3 Low Dividend Stocks to Load Up Right Now

Expectations and narratives can drive stock movements. A company’s failure to meet expectations can lead to investor disappointment and poor stock performance. Honeywell (HON -1.27%), United Parcel Service (UPS)and Chevron (CVX 0.38%) they may be industry leaders, but they’ve all disappointed investors recently, and their stock prices have suffered as a result.

Despite their challenges, all three of these dividend stocks are worth a closer look now. Here’s why.

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Honeywell has failed to capitalize on megatrends

For several years now, Honeywell has discussed the growth potential of the Industrial Internet of Things (IIoT), which is basically the overlay of software and hardware. Instead of monitoring the performance of standalone cars, IIoT can connect a fleet using sensors and electronics. An integrated system can provide data-driven insights, allowing operators to be proactive rather than reactive to equipment performance and maintenance cycles.

In addition to its opportunities in the IIoT space, Honeywell has focused on the energy transition and the need for smarter buildings and warehouses that automate functions and consume less energy than older ones. It has a growing oil and gas, hydrogen and liquefied natural gas business.

Honeywell’s largest segment is aerospace. Provides parts, components, controls, integrated solutions and more for the commercial and defense aerospace industries. It even has a $5 billion quantum computing business.

However, despite its exposure to all these interesting themes, Honeywell’s results have declined. Revenues have rebounded from pandemic lows but are still below pre-crisis levels. Operating margins and diluted earnings per share (EPS) are also up, albeit slowly.

HON Revenue (TTM) data by YCharts.

Management implemented an aggressive capital allocation program focused on mergers and acquisitions (M&A) and share buybacks to drive EPS growth. One strength of Honeywell has been its balance sheet, but its leverage is likely to increase as it pursues its plan to deploy billions more in mergers and acquisitions and share buybacks.

Honeywell has raised its dividend every year since 2011, and its price-to-earnings (P/E) ratio is below its three-, five-, and seven-year average levels today. Given its growing dividend and reasonable valuation, Honeywell looks like a worthwhile turnaround piece for investors who believe its recent spate of acquisitions will help spur growth in targeted themes.

The worst may be over for UPS

UPS stocks have soared during the pandemic as consumers have shifted from in-person shopping to home delivery. The shipping and logistics giant expanded its routes, believing that package delivery growth would remain high even after the pandemic, but that forecast proved painfully inaccurate.

Add in costly pension obligations and a messy contract negotiation process with the Teamsters Union, and it’s easy to see why UPS stock has fallen out of favor.

In March, UPS launched a three-year plan to turn the business around. But so far, it has not made significant progress toward its goals. The company has faltered a lot in a short period of time — resulting in a 45% drop from its all-time high. But there is reason to believe that the worst may be over.

In the second quarter, UPS returned to US volume growth for the first time since Q4 2021. This is a positive sign in the short term. The medium-term outlook for its healthcare businesses is positive. UPS expects healthcare to contribute half of its growth over the next three years as it focuses on temperature- and time-sensitive deliveries.

In the long term, UPS has a strong position in domestic and international transportation and logistics. The stock has sold off so far that its forward P/E ratio is now just 17 and its dividend yield is 5.1%. UPS may appeal to investors looking for a game-changing value stock as well as an investment that can increase their passive income.

Chevron is an ultra-reliable dividend payer

Unlike Honeywell and UPS, Chevron didn’t disappoint investors by falling short of expectations. But it has a major question mark that could hold back its share price.

On October 23, 2023, Chevron announced an agreement to acquire the oil and natural gas exploration and production company Hess for 53 billion dollars. However, ExxonMobil upheld this agreement, citing nuances in the contractual language regarding rights to a joint offshore asset in Guyana.

Meanwhile, crude oil prices fell to their lowest levels since 2024 due to lower demand expectations and high production levels. Chevron did not make the operational errors of Honeywell or UPS. However, uncertainty over the fate of its Hess deal and low oil prices pushed the stock to a 52-week low.

With a P/E ratio of just 13.9, its valuation looks very cheap, but that ratio could rise to a more expensive level if low oil prices lead to lower profits. Overall, Chevron is reasonably valued and boasts a 37-year streak of consecutive dividend hikes and a dividend yield of 4.6% — making it yet another passive income powerhouse to consider now.

“Loading” responsibly

Investors can look at Honeywell, UPS or Chevron and be tempted to back the truck in hopes of a comeback. And while it might be a good idea to load up on all three stocks, it’s important to maintain diversification in a balanced portfolio.

Going too heavy in just a few stocks or correlated themes can leave a portfolio at risk of big declines if the market crashes. A better approach is to only allocate larger shares of your portfolio to the ideas with the most conviction and build these positions gradually over time.

Plunging into a stock too quickly can lead to stress, poor decision making, and depleted buying power. No one knows when the next major stock market selloff will occur, but when it does, it will be wise to be comfortable with your positions.

The best way to prepare for this is to be aware of your asset allocations and ensure that no position gets so large that a bad exposure to a particular industry derails your portfolio’s performance and prevents you from -achieve your financial goals.