3 Underappreciated Dividend Gems Primed for a Breakout

Stocks to buy

Looking for dividend stocks to buy with a good mix of growing payouts and decent safety margins? You’re at the right place. Long-term growth opportunities can make corporations look more enticing and give them the potential to deliver meaningful gains.

It’s no secret that some investments have great potential. Most Magnificent Seven stocks receive plenty of coverage and have the financial results to back up their long-term gains. However, other stocks are relatively under-appreciated and don’t receive as much attention. These types of stocks have the potential to outperform the stock market while delivering steady cash flow for their investors.

Looking for stocks with rising revenue and net profit margins is a good idea. Corporations should also have large moats within their industries and reasonable valuations. Investors can benefit from looking at the P/E ratio, forward P/E ratio, and PEG ratio. Some dividend stocks check all those boxes, including these dividend stocks to buy:

Cintas (CTAS)

Source: Sundry Photography / Shutterstock.com

Cintas (NASDAQ:CTAS) offers business supplies and safety equipment to more than one million businesses. This large customer pool gives the company plenty of revenue diversification, which offers more protection during economic slowdowns. The stock is up by 18% year-to-date and hasn’t budged much ever since investors reacted to Q3 FY24 results. Shares have roughly tripled over the past five years.

The business supplies company delivered $2.41 billion in Q3 FY24 revenue. That’s a 9.9% year-over-year increase. While top-line growth was solid, net income growth was even better, indicating profit margin expansion. Cintas reported $397.6 million in GAAP net income compared to $325.8 million in the same quarter last year. That’s a 22.1% year-over-year increase.

Those earnings results help explain the bullishness of recent price targets. The stock is currently rated as a Moderate Buy, with $765 as the highest price target. This high target suggests Cintas can gain an additional 9% from current levels.

Intuit (INTU)

Source: shutterstock.com/T. Schneider

Intuit (NASDAQ:INTU) is only up by 9% year-to-date but has seen its stock price rally by 16% since mid-June. Momentum is shifting in Intuit’s direction, and a 5-year gain of 151% demonstrates what’s possible for long-term investors.

The stock is rated as a Strong Buy among 21 analysts. The highest price target of $770 suggests that the stock can gain an additional 17% from current levels. The average price target implies a 10% gain is on the way.

Intuit is well-known for its leading tax preparation and filing software: TurboTax and Quickbooks. The company also owns Credit Karma, Mailchimp, and other business software. These business segments contributed to 12% year-over-year revenue growth in the third quarter of fiscal 2024. The company’s Small Business and Self-Employed Group segment stood out with 18% year-over-year growth. Earnings per share increased by 14% YOY to reach $8.42 in the quarter.

The fintech firm offers a 0.55% yield. While it’s a relatively low payout, Intuit has been known to grow the dividend quickly. Over the past decade, Intuit has maintained an annualized dividend growth rate of 16.65%. Thus, I think it is one of the best dividend stocks to buy.

Automatic Data Processing (ADP)

Source: IgorGolovniov / Shutterstock

Automatic Data Processing (NASDAQ:ADP) is an underrated dividend stock with a respectable valuation. Wall Street analysts project a 9% upside from current levels, and the highest price target of $282 per share suggests that ADP can gain an additional 18%.

The human resources management software firm isn’t a contender for outperforming the stock market. Shares are only up by 2% year-to-date and have gained 44% over the past five years. However, this company is less vulnerable to sharp declines than other tech companies during market corrections. ADP trades at a 27 P/E ratio with a 2.35% yield. Automatic Data Processing has had an annualized dividend growth rate of 11.22% over the past decade.

The firm reported solid results in the third quarter of fiscal 2024. Revenue increased by 7% YOY, while net income increased by 14% YOY. ADP closed out the quarter with a 22.6% net profit margin. That makes it one of the best dividend stocks to buy, at least in my book.

On the date of publication, Marc Guberti did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Marc Guberti is a finance freelance writer at InvestorPlace.com who hosts the Breakthrough Success Podcast. He has contributed to several publications, including the U.S. News & World Report, Benzinga, and Joy Wallet.

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