3 Bargain Stocks with Growing Dividends to Buy in September

Bargains can be harder to find when the stock market is up for the year. But there are plenty of opportunities if you know where to look.

Toyota Motor (TM 1.08%), Delta Air Lines (DAL 2.24%)and Brookfield Infrastructure (BEEP 0.17%) (BIPC 1.05%) they may not be the fastest growing, brightest names. But all three companies reward investors with growing payouts and have cheap valuations.

Here’s why all three dividend stocks are worth buying in September.

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Toyota is at the top of its game, yet the stock is down a lot

Daniel Foelber (Toyota): After reaching an all-time high of more than $255 a share earlier this year, Toyota is now down about 30% from that high and has virtually erased all of its 2024 earnings.

Automakers like Toyota benefit from lower interest rates, which lower borrowing costs for buyers and help boost sales. Inflation and higher interest rates have been a challenge for the industry. But overall, Toyota sales have held up pretty well.

For the fiscal year that ended in March, Toyota produced a record number of cars, and its June quarter saw strong earnings.

Toyota has taken a unique approach to the threat of electrification, focusing on innovations that do not abandon its internal combustion engine (ICE) heritage or prowess. Its new range of combustion engines features low-carbon or carbon-free engines that can run on petrol and alternative fuels.

Toyota has long been a pioneer in the field of hybrids. Its hybrid business continues to grow nicely and offers a middle ground between pure ICE vehicles and electric vehicles.

In terms of its valuation, Toyota has a price-to-earnings (P/E) ratio of just 7.3.

TM PE report data by YCharts

As cheap as it may seem, it is actually lower than the historical median P/E over various periods over the last 10 years. But it’s worth noting that automakers tend to have low valuations due to their capital-intensive nature, reliance on debt, global competition and the cyclical nature of the industry.

Toyota is committed to increasing its dividend. However, his priority is to grow the core business. Toyota makes semiannual dividend payments in March and September, with the March payout typically being higher than the September payout — likely because it’s closer to the end of the company’s fiscal year. Because of the variation in payouts, it’s difficult to know exactly what Toyota’s return will be in any given year, but I’d say investors can expect a 2% to 2.5% annual return based on the stock’s current price .

All in all, Toyota is an excellent choice for value investors looking for a legacy automaker that addresses sustainability by leveraging existing infrastructure, while also considering the demand for low-carbon fuels and climate goals.

The market is too negative about Delta Air Lines

Lee Samaha (Delta Air Lines): The stock trades at less than 7 times estimated 2024 earnings and just 7.5 times the midpoint of management’s full-year 2024 free cash flow guidance. Either way you look at it, Delta’s valuation is extremely attractive.

However, there is usually a reason for low ratings. In this case, the market is likely stressed by the current overcapacity in the airline market and the potential for a disappointing second half for Delta.

In addition, Delta suffered an estimated $500 million in lost revenue due to a technology outage and is believed to be seeking damages from Microsoft and CrowdStrike on the problem.

Any deterioration in the earnings outlook is not good news for Delta, given that it has a market capitalization of just $26.4 billion and debt and finance lease obligations of $18 billion at the end of the second quarter.

That said, the market may be too pessimistic. While the loss of revenue at any point is disappointing, the $500 million represents less than 1% of expected revenue this year.

Moreover, both Delta Air Lines and United Airlines I believe the industry is already reacting to overcapacity by streamlining routes, which moderates capacity growth. If Delta and United management are right, then prices should firm up and Delta can meet its guidance for the full year. As mentioned above, the stock looks like an excellent value based on expected numbers.

Brookfield Infrastructure Partners LP is a powerful way to pump passive income into your portfolio

Scott Levine (Brookfield Infrastructure Partners LP): Growing its distribution over the past 14 years, Brookfield Infrastructure Partners LP has demonstrated a strong commitment to rewarding shareholders. Furthermore, it seems highly unlikely that the global infrastructure asset operator will end its streak anytime soon. In fact, management aspires to increase its payout between 5% and 9% annually. And if all that doesn’t excite investors looking to generate stronger passive income streams, consider this: Brookfield Infrastructure stock — which currently offers a forward dividend yield of 4.9% — is undervalued rich.

Operating a variety of infrastructure assets from midstream to electric utilities, Brookfield Infrastructure Partners LP has a sizeable global presence and looks poised to grow even more in the near future. In its 2024 second quarter letter to shareholders, management noted that its backlog of capital projects stands at $7.7 billion, a high for the company and a strong indication that the company is well positioned to continue to increase its dividends.

The company’s high dividend yield may give conservative investors pause, as it’s not uncommon for high yields to actually be dangerous dividend traps. However, this is not the case with Brookfield Infrastructure Partners LP. First, the company has an investment grade balance sheet rated BBB+ by Fitch Ratings. Management has also taken a cautious approach to distribution growth, targeting a payout ratio of 60% to 70%.

Shares of Brookfield Infrastructure Partners LP are currently changing hands at 3.2 times operating cash flow, a discount to a five-year cash flow multiple of 4.5. Between the stock’s cheap valuation, management’s goal of increasing its payout every year, and the company’s solid financial foundation, loading up on Brookfield Infrastructure Partners LP stock is a compelling option right now.