3 Beaten Dividend Stocks Worth Investing In Now

Expectations and narratives can drive stock movements. When a company fails to meet expectations, it can lead to investor disappointment and poor stock performance. Honey (NASDAQ: HON), United Parcel Service (NYSE:UPS)AND Chevron (NYSE: CVX) They may be leading companies in their industry, but all of them have disappointed investors recently and as a result, their stock prices have fallen.

Despite the challenges, all three dividend stocks are worth a closer look now. Here’s why.

Image source: Getty Images.

Honeywell failed to capitalize on megatrends

For several years, Honeywell has been discussing the growth potential of the Industrial Internet of Things (IIoT), which is essentially a layering of software and hardware. Instead of monitoring the performance of standalone machines, IIoT can connect fleets using sensors and electronic components. The integrated system can provide data-driven insights, allowing operators to proactively, rather than reactively, address equipment performance and maintenance cycles.

In addition to opportunities in the IIoT space, Honeywell has focused on the energy transition and the need for smarter buildings and warehouses that automate functions and use less energy than older ones. It has growing businesses in oil and gas, hydrogen, and liquefied natural gas.

Honeywell’s largest segment is aerospace. It supplies parts, components, controls, integrated solutions and more to the commercial aerospace and defense industries. It even has a $5 billion quantum computing business.

Yet despite exposure to all these exciting topics, Honeywell’s results have declined. Revenue has rebounded from its pandemic lows but is still below pre-crisis levels. Operating margins and diluted earnings per share (EPS) are also rising, albeit slowly.

HON revenue data (TTM) by YCharts.

Management has implemented an aggressive capital allocation program focused on mergers and acquisitions (M&A) and share repurchases to drive EPS growth. Honeywell’s primary strength is its balance sheet, but leverage is likely to increase as it executes on its plan to spend billions more on M&A and share repurchases.

Honeywell has increased its dividend every year since 2011, and its price-to-earnings (P/E) ratio is currently below its three-, five-, and seven-year median levels. Given its growing dividend and reasonable valuation, Honeywell looks like a worthwhile turnaround play for investors who believe its recent string of acquisitions will help spur growth in its target themes.

The worst may be behind us for UPS

UPS stock has soared during the pandemic as consumers have shifted from in-person shopping to home deliveries. The shipping and logistics giant expanded routes on the assumption that growth in package delivery volume would remain strong even after the pandemic, but that forecast has proven painfully inaccurate.

Add to that the costly pension obligations and the complicated contract negotiation process with the Teamsters truck drivers union, and it’s easy to see why UPS stock has fallen in popularity.

In March, UPS launched a three-year plan to turn the company around. But so far, it has made little progress toward its goals. The company has made a lot of mistakes in a short period of time—leading to a 45% drop from an all-time high. But there is reason to believe the worst may be behind us.

UPS returned to volume growth in the U.S. in the second quarter for the first time since the fourth quarter of 2021. This is a positive sign in the short term. The outlook for its healthcare business is positive in the medium term. UPS expects healthcare to account for half of its growth over the next three years as it focuses on temperature- and time-sensitive deliveries.

Longer term, UPS is a solid player in domestic and international shipping and logistics. The stock has been sold off to this point, with a P/E ratio now sitting at just 17 and a dividend yielding 5.1%. UPS could appeal to investors looking for a value stock that could turn things around, as well as an investment that could grow their passive income.

Chevron is an extremely reliable dividend payer

Unlike Honeywell and UPS, Chevron hasn’t disappointed investors by falling short of expectations. But it does have a serious question mark that could hold back its stock price.

On October 23, 2023, Chevron announced an agreement to acquire an oil and gas exploration and production company Hess for $53 billion. However, ExxonMobil stopped the transaction, citing nuances in the contractual provisions regarding rights to a common resource located outside Guyana’s borders.

Meanwhile, oil prices fell to 2024 lows on lower demand expectations and higher production levels. Chevron didn’t make the operational mistakes of Honeywell or UPS. However, uncertainty over the fate of the Hess deal and lower oil prices sent shares to a 52-week low.

With a P/E ratio of just 13.9, it seems very cheap, but that ratio could rise higher if lower oil prices lead to lower earnings. Overall, Chevron is reasonably valued and has a streak of 37 consecutive years of dividend increases and a 4.6% dividend yield — making it another passive income stock worth considering right now.

“Charging” responsibly

Investors may look at Honeywell, UPS or Chevron and be tempted to pull the truck in hopes they rebound. And while it may be a good idea to load up on all three stocks, it’s important to maintain diversification in a balanced portfolio.

Over-investing in a few stocks or related themes can expose a portfolio to excessive downside if the market crashes. A better approach is to allocate larger portions of the portfolio to only the most compelling ideas and gradually build those positions over time.

Investing in stocks too quickly can lead to stress, bad decisions, and depletion of purchasing power. No one knows when the next big stock market sell-off will occur, but when it does, it’s wise to feel comfortable with your positions.

The best way to prepare for this is to know your asset allocation and make sure that no single position becomes so large that a failure in one industry could devastate the performance of your portfolio and prevent you from achieving your financial goals.

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Daniel Foelber has no position in any stocks mentioned. The Motley Fool has a position in and recommends Chevron. The Motley Fool recommends United Parcel Service. The Motley Fool has a disclosure policy.