For investors seeking solid financial footing, undervalued dividend stocks represent the bedrock of any portfolio. These low-beta equities epitomize blue-chip companies, standing in contrast to higher-beta growth stocks infamous for their cash flow uncertainties. A combination of growth and dividend stocks is the cornerstone of a well-rounded investment that spells quality.

Today, we zoom in on the dividend stock space, in search of names that are flying under the radar with a valuation gap. These underappreciated dividend stocks illustrate the potential for high total returns over the next few years.

When considering blue-chip dividend stocks, it’s important to bear in mind that they usually demand a premium valuation. Nevertheless, periodic industry or company-specific headwinds can create a valuation gap that savvy investors can exploit.

Unearthing opportunities among undervalued dividend stocks demands keen attention and a discerning eye. After all, a select few of these stocks have the potential to outperform growth stocks in terms of total returns, as exemplified by Nvidia (NASDAQ:NVDA) in the past year.

Newmont Corporation (NEM)

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Newmont Corporation (NYSE:NEM) stock has declined by 33% in the past 12 months. However, with a forward price-earnings ratio of 21.5, the stock appears undervalued and boasts a robust dividend yield of 4.77%.

Optimism abounds for potential expansive policies later in the year, with gold trending higher. In line with this, NEM stock is expected to rebound from its oversold levels.

In November 2023, Newmont achieved the acquisition of Newcrest Mining, resulting in the world’s foremost gold mining business. Following the acquisition, Newmont eyes cash improvements of $2 billion through portfolio optimization over the initial two years.

Of note is Newmont’s investment grade balance sheet, which permits aggressive investment in exploration. The company is poised to maintain robust reserve replacement, having reported operating cash flow of $1 billion in Q3 2023. With gold’s upward trajectory, operating cash flow is poised to exceed $5 billion this year, rendering Newmont one of the choicest undervalued dividend stocks for growth.

AT&T (T)

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AT&T (NYSE:T) stock has experienced a modest upswing of 18.5% in the past six months. Impressively, AT&T remains severely undervalued with a forward price-earnings ratio of 7.7. Not to be overlooked is the stock’s attractive dividend yield of 6.52%, which seems sustainable in my view.

Reportedly, AT&T posted free cash flow of $16.8 billion in 2023, and is guiding for $17 to $18 billion this year. These robust cash flows provide ample scope for dividend payouts while the company has been steadily deleveraging. It aims to attain a net debt-to-adjusted EBITDA of 2.5x in the first half of 2025.

Further, AT&T has made significant investments in its 5G and fiber network over the past five years, resulting in sustained growth in phone and fiber subscribers. I am confident that this trend will endure with the rising adoption of 5G technology.

Pfizer (PFE)

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Pfizer (NYSE:PFE) stock has waned owing to declining revenue from the Covid-19 vaccine. However, the correction appears exaggerated as PFE stock shows promise with a forward price-earnings ratio of 12.4 and a dividend yield of 6.07%.

In 2023, Pfizer secured a record number of nine new molecular entity approvals from the U.S. Food and Drug Administration. This paves the way for robust growth ahead. Furthermore, Pfizer boasts a product pipeline of 112 candidates, with 31 molecular entities in Phase three. This positions Pfizer for a strong resurgence.

Market Insights: Top Stock Picks

For investors, the name of the game is spotting the breakout performers before they go mainstream. As the market continues its unpredictable dance, some companies have proven resilient and offer intriguing opportunities for the discerning investor. Here’s a deep dive into some top stock picks that are poised for success in the current economic climate.

Pfizer Inc. (PFE)

In the pharmaceutical space, Pfizer Inc. (NYSE:PFE) has been making waves. It has set its sight on an impressive 3% to 5% year-on-year growth for 2024, signaling its ambition and promising trajectory despite the tumultuous market conditions.

Chevron Corporation (CVX)

In the midst of macroeconomic headwinds and tight monetary policies, Chevron Corporation (NYSE:CVX) has emerged as a resilient player. Its stock, with its attractive valuation gap and a healthy dividend yield of 4.29%, presents an appealing opportunity for investors to capitalize on the market correction in the oil and gas sector. The company’s investment grade balance sheet and robust cash flows position it as a favorable choice for those seeking stability and growth in their investment portfolio.

Rio Tinto (RIO)

When it comes to industrial commodity stocks, Rio Tinto (NYSE:RIO) stands out. With an undervalued forward price-earnings ratio of 9.3 and a healthy dividend yield of 5.2%, RIO stock holds promise despite concerns about demand from China. The company’s strategic focus on portfolio diversification, especially in metals supporting energy transition, positions it well for future growth and resilience in the face of market uncertainties.

Lockheed Martin (LMT)

Amidst rising geopolitical tensions, defense stocks have garnered attention, and Lockheed Martin (NYSE:LMT) is no exception. Despite remaining sideways in the past year, LMT stock offers an attractive dividend yield of 2.94%. With a record order backlog of $160.6 billion, the company has laid a solid foundation for consistent revenue and cash flow. Furthermore, its commitment to next-generation defense technology places it in a favorable position for sustained growth.

Albemarle Corporation (ALB)

Albemarle Corporation Shows Strong Potential for Investors

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Opportunity in Crisis

Amidst a tumultuous year for Albemarle Corporation (NYSE:ALB), marked by a staggering 60% stock value decline, lies an overlooked opportunity for investors. The primary cause of this decline is the drastic fall in lithium, which might seem alarming at first glance, but upon closer examination reveals an undervalued gem waiting to be unearthed. Trading at a forward price-earnings ratio of 5.6 and offering a dividend yield of 1.33%, ALB stock presents a compelling case for investment, especially considering the anticipated robust dividend growth once lithium stages a recovery.

Resilient Performance

Even in the face of plummeting lithium prices, Albemarle reported a remarkable 10% year-on-year revenue growth for Q3 2023, ascending to $2.3 billion. Moreover, the company has projected positive operating cash flows ranging from $600 to $800 million for 2023. As Albemarle initiates cost-cutting measures, the financial outlook appears reassuring, devoid of undue strain.

Delayed Expansion, Undeterred Outlook

While it’s foreseeable that expansion initiatives may endure delays to temper capital investments, Albemarle’s prior plan to triple lithium conversion capacity to 600ktpa by 2027 has been met with a considerable setback. Despite this, the long-term prospects for lithium remain optimistic, thereby fueling my bullish outlook on the strong reversal of ALB stock.

On the date of publication, Faisal Humayun did not hold (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.