I have to confess that I get a tremendous kick out of all of the market forecasts that constantly flood across my desk. Just like everybody else, I subscribe to several market information and data services. My name has probably been sold to—I do not know—some days it seems like a million different marketing companies. The instant experts of the internet are everywhere, of course. If you dare to log on to Twitter, Facebook, or LinkedIn, you will be buried in their messages with their very confident predictions and strong suggestions of exactly what is going to happen in the stock market.
That is a fool’s errand most of the time. Right now, for instance, we know (and what I am about to say is not opinion, it is just fact) the PE ratio of the S&P 500 is currently at one of the highest levels ever without a strong recession. There have been times (2008 comes to mind, 2003, 2020) where the market PE was more elevated than this. But these were periods of time when there was a severe recession or, in the case of COVID, restrictions in the economy and earnings had literally fallen off a cliff. You were trading at a high multiple of no earnings, basically. That is not the case right now. We have had healthy earnings growth for several years, including decent growth in 2025. Yet we are trading at twenty-nine times trailing earnings.
On top of that, we are trading at 23.75 times what the analysts expect the S&P 500 companies to make in aggregate this year. According to a recent research report from J.P. Morgan, anytime that is over twenty-two, we know that the forward returns are probably going to be between negative two or plus two percent compounded over the next decade.
The excess yield on the CAPE ratio, which is just the ten-year average P.E. ratio (everything is adjusted for inflation), compared to the ten-year treasury, is at levels that would suggest a flat to slightly negative long-term return.
The Aggregate Investor Allocation to Equities is one of the most accurate predictors of future returns and is also suggests negative ten-year returns. All the market barometers are saying, hey, the future may not be that good.
However, when you look at the longer-term trend lines on a weekly chart (daily charts are mostly just noise) we are in a strong uptrend and have been since early 2023 has been this long, massively extended uptrend.
Credit conditions are good; the economy is doing better than most expected and it is likely that the Fed cuts rates soon.
There are things to worry about, obviously. The global bond sell-off last week is a source of concern. The potential for inflation from tariffs is a concern. The potential for the situation in Ukraine to get worse is a concern. Fraying trade relationships around the world are a concern. There are lots of things we can sit around and worry and obsess about. However, what we cannot do is predict how the stock market might react to everything that is going on. We are in an uptrend. That has got to be enough for us. When that changes, we will know about it and can react.
The other thing that we do know about this market is that most of the buying has been confined to the absolute most popular names. One way to participate in the up moves of the market that we see coming, as long as momentum continues, and protect ourselves a little bit from the risk of a severe pullback in the market, is to own stocks that Wall Street is overlooking—not talking about—that are reasonably to moderately undervalued and are paying solid dividends. Remember, dividends are paid in cash, and they cannot be taken back by a market decline.
This week, I have for you five dividend-paying stocks that are being completely overlooked. They are companies that are not going away. We use their products and services all the time. They have great balance sheets, and solid financial statements. Credit risk is minimal, and they should be able to continue the dividend no matter what happens.
Star Group (Ticker: SGU)
One of my all-time favorites is Star Group, SGU. They are the largest retail distributor of home heating oil in the United States, primarily concentrated in the Northeast and the Mid-Atlantic. They have a growing propane and HVAC service platform. Results here will obviously go back and forth with winter weather. But you have also got a service contract book. You have got equipment sales. You have got the HVAC business, which is going to be pretty good all year round.
Star Group has grown by acquisition. All of these businesses, home heating oil, propane, HVAC, tend to be mom and pop businesses. What Star Group does is they look at well-established market-leading businesses, generally family owned and operated, small businesses that have grown into midsize businesses where maybe the owner is looking for an exit strategy or is open to being part of a larger company. They do a deal to buy this company and roll it into Star Group. They have been wildly successful at this. They have also been really disciplined about capital returns and the way they spend their money and what they pay for deals within their existing footprint. They continually pay out dividends. Debt management is very low.
The other thing that they have done very successfully is they have taken these mom-and-pop dealers and added the service contract business, which does give you higher margin revenue. They are doing the same thing in propane. That creates customer loyalty and very high switching costs. The customers tend to stay with Star Group for a very long period. Leverage, as I said, is modest, sensible acquisition strategy, plenty of room to keep buying back units on any price declines and raising the distribution over time on a rather continual basis, as they have done for a very long time.
It is an LP; there is a K-1. I do not want to hear your complaints about it. K-1s are not as bad as some folks would have you believe.
It is currently trading at seven times earnings with a dividend yield just a hair over six percent.
Escalade (Ticker: ESCA)
My next under-the-radar stock pick that Wall Street is paying absolutely no attention to has the potential for solid long-term returns and is currently paying a generous 4.9 percent dividend yield that is likely to not only be maintained but increase over time. This is a very off-the-wall, high cash-generating portfolio of sporting brands. But this is not big-time sport. This is stuff that is played in garages, basements, backyards.
We are thinking sports brands like Stiga, they make ping-pong tables, paddles, and supplies. Goalrilla, that is basketball system. Bear Archery for bows. In the fastest growing sport in the country, they have Onyx, a leading brand of pickleball equipment. They have got a great dividend. They have been very careful with capital because these are uneven consumer cycles, right? These are very much consumer discretionary businesses, but they manage their inventories very tightly. They really do lean on direct consumer and specialty retail channels, which makes inventory management a little bit easier. In all these brands, they are among the market leaders.
This is a classic small-cap compounder. They have got category leadership in very niche sports that have very loyal fans that support pricing power, gives them a cleaner marketing channel, and a better mix of products. As interest rates ease, and that is the most likely path, at least of short-term interest rates, discretionary big-ticket items like driveway hoops and game room tables sold by companies owned by Escalade should cycle back up and we should see some pent-up demand.
Very light capex budgets, very small working capital swings, lots of free cash flow that very easily cover the dividend and fund any bolt-on brand acquisitions to add to these niche markets should allow the board to continue to raise the payout over time. There should be—dividend aside—this stock is dramatically undervalued at current prices. It is trading right around book value, seventy cents on the dollar of sales. They should continue to grow over the next several years. There is very little Wall Street coverage. When Wall Street becomes aware of this great, cool, quirky little collection of brands, this stock could re-rate a lot higher.
You cannot rule out that a private equity company looks around, looks at this great business trading at five times free cash flow with almost non-existent long-term debt and realizes this is a great fit for a private equity company. To 99pull that deal off they are going to have to pay up because insiders do own a little bit over thirty-seven percent of the stock. Escalade, ESCA, is our next off-the-radar screen stock pick with solid dividend growth and total return potential.
Euroseas (Ticker: ESEA)
Next up is Euroseas. This is a pure-play container company that has a heavy tilt towards feeder and intermediate vessels. These are segments of the shipping market that have much healthier order books than the much larger ships right now. The dividend can be a little bit variable. They have plenty of cash coming in the door and use that to buy back stock when the stock is trading under book value and pay the dividend.
Right now the stock is yielding 4.48 percent. The dividend yield this year should be higher than last. Management here is just doing a very nice quiet job of growing the net asset value of the company. They are signing longer charter contracts that were signed during tight markets. They print cash. They signed very long-term contracts at much higher day rates when markets were tight. They have been modernizing their fleet, which improves fuel economy, and you get slightly higher charter rates for the ships. Competition for new shipping is relatively lean in this space.
There is a little bit of supply pressure in the company’s core sizes that is going to keep spot rates near current levels. That means distributable cash continues to stay elevated. They are going to be able to raise the dividend. Anytime the stock is below net asset value, they will be able to consistently buy back stock. ESEA is not just a dividend story. It is a dividend growth story and potentially an outstanding growth story in and of itself.
Ambev (Ticker: ABEV)
Next up is Ambev, A-B-E-V. Ambev is Latin America’s largest brewer, and it is one of the largest producers of beer and non-alcoholic beverages. They have got leadership positions across eighteen countries and deep brands across Latin America like Skol, Brahma, and Guarana Antarctica.
By the company’s bylaws they have to pay out forty percent of adjusted annual net income through dividends or interest on capital and the board has continued to authorize special distributions through 2025 in line with that policy. Currency fluctuations, because it is a Brazilian company, make the yield look a little lumpy year to year, but the cash underneath that is actually producing the dividends is formidable. We are kind of bullish on Latin America in general and Brazil specifically anyway.
These are premium brands, and they are masters of cost control. They have got an excellent supply chain across a huge footprint. Interest rates are moving lower in Brazil. Real disposable incomes are improving slowly. We have got mandated payout mechanics and really strong free cash flow generation.
Margins are improving, which is going to grow distributable cash, setting up a path for rising annual distributions in local currency. Even coming into ADRs with the dollar falling the way it has been, that could set up an even more favorable distribution. The distribution is already pretty favorable at well over six percent. Analysts expect that to get as high as eight percent in the year ahead for Ambev.
They are in Brazil, Central America, Caribbean and strangely Canada. Ambevhey are a market leader with massive free cash flow that flows to the bottom line, and they have to send forty percent of that bottom line to us as a dividend.
Aegon (Ticker: AEG)
Aegon (AEG) is a life insurance, retirement and asset management company. The U.S. brand of this is Transamerica. This is a Dutch company. They also have an institutional asset management business with a total of 321 billion euros under management. They have combined all of their Dutch operations in the last year. That provides them better cost control, some scale to achieve margins, and they have committed to systematic capital returns in the form of very high dividends.
They just raised the dividend year over year and have an extended buyback program in place that strengthens overall shareholder yield.
The big story here is a cleaner balance sheet and capital generation powering a rising dividend. They are reallocating capital to the U.S. retirement and insurance markets and returning excess capital through a combination of dividends and buybacks.
As rate volatility begins to cool over the years (assuming the global bond volatility and the sell-off over the past couple of weeks begins to stabilize), then spread income for an insurance company like AEG begins to stabilize.
Operating cash flow will move higher, leaving room to continue lifting the ordinary dividend. As the dividend grows and the buyback is also increased, you will see the value of these shares rise dramatically.
The shares are currently yielding over 6%.
These are five stocks that Wall Street is paying absolutely no attention to that are paying very generous dividends. They are trading under Wall Street’s radar screen. They are paying generous dividends and have the potential for the stock price to rise substantially over the next several years. Several of them are located outside of the United States and should benefit if the dollar continues along its downward course.
