For years the most popular advertising slogan for Prudential Financial (NYSE: PRU) was “Take a Piece of the Rock.” The global financial services and asset management company still uses the iconic image of the Rock of Gibraltar in its logo.
I just got a piece of the rock. Instead of buying insurance or another financial product from Prudential, I invested in the company. This is why I just bought this dirt cheap, high yielding dividend stock.
1. His rock-solid company
No pun intended, but my main reason for buying Prudential Financial stock was its rock-solid business. The company has survived and thrived since 1875, and its nearly 150-year track record of success gives me confidence in its ability to adapt to changing times.
Prudential began as an insurance company. While it remains a leader in the insurance industry, it also manages investments and now offers a wide range of financial products, including annuities.
The company has assets under management of nearly $1.5 trillion. It serves approximately 50 million customers in over 50 countries and has a AA (very strong) financial strength rating.
Even better, Prudential has solid long-term growth prospects, particularly in sales 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 aging populations.
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 growing middle and upper classes. Insurance penetration is low in many of these areas.
2. The attractive valuation
Prudential Financial shares trade at just 7.8 times forward earnings. For comparison, the S&P 500‘s forward earnings multiple is 21.4. The average forward earnings multiple for the S&P 500 financials sector is 16.2. When I said Prudential stock is dirt cheap, I wasn’t kidding.
And there’s more. Prudential’s price-earnings-growth ratio (PEG) based on five-year growth projections is 0.49, according to LSEGA PEG ratio below 1.0 is considered an attractive valuation.
PEG ratios tend to apply more to high growth stocks. Prudential is not one of them. However, I think the super low PEG ratio underscores what a bargain this stock really is right now.
3. The juicy dividend
I wasn’t kidding about Prudential’s high dividend yield either. The company offers a forward dividend yield of 4.53%. With such a juicy dividend, Prudential doesn’t need much share price appreciation to deliver solid total returns.
What I like even better is that Prudential has increased its dividend for 16 years in a row. Unlike some companies that increase their dividends by minuscule amounts to maintain their streaks, Prudential has rewarded shareholders with meaningful dividend increases. Since 2008, the 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 trouble keeping its dividends flowing and growing. According to LSEG, Prudential’s dividend payout ratio is a respectable 65%.
I’d be remiss if I left out the financial services leader’s “invisible dividends.” Prudential returned $500 million to shareholders in share buybacks in the first half of 2024. There’s still $500 million left on its current share buyback authorization, which expires Dec. 31, 2024.
Should You Invest $1,000 in Prudential Financial Now?
Before you buy Prudential Financial stock, consider the following:
The Motley Fool Stock Advisor team of analysts has just identified what they think is the 10 best stocks for investors to buy now… and Prudential Financial wasn’t one of them. The 10 stocks that made the cut could deliver monster returns in the years to come.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $729,857!*
Stock Advisor offers investors an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks each month. The Stock Advisor has service more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns as of September 9, 2024
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 Bought These Dirt Cheap, High Yield Dividend Stocks was originally published by The Motley Fool
