Dividend stocks are your best friend if you’re looking to compound your money safely without worrying about the massive downside risk that often comes with buying into high-flying tech or growth stocks. However, not all dividend payers are boring old companies with no potential for capital appreciation. The current environment has caused many great businesses to trade far below their intrinsic value, and they also offer juicy dividends alongside their undervaluation. Buying them up now could see you realize triple-digit percentage gains if you hold them through the next four years or more, especially if you keep reinvesting those dividends.
These dividend stocks provide you with a margin of safety, income you can count on, and explosive upside potential once Mr. Market realizes how underpriced they are. Let’s dive in!
Innovative Industrial Properties (IIPR)
Innovative Industrial Properties (NYSE:IIPR) is a unique company that leases out space to cannabis growers. Earlier, it was seen as a riskier bet by some investors due to the financial struggles of cannabis companies. However, IIPR has proven the naysayers wrong, with over 90% of rents consistently paid on time by tenants. This is a testament to the rigorous vetting and careful selection of tenants by IIPR’s management.
The stock has recovered well from its 2021 plunge, up 34% in the past year. I believe the excessive fears around IIPR’s business model have proven unwarranted. A key factor driving my bullishness is the company’s exceptionally high dividend yield of 7.53%. This blows away almost all competing REITs’ dividends. The company boasts an 83% FCF margin, allowing for significant growth in dividends. Over the past 3 years, IIPR has increased its dividend at a 17.3% annual rate, better than 84% of industry peers. Its 5-year yield-on-cost stands at a remarkable 41.5%, superior to almost 99% of REITs.
With a high-quality tenant base delivering reliable rental income, IIPR has the potential to continue increasing its dividend at an above-average pace. The stock offers a rare combination of substantial income today and exceptional income growth tomorrow. This is why I believe IIPR has the legs to deliver outsized 200%+ gains over the next four years. A potential catalyst is the federal legalization of cannabis, which could spur a major re-rating of IIPR’s valuation multiples. Regardless, the company’s impressive dividend growth merits a far higher valuation. For investors seeking oversized total returns with minimized risk, dividend stocks like IIPR are worth looking into.
Volkswagen (VWAGY)
Volkswagen (OTCMKTS:VWAGY) is another criminally undervalued company that I believe can stage a powerful recovery, potentially doubling or more by 2028. The stock has plunged 57% from its 2021 peak but has climbed 18% year-to-date in 2024. I expect this rebound to continue as auto sales volumes pick up globally.
A major overhang on VWAGY is its massive debt load of $257 billion. However, the company can still generate profits thanks to its hefty margins and substantial $56.2 billion cash buffer. Once interest rates decline in Europe, Volkswagen’s interest expenses should fall dramatically from the $3.6 billion paid in 2023. This influx of billions can re-ignite substantial growth.
Rate cuts are a question of when not if. Once they materialize, we could see a major re-rating of VWAGY as profits explode higher. Regardless, the current valuation is far too attractive to ignore. With a forward P/E of just 4.5x, shares are trading near trough levels and appear to be bottoming out.
I believe accumulating VWAGY around current levels will pay off in a big way. This is an iconic auto brand with staying power, and the market is underestimating its ability to adapt and thrive in the years ahead. The hefty 6.2% dividend yield provides income while you wait for the market to realize how underpriced VWAGY is today. It is one of the best dividend stocks you can buy in the automotive sector.
Dollar General (DG)
I have been pounding the table on Dollar General (NYSE:DG) ever since the stock plunged, and I’m thrilled to see the story play out positively in 2024 so far. However, I believe the bulk of the gains are still ahead. DG continues trading at a substantial discount to its intrinsic value, in my view. We’ve seen such low valuations about five years back, and snapping up shares for a multi-year position will likely turn out to be a very lucrative decision.
Big-name retail brands with enduring appeal rarely disappoint when bought near historically low valuations. I believe acquiring DG below $150 per share is an incredible bargain that will pay off handsomely over time. Reaching $400-450 or more by 2028 is not unrealistic, in my view.
At today’s prices, Dollar General is priced based on historical CPI growth rates, yet with margins below its long-term average. Its terminal growth is also below historical same-store sales growth. It’s hard to ignore a stock trading at such a discount to its earnings power.
For investors seeking a “surefire” triple-digit return over the next four years, DG checks all the boxes in my view. The dividend isn’t as high or reliable as some stocks, but capital appreciation potential more than makes up for it. I remain exceedingly bullish on dividend stocks like DG and believe long-term investors will be rewarded handsomely.
&M European Value Retail (BMRRY)
B&M European Value Retail (OTCMKTS:BMRRY) operates general merchandise and grocery stores under the B&M, Heron Foods, and B&M Express brands in the U.K., as well as B&M stores in France. The company has certainly been on a rollercoaster ride over the past four years. However, for investors with a long-term horizon, I believe BMRRY offers enticing upside potential.
The discount retail industry is poised for rapid growth amidst the challenging macroeconomic climate. BMRRY itself has demonstrated impressive growth, with revenue expanding at a 10.9% CAGR over the past 5 years. EBITDA growth has been even more remarkable, at a 15.5% CAGR over this period. Analysts expect high single-digit top-line growth to continue through 2028.
Equally impressive is BMRRY’s industry-leading profitability. Its 7% net profit margin handily beats 87% of retail peers. The company’s 3-year dividend growth rate of nearly 30% also crushes 91% of competitors. It’s one of those dividend stocks to consider.
Shares may not appear screamingly cheap today, but I see a 40-70% upside over the next four years as earnings expand. With strong execution, 200% gains are not out of the question in my view.
JD.Com (JD)
JD.Com (NASDAQ:JD) is just like Alibaba (NYSE:BABA), and like BABA, JD stock has been lackluster at best lately. However, the brutal decline has slowed, and shares have traded sideways for months now. Signs are emerging that China is softening its regulatory crackdown and loosening monetary policy. This could provide a catalyst for JD to deliver multibagger returns on its way up as the Chinese economy recovers.
China’s e-commerce market remains massive with an expected 10% CAGR from 2024-2029. Gurufocus sees JD’s fair value at $67 by the end of 2026, which seems reasonable to me if China continues opening up its economy. While JD may fall short of such explosive gains, I don’t anticipate much further downside from current levels either. The stock already trades at basement valuations, providing a margin of safety.
Investors can collect a 3% dividend yield while awaiting China’s reopening and any upside that brings for JD. With patience, I believe current prices will prove to be an excellent long-term entry point. This makes it one of those dividend stocks to buy.
Globe Life (GL)
Globe Life (NYSE:GL) is a leading financial services and insurance company operating through wholly-owned subsidiaries. It offers life insurance, annuities, and supplemental health products. The insurance sector tends to be recession-proof and safe for long-term investors. GL proved a steady winner for years until plunging from $128 to $56 in under two months.
The drastic selloff stemmed from federal probes and short seller reports alleging mostly cultural issues. While troubling, the allegations were almost entirely non-financial. With the drama now exposed, I expect GL to address any legitimate cultural concerns. Either way, the stock looks like a bargain trading at 5.5x earnings with no imminent financial threats that I can see.
GL has a solid history of buybacks and a 1.6% dividend yield. For investors with a multi-year horizon, I believe accumulating shares around current levels will pay off nicely as the business fundamentals reassert themselves.
Ampol (CTXAY)
Ampol (OTCMKTS:CTXAY) is an Australian company operating in the refining, marketing, and distribution of petroleum products. The company has performed remarkably well over the past 18 months, and I expect this momentum to continue amid geopolitical tensions that are buoying oil prices.
Beyond an attractive macro backdrop, CTXAY offers investors a juicy 7.1% dividend yield. Its 1.5% net margin also has substantial room for expansion, lagging 60% of oil and gas peers. If Ampol can improve operational efficiency and margins, shares could surge over the next several years.
CTXAY appears significantly undervalued, trading at just 11.6x forward earnings. Gurufocus estimates its fair value at $100 currently and $195 by the end of 2026. For investors seeking big dividend income plus triple-digit upside, I believe CTXAY checks all the boxes. Oil stocks can be volatile, but the risk-reward here seems skewed decidedly in investors’ favor over a multi-year investment horizon.
On the date of publication, Omor Ibne Ehsan did not hold (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.