3 iconic brands offering both 5% yields and a 50% upside to current P/Es

There are many stocks of iconic brands. However, the information asymmetry associated with financial markets means that few of them are undervalued.

Given the above, I embarked on a quest to find three undervalued stocks of iconic brands with high dividend yields. Stocks with low price-to-earnings ratios and high dividend yields often trigger value traps. That’s why I made sure to apply a robust selection methodology.

Methodologically, my selection process focused on fundamental attributes, valuation multiples, technical analysis and event-driven aspects. In addition, I ensured that each of my choices was in line with the prevailing market sentiment to ensure a holistic analysis.

With all that in mind, here are three top stocks from iconic brands to consider.

British American Tobacco (BTI)

British American Tobacco (NYSE:BTI) is a household name in the tobacco industry. However, its stock has lost more than 10% of its value over the past five years, mainly due to the company’s restructuring process. In addition, British American Tobacco has faced significant environmental, social and governance challenges in recent years, which has led to a simultaneous devaluation of its stock.

Despite a difficult period, I think British American Tobacco stock is a buy. The company has been pivoting to new growth opportunities such as non-combustible products. Additionally, British American Tobacco recently increased its stake in Canadian cannabis producer Organigram (NASDAQ:OGI) at 45%, which demonstrates an intention to turn to alternative consumer bases.

British American Tobacco’s operating margin of 48.44% suggests that the company has enough resources to help it expand into new businesses while preserving shareholder value. Additionally, BTI’s forward price-to-earnings ratio of 7.14x is exceptionally well-positioned. Additionally, BTI’s forward dividend yield of 9.61% adds a floor to its share price.

This looks like a solid high dividend stock. I am bullish on the prospects of BTI stock!

Volkswagen AG (VWAGY)

As one of the world’s largest automobile manufacturers, Volkswagen AG (OTCMKTS:VWAGIE) needs no introduction. However, this does not mean that the company’s stock is a perpetual winner. VWAGY stock is a cyclical asset, so interim price fluctuations are a regular feature. In fact, VWAGY stock has lost almost 30% of its value over the past twelve months, which supports my assertion.

Many will disagree, but the recent decline in Volkswagen’s stock price likely represents a buying opportunity. I believe that the impending decline in global interest rates will trigger new demand for durable goods, including vehicles. In addition, Volkswagen has some interesting specific features. For example, it plans to launch a low-cost electric vehicle by 2027, which is promising, given that Volkswagen’s value proposition lies in the value for money of its vehicles.

Finally, Volkswagen’s outlook based on financial markets appears to be on track.

VWAGY has a forward price-to-earnings ratio of just 3.72x and a forward dividend yield of 8.19%, suggesting that it is significantly undervalued. Additionally, it is trading below its 50-, 100-, and 200-day moving averages, indicating that a buying opportunity on the dip has emerged.

Altria Group (MO)

Altria (NYSE:MB) is another tobacco stock that owns most of its supply chain, including medical products to treat tobacco-related diseases.

The company is in a similar situation to British American Tobacco, where it is restructuring to meet future consumer demands. In one of its latest deals, Altria acquired NJOY Holdings to strengthen its presence in the refillable cigarette market. I believe a long period of acquisitions is on the way, which could add value to Altria’s broad-based business model.

Altira also has strong fundamentals, allowing it to acquire while preserving shareholder value. For example, Altria has a net profit margin of 41.42%, indicating that it has achieved economies of scale. In addition, Altria has strong liquidity, as indicated by its total cash flow per share ratio of 2.1x.

Altria’s forward price-to-earnings ratio of 8.97x may seem average. However, the reinvigorated growth coupled with a forward dividend yield of 8.61% speaks volumes.

I’m optimistic here!

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

As of the date of publication, Steve Booyens 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 author, subject to the InvestorPlace.com Publishing Guidelines.