Not all value stocks are credibly dividend stocks. Likewise, there are plenty of dividend stocks that sport rich valuations. Fortunately for equity income investors, the universe of dividend stocks trading at attractive valuations is well-populated.
In even better news, that group includes consistent payout growers — many of which have dividend-increase streaks spanning decades. What’s more, market participants don’t need to engage burdensome stock-picking to unearth impressive dividend growth stories. That theme is accessible with exchange traded funds such as the ALPS O’Shares U.S. Quality Dividend ETF (OUSA ).
As its name implies, OUSA leans into the quality factor. That’s meaningful for multiple reasons. First, a stock’s quality attributes or lack thereof can be harbingers of dividend sustainability. Second, quality equities are often less volatile than lower quality fare. This indicates that OUSA could be a relevant consideration for investors with long-term holding periods.
Some OUSA Holdings Are Cheap
As noted, dividends and value aren’t the same factor. Likewise, low volatility and quality are distinct factors, though, in some instances, they intersect with value. That’s true of some OUSA holdings, confirming investors aren’t paying up on valuation to access this ETF’s benefits.
Kenvue (KVUE), one of the ETF’s smaller holdings, is the largest consumer health care firm, and an example of a stock with attractive valuation and compelling dividend prospects.
“Our analysis tells us that Kenvue has been able to stay ahead of its markets in terms of price hikes, and we expect this trend to continue thanks to its products’ strong brand power. Amid the current inflationary environment, we have seen Kenvue wisely pass along rising costs through robust price hikes, with 7.7% of sales growth achieved from price and mix during 2023,” noted Morningstar analyst Keonhee Kim.
Another example of an OUSA holding that’s viewed as inexpensive and one with a rich history of annual dividend increases is snacks and soft drinks giant Pepsico (PEP) — a company with a payout-increase streak that can be measured in decades.
“Following years of anemic growth due to operational missteps and underinvestments, management has worked to right PepsiCo’s ship, even amid pandemic-related disruptions and input cost inflation,” observed Morningstar’s Dan Su. “But we think there is more room to go, as the firm benefits from secular tailwinds in the snack business, growth initiatives in select attractive beverage subcategories (such as energy drinks) and various emerging markets (such as Latin America, Africa, and Asia-Pacific), and an integrated business model facilitating more effective commercialization.”
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