A low share price isn’t always a sign of weakness in cheap stocks. Sometimes, it’s actually a gift — doubly so when you’re talking about low-priced dividend stocks.
In some cases, cheap stocks merely priced in the single-digit-dollar range when they went public. Other times, cheap stocks might have sold off to a point where there’s too much value — and too much chance of a turnaround — to ignore.
In any case, cheap stocks can have big upside, and they’re certainly easy to buy in bulk. After all, at $540 a share, how much Apple (AAPL) stock can you load up on?
Like small-cap stocks, cheap stocks often get less interest from analysts, the media and Wall Street. That increases the odds that these cheap stocks are mispriced in your favor.
There’s an even stronger case to made for cheap stocks that pay competitive dividends. Not only do they possess the attributes cited above, but they offer a steady stream of better-than-average income at a time when yields is awfully hard to come by.
With that in mind, here are five of the best cheap dividend stocks you can buy — four of which trade for less than $10, and one that’s just some pocket change more.
Cheap Dividend Stocks #1: Wendy’s (WEN)
Share Price as of 4/4: $9.11
YTD Stock Performance: 4%
Dividend Yield: 2.2%
Among cheap stocks, Wendy’s (WEN) doesn’t have an amazing dividend yield. It’s 2.2%, which is merely OK.
What WEN stock does have going for it is more upside to come.
After years of struggling, Wendy’s finally went all-in on a new model. It’s selling company-owned restaurants and transforming itself into an operator of franchises. The franchise model means more earnings, more return on equity, more revenue from rents and royalties, and more free cash. (Owning restaurants is capital-intensive.)
Wendy’s most recent quarterly results were mixed. Earnings of 11 cents a share beat the Wall Street estimate by 2 cents, but revenue came up short. The good news is that early returns from the transformation program appear to be working as Wendy’s reins in costs, and that should soon benefit WEN stock.
Additionally, Wendy’s can use some of the cash freed up by the franchise model to invest in advertising and marketing, and that should boost customer traffic.
Cheap Dividend Stocks #2: STMicroelectronics (STM)
Share Price as of 4/4: $9.14
YTD Stock Performance: 14%
Dividend Yield: 4.4%
Sometimes cheap stocks are cheap because they’ve had a rough ride — and some of them are buys when the tough times look like they’re over. STMicroelectronics (STM) has struggled in the semiconductor industry (who hasn’t?), but its prospects are looking up.
STM and Ericsson (ERIC) split up their ill-advised partnership last summer. That will help STM’s cash flow and bottom line because the partnership with Ericsson bled red ink.
STM is No. 1 when it comes to wearable technology such as smartwatches, and it’s on the cutting edge in nanotechnology. It’s also the third-largest supplier to the automotive industry, which is seeing its own resurgence in growth.
This is also a dividend stock you can count on. Even when earnings were volatile during the Ericsson partnership, STM still maintained its payout level. STM boasts a dividend yield north of 4%, though it hasn’t improved upon its nominal payout since 2011.
Cheap Dividend Stocks #3: Inland Real Estate (IRC)
Share Price as of 4/4: $10.67
YTD Stock Performance: 1%
Dividend Yield: 5.5%
Inland Real Estate (IRC) is a real estate investment trust, which means it’s required to pay out 90% of its earnings as dividends in return for certain tax breaks. (That’s why REITs carry such high dividend yields.)
Also, IRC is the only name in this group of dividend stocks that’s above $10 as of this writing … but I wouldn’t hold that against Inland.
As InvestorPlace editor Jeff Reeves said at the beginning of 2014, IRC’s big-name tenants translate into rock-solid stability and the company thus boasts a 95% occupancy rate. That bodes well for the income part of this equity-income name.
IRC stock is barely above breakeven for the year-to-date, but at least it has fairly low volatility. With a beta 0f 0.85, it’s significantly less volatile than the broader market. Throw in the healthy 5.5% yield on the dividend — which is paid monthly — and you can sleep well at night with IRC stock.
It also pays to be a little patient with Inland while waiting for price appreciation. Like the broader market, IRC stock was bound to cool off after such a strong run in 2013.