Why I just loaded up on this cheap high yielding dividend stock

For years, the top advertising slogan for financial prudential (NYSE: PRU) it was “Take a piece of rock.” The global financial services and investment management company continues to use the iconic image of the Rock of Gibraltar in its logo.

I just received a piece of stone. However, instead of buying insurance or another financial product from Prudential, I invested in the company. That’s why we just loaded up on this cheap, high-yielding dividend stock.

1. Its solid business

No pun intended, but my main reason for buying Prudential Financial stock was its solid business. The company has survived and thrived since 1875, and its nearly 150-year track record of success makes me confident in its ability to adapt to changing times.

Prudential began as an insurance company. While still a leader in the insurance industry, it also manages investments and offers a wide range of financial products, including annuities, today.

The company has assets under management of nearly $1.5 trillion. It serves around 50 million customers in over 50 countries and boasts an AA (very strong) financial strength rating.

Even better, Prudential has solid long-term growth prospects — particularly in the sale of retirement products and services. The company estimates a $137 trillion retirement opportunity in the U.S. and a $26 trillion opportunity in Japan by 2050 due to an aging demographic.

In addition to Japan, Prudential also has excellent growth prospects in other international markets. Emerging markets, including Africa, China, Latin America and Southeast Asia, have expanding middle and upper classes. Insurance penetration is low in many of these areas.

2. Its attractive valuation

Prudential Financial shares trade at just 7.8 times forward earnings. By comparison, the S&P 500The forward earnings multiple is 21.4. The average S&P 500 financial forward earnings multiple is 16.2. When I said Prudential stocks are very cheap, I wasn’t kidding.

And there are more. Prudential’s price-to-earnings-growth (PEG) ratio, based on five-year growth projections, is 0.49, according to LSEG. Any PEG ratio below 1.0 is considered an attractive valuation.

PEG ratios are usually more applicable to high-flying growth stocks. Prudential is not part of that group. However, I think its very low PEG ratio underscores what a bargain this stock really is right now.

3. Its juicy dividend

I wasn’t even kidding about Prudential’s high dividend yield. The company offers a forward dividend yield of 4.53%. With such a juicy dividend, Prudential won’t need much share price appreciation to deliver solid total returns.

The story continues

What I like even more is that Prudential has increased its dividend for 16 consecutive years. Unlike some companies that raise their dividends by tiny amounts just to maintain profits, Prudential has rewarded shareholders with significant dividend increases. Since 2008, its dividend has grown at a compound annual growth rate (CAGR) of 15%. Over the past five years, Prudential has increased its dividend at a CAGR of 7%.

The company should have no problem keeping its dividends flowing and growing. According to LSEG, Prudential’s dividend payout ratio is 65%.

I would be remiss if I left out the financial services leader’s “invisible dividends.” Prudential returned $500 million to shareholders through share buybacks in the first half of 2024. It still has $500 million remaining in its current share buyback authorization, which ends on December 31, 2024.

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Keith Speights has positions in Prudential Financial. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Why I Just Loaded Up on This Cheap High-Yield Dividend Stock was originally published by The Motley Fool