These 3 bargain dividend stocks have become too cheap to ignore

Major stock indexes continue to hit record highs, and 2024 is shaping up to be another great year for investors. From the beginning of 2023 S&P500 increased by a staggering 49.5%.

Despite impressive results, investors can still purchase shares of good companies without paying an exorbitant price relative to earnings. Honeywell (HON -0.47%), Phillips 66 (PSX 0.22%)AND Delta Airlines (DISTANCE -2.46%) these are three value stocks that pay dividends and are worth buying now.

Honeywell makes every effort to satisfy investors with capital commitment

Daniel Foelber (Honeywell): On September 27, Honeywell increased its dividend by 4.6% from $4.32 per share per year to $4.52. This raise puts Honeywell on track to deliver its 15th consecutive year of higher dividends in 2025 and is part of the company’s plan to increase shareholder value through dividends, acquisitions, capital expenditures and buybacks.

Honeywell’s growth in recent years has been disappointing as the company has failed to translate opportunities in automation, industrial Internet of Things, aviation and energy transformation into significant financial and financial results. However, there are reasons for optimism in the future.

Honeywell is a tough company and slow to change. However, in June 2023, Vimal Kapur, former head of Honeywell Performance Materials and Technologies, took over as Honeywell’s CEO. In October 2023, Honeywell announced a strategic shift to reorganize its business to capitalize on the megatrends with the highest conviction.

In its July investor presentation, Honeywell said it has already announced $10 billion in mergers and acquisitions (M&A) from 2023 and is on track to reduce its share count by 2% in 2024 through buybacks. The company targets share repurchases, mergers and acquisitions, and dividends worth $22 billion between 2023 and 2025.

Honeywell remains in prove mode, but it has done a good job of resetting expectations and charting a clear path to achieving the kind of consistent earnings growth that investors have become accustomed to in previous years.

In terms of Honeywell’s valuation, its price-to-earnings (P/E) and price-to-free cash flow ratios are below their five-year median value, suggesting investors are less optimistic about the company’s future prospects.

HON price to free cash flow data (5-year median) by YCharts

Honeywell was the market darling in 2010, posting a total return of 499% compared to 257% for the S&P 500. However, in the 1920s, Honeywell underperformed the market for good reason, given its disappointing earnings growth .

It’s too early to say that the worst is over for Honeywell, but the stock’s valuation, growing dividend and potential for accelerating its return make it a stock worth considering buying now.

Forget about the brakes, it’s time to step on the gas with a Phillips 66 stock

Scott Levine (Phillips 66): You don’t have to be an expert in energy stocks to know that when oil and gas prices fall, energy company stock prices will likely fall as well. This has certainly been the case for Phillips 66 over the past six months. During that period, the West Texas Intermediate crude oil price benchmark fell about 12.3%, and Phillips 66 shares fell more than 17%. For forward-looking investors, this sell-off presents an excellent opportunity to buy energy stocks – with a juicy 3.5% dividend going forward.

As an operator of various midstream and downstream assets, Phillips 66 has reported strong financial performance so far in 2024, although not as strong as in the same period in 2023. In the first half of 2024, Phillips 66 reported operating cash flow at $3.3 billion, down from the $4.5 billion in cash from operations reported for the same period in 2023.

However, it is important to remember that the underperformance simply reflects the impact of falling commodity prices. In fact, Phillips 66 achieved $100 million in cost reductions in the first and second quarters of 2024, and in its refining segment, the company saw 98% crude utilization – the highest such rate in over five years.

While some may find the stock’s decline troubling, that by no means means investors should keep this company off their buy lists. Energy prices will rise again, and with them, Phillips 66 stock will likely rebound. Until then – and even beyond – investors can enjoy steady passive income as management intends to return 50% of operating cash flow to investors in the form of dividends.

Excellent stock value in the transportation sector

Lee Samaha (Delta Airlines): The airline is trading at just 7.7 times estimated 2024 earnings, presenting an excellent value opportunity for investors looking for exposure to airline stocks. The low valuation likely reflects the perceived risk of the stock due to its debt profile and exposure to the cyclical nature of the airline industry.

However, this risk seems exaggerated. Delta Air Lines currently has net debt of $19.2 billion, but management is focused on paying it down, and free cash flow of $3 billion to $4 billion expected in 2024 will allow it to continue paying down its obligations this year.

Moreover, investors have recently received good news regarding the issue of “cyclicality”. In typical cycles, airlines tend to add capacity as the market improves, only to overexpand and enter a period of excess capacity when demand growth begins to slow. The result is usually a sharp slowdown in profits as airlines stubbornly maintain unprofitable routes while they wait for economic conditions to improve.

Investors became concerned about this scenario when excess production capacity took its toll in the summer. However, Delta and United Airlinesmanagement recently spoke at a conference and confirmed that the industry acted rationally and chose less profitable paths. As a result, Delta and United are once again improving their revenues per available seat miles (RASM), which means the overcapacity problem is gone.

This is good news. With lower interest rates, airlines could benefit from increased consumer spending and business travel. As such, Delta Air Lines looks like an excellent value stock.