Blink and you miss it? 

The broader market is already on its way to recovering after the recent volatility. That’s rather unfortunate. I’m a huge proponent of dollar cost averaging, assuming that one will hit the highs and lows along the way. That DCA strategy is made even more powerful when one has the ability to choose among hundreds of high-quality dividend growth stocks, with some highly likely to be much more attractively valued than others at any given time.

However, it’s tougher to catch the lows when they quickly disappear like we’re seeing now.

Nonetheless, time in matters far more than timing.

Moreover, a number of really incredible dividend growth stocks with excellent fundamentals and huge competitive advantages are still sitting near multi-year lows right now.

I’m going to list five high-quality stocks that appear to be attractively valued right now: United Technologies Corporation (NYSE:UTX), Union Pacific Corporation (NYSE:UNP), Johnson & Johnson (NYSE:JNJ), BHP Billiton plc (ADR) (NYSE:BBL), and T. Rowe Price Group Inc (NASDAQ:TROW).

Many were already attractively valued before the recent volatility, but have since become even more attractive. There’s nothing saying a cheap stock won’t become cheaper. But value eventually matters over the long run. Let value be your guiding star, not price.

United Technologies Corporation

The last time this stock was in the low $90s was back in the summer of 2013 – more than two years ago. But revenue and profit are both up somewhat significantly since then. And the move to sell off low-margin Sikorsky is really smart, in my view. I initiated my position in the company not long ago at right about $99/share, which I thought was already very attractive after a drop of more than 13% on the year. It’s now down 20% year-to-date even though nothing is fundamentally wrong with the business.

22 consecutive years of dividend growth, a 10-year dividend growth rate of 12.9%, a low payout ratio, a yield that’s currently more than 50 basis points over its five-year average, and strong fundamentals across the board make this a very appealing play right now. I’m highly likely to add to my position over the coming weeks. The broader market may be near all-time highs, but UTX is sitting at multi-year lows right now on a P/E ratio of 13.28. I consider this a great example of using short-term volatility as a long-term opportunity.

Union Pacific Corporation

I’ve been aggressively building out a position in Union Pacific, which is the country’s largest publicly traded railroad. The company has lost almost 30% of its market cap over the last year. Is the company worth almost 30% less now than it was in January? I just don’t think so. While the stock didn’t appear to be overly cheap from the start, it’s now overshot itself on the other side, in my opinion. For that matter, the other two large, publicly traded domestic railroads appear to be very attractive right now.

UNP’s P/E ratio is 14.68 right now. That’s substantially lower than the five-year average of 17.5. Meanwhile, the current yield of 2.58% compares insanely favorable to the five-year average of 1.7%. Union Pacific has been making money for over 150 years. I don’t see this changing anytime soon. And I expect dividend growth in the upper single digits or low double digits for the foreseeable future.

Johnson & Johnson

Although I’m not buying anymore JNJ after building out my position of 100 shares rather early on, I’d be all over this stock here if the situation were different. We’re talking about one of the greatest businesses in the world, diversified between medical devices, pharmaceuticals, and consumer health products. And the odds are quite strong that the company will be selling more of all of these products in the future as the world grows larger and older, with more access to quality healthcare in poorer economies. Unbelievably consistent over the long run, it’s trading for a somewhat substantial discount to the broader market.

The price of JNJ right now is similar to what it was in August of 2013. But the company is now bigger and better across the board. You have an opportunity here to pick up a more profitable JNJ of August 2015 for the same price a smaller JNJ was going for in August 2013. The P/E ratio of 16.82 is a nice discount to the five-year average of 17.7 for the stock, which itself is a nice discount to the broader market over that stretch. You get a yield above 3%, over 50 consecutive years of dividend raises, and a dividend growth rate near 10% over the last decade. I don’t know what else you could want.

BHP Billiton plc (ADR)

Although a good portion of the stock’s price reduction has been warranted due to lower prices for major commodities across the board, the steep pullback has created a wonderful long-term investment opportunity, in my opinion. For perspective, we were in the midst of a financial crisis and Great Recession the last time the stock was in the low $30s. Meanwhile, the world’s need for the resources that BHP Billiton mines for isn’t going to disappear anytime soon. Operations are cyclical. If you go into it realizing that, there’s a chance to capitalize there. And this stock has rarely been cheaper over the last decade.

The near term remains challenging for this firm. Recent full-year earnings per ADS came in at only $0.72 after substantial non-cash impairments were included. But free cash flow remains surprisingly robust in part thanks to a sharp reduction in capital expenditures that is expected to continue through at least 2017. This – along with a very solid balance sheet – should allow the firm to continue paying the dividend, absent further weakness in commodities. And what a dividend it is. The stock currently yields 7.34%. I’m not sure how much dividend growth one should expect over the near term, but I’m also not sure how much one needs with a yield that high. This is a long-term value play with a big yield. Not for everyone due to the risk and volatility, but I do think there’s an opportunity here.

T. Rowe Price Group Inc

Another stock that was already cheap, it’s now in the bargain bin. TROW is down more than 15% on the year even while operations continue to improve quarter after quarter, year after year. Absent some very modest net outflow in AUM recently, the company appears to be firing on all cylinders. One issue here, however, is that the company, by the very nature of its business model, has significant exposure to equities. So when stocks fall, the company’s bottom line can suffer. But there’s clearly a disconnect here since the broader market is down just a little over 4% YTD.

The stock’s price-to-earnings, price-to-book, and price-to-sales ratios are all substantially below recent historical norms. Meanwhile, the stock now yields 2.88%, which is almost 90 basis points higher than the five-year average of 2%. 29 consecutive years of dividend raises stretches through multiple periods of stock market volatility, so I don’t see any danger here. Couple that with a very low payout ratio, and strong dividend growth looks set to continue for the foreseeable future.


The five stocks above represent but a fraction of the high-quality dividend growth stocks out there available as discounted merchandise, sitting on the clearance racks in the back of the store. While it’s up to you to decide what’s warranted and what’s not, I think there are some solid long-term opportunities here.

In addition, there are many, many other great stocks out there sitting at multi-year lows even while operations remain strong. Some of the Canadian banks come to mind. A few tech plays as well. Many fantastic stocks in the Industrials sector remain wildly undervalued right now. And select names in the Energy sector also appear very appealing, though not without volatility.

As always, I recommend due diligence before you invest in anything. But from where I’m standing, I think the above five stocks are gifts here. Again, prices could go anywhere. Cheap stocks could become cheaper. But over the long run, value eventually matters. And it’s value (along with quality, of course) that dictates my buying decisions, not price. Meanwhile, the yields here are notably above historical norms, providing excess current income on top of strong prospects for fantastic dividend growth, in aggregate. And that, of course, also provides the recipe for appealing long-term total return.

Full Disclosure: Long all aforementioned stocks.

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