Wall Street Is Sleeping on This High-Yield Cash Machine
- - Wall Street Is Sleeping on This High-Yield Cash Machine
Keith Speights, The Motley FoolFebruary 16, 2026 at 5:05 AM
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Key Points -
Most analysts don't recommend buying Prudential stock, but it's attractive for income investors.
The company's 5.4% dividend is rock-solid.
Prudential's bad news is only temporary, but buying on the dip could pay off for years to come.
10 stocks we like better than Prudential Financial ›
Only two of the analysts surveyed by S&P Global (NYSE: SPGI) in February who cover Prudential Financial (NYSE: PRU) recommended buying shares. I understand why analysts aren't overly enthused about the financial stock. Prudential dished out plenty of bad news earlier this month.
However, the sell-off ignited by Prudential's in its fourth-quarter update on Feb. 3, 2026, presents a tremendous opportunity, in my view. Wall Street is sleeping on this high-yield cash machine -- but income investors don't have to.
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A person sleeping on top of a laptop keyboard.
Image source: Getty Images.
A rock-solid dividend
Prudential's logo features a drawing of the Rock of Gibraltar. The company's advertising slogan for years was "get a piece of the rock." Prudential clearly seeks to project an image of being rock-solid. I think that image absolutely applies to the financial services leader's dividend.
The company recently announced its 18th consecutive year of dividend increases. We're not talking about puny dividend hikes, either. Prudential's board of directors raised the dividend by 4% year over year. Since 2016, the company's dividend per share has doubled.
Thanks to these steady increases and the stock's recent decline, Prudential's forward dividend yield now tops 5.4%. However, high yields aren't unusual for the company. The dividend yield was above 4% throughout most of the last five years.
Prudential should have no issues whatsoever continuing to fund its dividend program. Its dividend payout ratio is only 54%. This reflects ample financial flexibility to keep the dividends flowing and growing.
Beyond the bad news
What about the bad news in Prudential's Q4 update? I'm not concerned about the company's earnings miss. On the other hand, Prudential's voluntary decision to suspend new sales in Japan for 90 days to address employee misconduct was admittedly unsettling.
Still, I like that the company has taken concrete steps to address the problems with its Japanese operations. Replacing the CEO of Prudential of Japan was the right move, in my opinion. So are Prudential's measures to compensate customers impacted by the misconduct, rework its employee incentives, and beef up its oversight of the sales group in Japan.
The voluntary suspension will negatively impact Prudential's 2026 pre-tax adjusted operating income by $300 million to $350 million. However, the good news is that the company's U.S. business is booming. Operating income jumped 22% year over year in Q4 to $1.05 billion.
Should investors be concerned about PGIM, the company's global investment management business? I don't think so. PGIM faces some headwinds, but its assets under management grew 7% year over year in Q4. The unit also has growth opportunities in asset-backed finance, direct lending, and exchange-traded funds (ETFs).
Buy the dip
Even though Wall Street is sleeping on this high-yield cash machine, the consensus 12-month price target for Prudential reflects a potential upside in the double digits. However, I think there's an even more important believer in Prudential's prospects: the company's board of directors and management team.
Prudential repurchased $250 million of its shares in Q4. The board of directors has authorized stock buybacks of up to $1 billion in 2026. Look for Prudential to aggressively buy its own shares on the dip. I think that's a smart move for income investors, too.
Some might view insurance stocks as boring. They can be, but they're also great inflation hedges. Insurers can raise their premiums to adjust for rising prices. And the likelihood that inflation remains elevated appears strong.
The suspension of new sales in Japan is only temporary. Buying shares of Prudential at a discount, though, with the company's juicy 5.4% dividend yield and regular dividend increases, should pay off for years to come.
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Keith Speights has positions in Prudential Financial. The Motley Fool has positions in and recommends S&P Global. The Motley Fool has a disclosure policy.
Source: “AOL Money”
