Dividend stocks are currently undervalued and may recover as interest rates decrease. Stable cash flows and consistent dividend increases make them attractive investments. In the face of rising yields from Treasuries, these stocks have been overlooked compared to AI-related growth stocks. Investing in these dividend stocks provides a balanced risk-reward profile for future gains. Flowers Foods (FLO) exemplifies this trend, experiencing a significant decline in stock value while maintaining historical growth patterns, aided by a recent acquisition despite increased operational challenges.
AI-related growth stocks have delivered multibagger gains over the past few years, whereas reliable dividend stocks have been left behind. With Treasuries hovering above 5% for most of 2023 and 2024, income investors locked in government-backed income that easily beats the average S&P 500 yield without taking equity risk.
However, it's a good idea to start buying dividend stocks on the dip before interest rate cuts eventually come. The Nasdaq 100 price-earnings ratio is near 2021 levels at 41x.
Flowers Foods (FLO) has broken off its two-decade-long trajectory over the past three years as interest rates were hiked and the Ozempic trend crushed most snacks-related companies. This is a bakery business with historically stable growth and profitability. FLO stock is down 48.7% below its high.
The company also closed the $795 million acquisition of Simple Mills, a fast-growing but lower-margin natural snack maker. It added more debt to the balance sheet at the exact moment private-label bread is stealing shelf space and freight, flour, and labor inflation are still pressuring margins.
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