Is HP Inc. (HPQ) a Buy at 21% Off: Balancing Dividend Income and Recovery Potential in a Tariff-Impacted World?

In the ever-shifting landscape of global manufacturing, HP Inc. (HPQ) stands at a crossroads. For decades, the tech giant has been a cornerstone of the hardware sector, navigating the cyclical nature of PCs and printers with a blend of operational discipline and shareholder-friendly policies. But recent geopolitical headwinds—namely, the Trump administration's 2024 tariffs—have forced HP into a high-stakes game of chess. The question for income-focused value investors is whether the company's current 21% discount to its estimated fair price, combined with a 4.5% dividend yield and a resilient cash-flow engine, creates a compelling entry point for those willing to ride out near-term volatility.

The Dividend Story: A 4.5% Yield with Decades of Trust

HP's dividend history is a masterclass in consistency. Over the past 10 years, the company has increased its payout by an average of 5.7% annually, even during downturns. In 2024 alone, HP raised its dividend by 5%, bringing the annualized yield to $1.16 per share. This isn't just a numbers game—it reflects a company with a strong balance sheet, a moderate payout ratio of 42.79%, and a clear commitment to shareholder returns.

Critics might argue that the hardware sector is mature and commoditized, but HP's ability to maintain a 4.5% yield while investing in AI-driven hybrid work solutions and logistics reengineering tells a different story. The company returned $3.2 billion to shareholders in 2024 through dividends and buybacks, with $3.3 billion in free cash flow to spare. For income investors, this is a rare combination of safety and growth.

Valuation Multiples: A Bargain in a Tech-Driven World

HP's current valuation multiples scream value. The stock trades at a trailing P/E of 9.37 and a forward P/E of 7.53—well below the S&P 500's average of 18x. Its EV/EBITDA ratio of 6.88 is even more compelling, especially in a sector where companies like Apple (AAPL) trade at 25x and Microsoft (MSFT) at 30x.

This discount isn't a sign of weakness but rather a reflection of the market's short-term skepticism about tariffs and the Printing segment's struggles. Yet, HP's financials tell a different tale: $54.3 billion in trailing revenue, $4.68 billion in EBITDA, and a fair price estimate of $35.77 (46% upside from the current $24.45). For value investors, this gap between intrinsic value and market price is a golden opportunity.

Supply Chain Rebalancing: A Strategic Pivot, Not a Setback

The 2024 tariffs were a seismic event for HP. By accelerating its manufacturing rebalancing strategy, the company shifted 90% of North America-bound PCs and printers out of China, targeting India, Mexico, and Vietnam. While this caused a temporary dip in Q2 2024 margins (6.0% for Personal Systems), CEO Enrique Lores is confident in a swift recovery.

The key takeaway: HP is not just surviving the tariffs—it's leading the charge to redefine global supply chains. By bypassing China for U.S. imports by Q3 2024 and optimizing logistics for Canada and Latin America, HP is positioning itself as a low-cost, high-resilience player. This isn't just about cost-cutting; it's about future-proofing in a world where geopolitical risks are the new normal.

The Risk-Reward Equation: Debt, Growth, and Patience

No investment is without risk. HP's net debt of $9.22 billion and a current ratio of 0.73 raise valid concerns. However, these liabilities are dwarfed by $3.3 billion in free cash flow and a $2.5 billion cash hoard. The company's debt is manageable, especially with interest rates stabilizing and AI-driven efficiency gains on the horizon.

The real question is whether investors can stomach near-term volatility. HP's Printing segment is still reeling from a 16% decline in consumer revenue, and tariffs have yet to fully abate. But for those with a 3–5 year horizon, the rewards are clear: a dividend that's growing, a valuation that's screaming for a re-rating, and a supply chain that's primed for long-term stability.

Final Verdict: A Buy for Income and Value Investors

HP Inc. is not a high-growth stock. It's a cash-flow machine with a 4.5% yield, a 46% upside to its fair price, and a management team that's betting on its own future. The tariffs may have shaken the market, but they've also forced HP into a more resilient, globally diversified position.

For value investors and income seekers, this is a rare intersection of undervaluation and durability. HP's 4.5% yield offers immediate income, while its strategic repositioning and low valuation multiples suggest a path to long-term capital appreciation. In a world where uncertainty reigns, HP's disciplined approach to dividends and supply chains makes it a compelling “buy the dip” candidate.

Investment Advice: Allocate 2–3% of a diversified portfolio to HPQ, balancing the yield and value proposition against higher-growth tech stocks. Monitor the company's Q3 2024 results for confirmation of margin recovery and tariff mitigation progress. Patience, as always, is key.