For years, the top advertising slogan for Prudential Financial (NYSE: PRU) was “Get a piece of the rock.” The global financial services and investment 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, though, I invested in the company. Here’s why I just loaded up on this dirt cheap, high-yield dividend stock.
1. Its rock-solid business
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 makes me confident in its ability to adapt to changing times.
Prudential started as an insurance company. While it’s 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 — especially in selling 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 demographics.
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. The insurance penetration is low in many of these areas.
2. Its attractive valuation
Prudential Financial stock trades at only 7.8 times forward earnings. By comparison, the S&P 500‘s forward earnings multiple is 21.4. The S&P 500 financials sector average forward earnings multiple is 16.2. When I said Prudential stock is dirt cheap, I wasn’t kidding.
And there’s more. Prudential’s price-to-earnings-to-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 doesn’t belong in that group. However, I think its super-low PEG ratio underscores what a bargain this stock truly is right now.
3. Its 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 won’t need much share price appreciation to deliver solid total returns.
What I like even more is that Prudential has increased its dividend for 16 consecutive years. Unlike some companies that hike their dividends by minuscule amounts just to maintain their streaks, Prudential has rewarded shareholders with meaningful dividend increases. Since 2008, its dividend has risen by a compound annual growth rate (CAGR) of 15%. Over the last five years, Prudential has increased its dividend by a CAGR of 7%.
The company should have no problems 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 through stock buybacks in the first half of 2024. It has another $500 million remaining on the current share repurchase authorization, which ends Dec. 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 Dirt Cheap High-Yield Dividend Stock was originally published by The Motley Fool
