2 Overlooked Dividend Stocks With Upside

Key Points

• Dividend stocks have historically outperformed non-dividend paying stocks.

• Honeywell's solutions have proven to offer a meaningful return on investment.

• Domino's Pizza's fortressing strategy has multiple benefits for its business.

• 10 stocks we like better than Domino's Pizza ›

"I believe non-dividend stocks aren't much more than baseball cards. They are worth what you can convince someone to pay for it." -- Mark Cuban

If you're out there hunting for some new dividend stocks, you've likely heard the same names, or perhaps the term "Dividend King" over and over again. But your screener might not pick up on some overlooked and unloved dividend payers that fail to have eye-popping yields, yet have future potential for such.

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Here are two overlooked stocks with modest dividends and, for different reasons, higher dividend-yield potential going forward.

One of the best in the business

Honeywell (NASDAQ: HON) is one of the leading companies in the diversified industrials space, serving a range of industries and geographies across the globe. The company helps organizations with innovations and solutions through a number of business segments including Aerospace Technologies, Industrial Automation, Building Automation, and Energy and Sustainability Solutions.

With almost 140 years of operation, Honeywell has credibility and quality associated with its brand and multiple tailwinds in its favor. The current trend toward e-commerce has accelerated the need for warehouse automation solutions, which Honeywell can provide. Further, its automation solutions have proven to offer meaningful return on investment driven by improved productivity.

In addition to increasing warehouse automation demand, Honeywell stands to benefit from long-term trends in data analytics in power plants, remote security management, and commercial aerospace growth, among others.

Morningstar analyst Nicholas Lieb said in a report for investors, "Over the next five years, we think Honeywell is capable of mid-single-digit organic top-line growth, incremental segment operating margins in the high 20s to low 30s, near-double-digit earnings-per-share growth, and free cash flow margins in the mid-teens."

Investors buying Honeywell now will own different companies in the future, which could actually improve the valuations. Honeywell's board of directors intends to pursue a full separation of Automation and Aerospace Technologies which, along with the previous plan to spin off Advanced Materials, will create three distinct publicly listed leaders with individual identities, strategies, and growth drivers.

While investors wait for that development to take place during the second half of 2026, Honeywell will continue to dish out its 2.1% dividend yield with consistent increases.

The world's largest pizza maker

Domino's Pizza (NASDAQ: DPZ) is a pizza restaurant operator and franchiser with over 21,500 global stores spanning more than 90 international markets.

As you likely know, the company generates revenue via sales of pizza, as well as wings, salads, sandwiches, and desserts. It also has a network of 25 domestic dough manufacturing and supply chain facilities. Domino's is the largest pizza player in the world, even topping Pizza Hut, Little Caesars, and Papa John's.

Image source: Getty Images.

With a strong digital sales mix, popular loyalty program, and expanding carryout business, the pizza maker is positioned to navigate a more tricky industry environment. Despite facing a handful of challenging quarters due in part to declining industry traffic, the company has managed to gain market share over the past five years.

Domino's has been focused on its "fortressing" strategy of increasing store density within markets. This offers several benefits, including growing its higher-margin carryout sales mix, improving delivery time and quality, and disincentivizing competition.

Here's the kicker. In an intensely competitive restaurant industry plagued by minimal switching costs and rapidly evolving consumer tastes, Domino's has managed to post median annual comparable sales growth of 3.5% in the U.S. market and 3.4% internationally over the past decade, despite lacking durable competitive advantages, according to Morningstar.

While it lacks an economic moat, the company has been excellent at providing quality food with convenience and competitive pricing. Domino's will pay a modest 1.6% dividend yield with consistent increases and potential for a higher yield in the future as it focuses on higher-margin business.

Overlooked and unloved

Both of these stocks could be intriguing to income investors because their prices have failed to gain traction over the past year. However, despite lagging stock prices Domino's has proven capable of generating comparable store growth in a competitive industry with temporarily declining traffic. Honeywell offers proven solutions to improve return on investment and will eventually split into three more focused, agile, and potentially more valuable companies moving forward.

These two stocks warrant a closer look due to their potential growth, even if their dividends don't yet jump off the page.

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Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Domino's Pizza. The Motley Fool has a disclosure policy.