Despite being down 22% and 64% from their peaks, these 3 dividend stocks are worth buying in September

The S&P 500 and Dow Jones Industrial Average are less than 1% off their all-time highs, while Nasdaq Composite is reduced by less than 5% from the peak. And yet there are still plenty of stocks trading well below their peak prices, and many that have lost ground so far this year.

Among those stocks is the oil and gas exploration and production company Devon Energy (DVN -0.49%)package delivery giant United Parcel Service (UPS 1.24%)and electrification technology company nVent Electric (NLT 2.07%). But these fool.com contributors think all three of these dividend stocks are worth buying now.

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Devon Energy offers a high yield and takes a conservative approach to its payout

Scott Levine (Devon Energy): When a stock crashes, investors naturally want to know if there is something fundamentally wrong with the business that supports the market’s skepticism. That’s certainly a question worth asking about Devon Energy, as its shares are currently trading about 19% below their 52-week high and 64% off their all-time high. But even a cursory look at the E&P company shows it’s performing well, and the stock’s decline isn’t based on anything catastrophically wrong. As a result, investors with longer investment horizons can sit patiently while the stock recovers — collecting the passive income provided by a dividend yielding 4.5% at the current share price.

Devon Energy’s sharp drop in shares belies the strong second-quarter financial results it recently shared. Exceeding its guidance, Devon Energy achieved a daily oil production of 355,000 barrels thanks to unexpectedly good results in the Delaware Basin. Moreover, thanks to the company’s strong performance in the first half of the year and the planned acquisition of Grayson Mill in the third quarter, management has revised upward its 2024 production guidance to more than 680,000 barrels of oil equivalent per day – an increase of 5% of the initial forecast.

Devon divides its dividend payments into fixed and variable distributions. Generally, management aims for the fixed amount to be equal to approximately 10% of the company’s operating cash flow, with the variable amount based on a variety of other factors. Broadly speaking, however, management aims to return about 70% of free cash flow to investors — a prudent approach that won’t jeopardize the company’s financial well-being.

For investors looking for dividend payments that come at a steady rate, Devon Energy is not the best choice because its payouts are based on its performance. Still, those who are comfortable reaping the rewards when it’s strong — and enduring temporary downturns when it’s not — should consider picking up stocks.

UPS has an attractive dividend

Daniel Foelber (UPS): The package delivery giant’s shares have soared during the pandemic as a large number of consumers have shifted much of their purchases from in-store purchases to online orders. But the stock is now down 45% from its all-time high and hovering around a four-year low.

UPS thought the increase in demand for its services would last. He didn’t.

Earlier this year, UPS scaled back its once-optimistic forecasts and charted a more realistic path based on a gradual increase in package delivery demand and a new three-year plan. Now UPS must keep its promises. So far, it has not done so.

The logistics giant is only half a year into this new plan, and its results have already been disappointing. The good news is that UPS expects to return to earnings growth in the second half of the year. On its second-quarter earnings call, management also noted that its performance so far this year has been heavily impacted by an anticipated charge on certain costs of the new labor contract it signed about a year ago with its largest union. But given the company’s back-to-back profits, it’s understandable that investors aren’t giving it the benefit of the doubt — hence the stock’s abysmal performance.

There is no sugar coating that UPS is having an identity crisis. It has yet to strike a balance for what its new normal will look like, and investors have lost confidence in management’s ability to forecast demand trends — which is a problem, given that poor forecasts can lead to major cost-efforts excess labor and fuel or missed opportunities.

Despite the uncertainty, there’s reason to believe that UPS stock has fallen far enough. The stock is trading at a price-to-earnings ratio of just 20.9 — which is already reasonable. But that’s an especially attractive valuation given that its earnings have been falling for more than two years, and its trailing 12-month earnings are now about the same as they were five years ago.

If UPS can return to growth in the coming years, we could look back at this moment as an excellent buying opportunity. Some investors may want to wait for concrete signs that UPS is turning a corner. But those willing to take a stake in UPS now will benefit from a dividend yielding 5.1% at the current share price — which is a useful incentive to hold the stock and hang on during this volatile period.

The electrifying future of nVent

Lee Samaha (nVent Electric): This electrical connection and protection solutions company’s stock is down 22.7% from its most recent all-time high, and I think its selloff has created a decent buying opportunity for an attractive long-term story.

nVent products (enclosures, electrical systems and fixing solutions) are a way to play the “electrification of everything” mega-trend. There is no data center, renewable energy, industrial automation, 5G communications, or smart buildings/infrastructure without electrical infrastructure, and that means investing in the kind of solutions that nVent sells.

As such, the stock is a backdoor way to play an exciting thematic trend. Moreover, management is strengthening the company’s exposure to this theme through acquisitions and divestitures. Last month, nVent completed the $695 million acquisition of custom control building solutions company Trachte. In addition, nVent announced the $1.7 billion divestiture of its mission-critical electrical thermal management solutions business.

As CEO Beth Wozniak noted on the company’s second quarter earnings call, “The addition of Trachte further strengthens our solutions in high-growth verticals with approximately 85% of its sales in energy utilities, data centers and power supplies renewable”.

nVent’s second-quarter results were solid enough, and management continues to expect full-year organic sales growth of 3% to 5%, with adjusted earnings per share in the range of $3.23 to $3.29. Based on this, it trades at just over 20 times estimated earnings.

While the dividend yield of 1.2% is nothing to say, its payout of $0.76 per share is well covered and gives management plenty of room for significant growth going forward.