These 3 bargain dividend value stocks have become too cheap to ignore

Major stock indexes continue to explode to record highs as 2024 is set to be another great year for investors. From the beginning of 2023, S&P 500 increased by 49.5%.

Despite the impressive performance, investors can still pick up shares of quality companies without paying an exorbitant price relative to earnings. Honeywell (HON -0.23%), Phillips 66 (PSX 0.70%)and Delta Air Lines (DAL -2.36%) are three dividend-paying value stocks worth buying now.

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Honeywell is working hard to satisfy investors with capital commitments

Daniel Foelber (Honeywell): On September 27, Honeywell raised its dividend by 4.6% from $4.32 per share for the year to $4.52. The increase 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 has been disappointing in recent years as the company has failed to turn opportunities in automation, the industrial internet of things, aerospace and the energy transition into meaningful top-line and bottom-line results. But there are reasons to be optimistic about the future.

Honeywell tends to be a stodgy, slow-to-change company. But in June 2023, the former head of Honeywell Performance Materials and Technologies, Vimal Kapur, took over as CEO of Honeywell. In October 2023, Honeywell announced a strategic shift to realign its business to capitalize on its highest conviction megatrends.

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

Honeywell remains in proof-of-concept mode, but it’s done a good job resetting expectations and setting a clear path to achieving the steady earnings growth investors have been accustomed to in years past.

As for Honeywell’s valuation, the stock’s price-to-earnings (P/E) ratio and price-to-free cash flow ratio are both below their five-year average levels, suggesting that investors are less optimistic about future prospects of the company.

HON Price to Free Cash Flow data (5-year median) by YCharts

Honeywell was a market favorite in the 2010s, posting a total return of 499%, compared to 257% for the S&P 500. But in the 2020s, Honeywell has underperformed the market for good reason, given its disappointing growth of earnings.

It’s too early to say the worst is over for Honeywell, but the stock’s valuation, growing dividend, and potential to accelerate its turnaround make it a value stock to consider now.

Forget the brakes, it’s time to hit the gas with the stock Phillips 66

Scott Levine (Phillips 66): You don’t have to be an energy stocks expert to know that when oil and gas prices fall, energy stocks are likely to fall as well. That’s certainly been the case with Phillips 66 over the past six months. During that period, the benchmark West Texas Intermediate crude fell about 12.3%, and shares of Phillips 66 fell more than 17%. For forward-looking investors, this selloff presents an excellent buying opportunity for the energy stock — along with its juicy 3.5% dividend yield.

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

It is critical to recognize, however, 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 reported crude oil utilization of 98% — the highest rate this year way from the last five years.

While the stock’s slide may be disconcerting to some, it by no means indicates that investors should keep it off their buy lists. Energy prices will rise again, and Phillips 66 stock will likely rebound with them. Until then – and even after – investors can get a steady stream of passive income, as management plans to return 50% of operating cash flow to investors in the form of dividends.

An excellent value stock in the transportation sector

Lee Samaha (Delta Air Lines): The airline trades at just 7.7 times estimated 2024 earnings and represents an excellent value opportunity for investors seeking exposure to airline stocks. The low rating is likely a reflection of the perceived risk in the stock stemming from its debt profile and exposure to the cyclical nature of the airline industry.

However, these risks seem overstated. Delta Air Lines currently has $19.2 billion in net debt, but management is focused on paying it down — and with $3 billion to $4 billion in free cash flow expected in 2024, it will have the resources to do so this year.

Additionally, investors have recently received some good news on the “cyclicality” issue. In typical cycles, airlines have tended to build capacity as the market improves, only to overextend and enter a period of overcapacity when demand growth begins to slow. The result is usually a sharp slowdown in profit as airlines stubbornly maintain unprofitable routes while waiting for a rebound.

Investors were worried about this scenario when overcapacity reared its head in the summer. However, Delta and United Airlinesmanagement recently spoke at a conference and confirmed that the industry has acted rationally and cut less profitable routes. As such, Delta and United are once again improving their revenue per available seat mile (RASM), meaning the overcapacity problem is gone.

It’s good news. With interest rates set to fall, airlines could benefit from improved consumer discretionary spending and corporate travel. As such, Delta Air Lines looks like an excellent value stock.