Dividend Kings at Discount Prices: Target, Hormel, Procter & Gamble

The concept of Dividend Kings can be misleading for investors.

These stocks are often considered safe investments, but they can also become overvalued and underperform in times of cyclicality. The key to successful investing is finding these stocks when they're down or recovering from a downturn.

Target (NYSE: TGT) is one such stock that fits this description. With a dividend-increase history spanning over 50 years, the company is poised for continued annual increases due to its financial health, cash flow, and business growth outlook.

The Q2 results revealed a second consecutive quarter of growth, with outperformance driven by improved traffic. Comps grew 3.8% on a 3.6% traffic increase, prompting management to raise guidance. The stock's recovery is also reflected in analyst trends, which have triggered numerous revisions, including upgrades and price target increases.

The consensus target for Target puts the stock at a four-year high, above a critical pivot point. In this scenario, the market is on track for a full price recovery and may reclaim the all-time high of $260 within the next few years. The dividend yield is approximately 3% at recent prices.

Hormel (NYSE: HRL) is another Dividend King that faces headwinds due to consumer habits, costs, and margins. Weak results and guidance cuts depressed the stock to a decade low, pushing its valuation into the low end of the historic range and its dividend yield into the high.

The dividend yield is more than 5.5%, but reported earnings and trailing-12-month payout ratios make it seem barely covered. However, cash flow is sufficient to fund operations while returning capital. The pace of increases is likely to be slow in the coming years, but the high yield and potential share-price gains offset it.

Procter & Gamble shares are down due to weak results, margin pressure, consumer headwinds, and valuation concerns. However, these factors are not what investors should focus on today. Today, Procter & Gamble shares trade at a depressed valuation, offer a reliable dividend yield of 3%, and are poised for a quiet reacceleration in market share and growth.