However, that doesn’t make Lamar irrelevant.
For one thing, the concept of revenge travel confirms that excessive digitalization can render unexpected consequences. More importantly, companies suspicious of work-from-home abuses could end up recalling their employees.
Indeed, with recessionary concerns forcing companies to conduct “reorganizations,” the power currently is in the employers’ hands. Eventually, traffic levels could return to pre-pandemic norms, thus bolstering the case for LAMR stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.