As stock market valuations continue their stubborn march higher — the S&P 500 currently trades at nearly 20 times earnings, 27% higher than its historical 15.5x average — the hunt for cheap dividend stocks to buy isn’t easy.
After all, interest rates are still at rock-bottom levels, so income investors in search of yield won’t find them in traditional vehicles like T-Notes, where 10-year yields sit at a miserable 2.1%.
And while the stock market is a volatile place, long-term investors looking for reliable income streams should look no further than Wall Street, where a bevy of dividend stocks paying yields upwards of 3% offer both income streams and capital appreciation.
Let’s take a look at the five best cheap dividend stocks to buy now; each one should serve investors well in the low-rate environment of 2015.
Cheap Dividend Stocks to Buy Now: AbbVie Inc (NYSE:ABBV)
Market Capitalization: $91 billion
Dividend Yield: 3.6%
When searching around for cheap dividend stocks to buy, do yourself a favor and don’t overlook AbbVie Inc (NYSE:ABBV). Trading at just 11.4 times forward earnings, this diversified pharmaceutical giant has products that treat all sorts of ailments, from HIV and arthritis to Parkinson’s and cystic fibrosis.
The company’s biggest moneymaker, however, is a drug called Humira, which earned $12.5 billion in global sales in 2014, accounting for 63% of ABBV’s revenue. Humira is approved for an astonishing variety of ailments: rheumatoid arthritis, Crohn’s disease, ulcerative colitis, and plaque psoriasis, to name a few.
Importantly, ABBV continues to invest in research, plowing 16.3% of sales back into R&D and vowing in its latest earnings release to keep searching for additional Humira indications.
Up 16% in the last year and dishing out an ever-increasing dividend, ABBV still looks like one of the best — and cheapest — dividend stocks to buy today.
Cheap Dividend Stocks to Buy Now: Verizon Communications Inc. (NYSE:VZ)
Market Capitalization: $199 billion
Dividend Yield: 4.5%
There’s nothing unusual about telecoms like Verizon Communications Inc. (NYSE:VZ) paying hefty dividends. Telecom and utilities stocks usually dish out a large amount of cash to shareholders, making them some of the most reliable dividend stocks to buy.
Take VZ stock, for instance, which has grown its dividend for eight straight years. It’s also staying on top of growth markets with huge potential like the Internet of Things, which VZ CFO Fran Shammo thinks will offer greater avenues for growth than the never-ending pursuit of net subscriber additions.
Even as Verizon takes a firm stance in the telecom price wars, refusing to limbo with the likes of T-Mobile US Inc (NASDAQ:TMUS) and Sprint Corp (NYSE:S), only 1.1% of customers left VZ last quarter. At a forward P/E of 13 and plenty of room to increase its payouts further, VZ remains one of the most undervalued dividend stocks to buy in the whole market.
Cheap Dividend Stocks to Buy Now: Ford Motor Company (NYSE:F)
Market Capitalization: $64 billion
Dividend Yield: 3.7%
While I’d discourage investors from buying cheap dividend stocks willy-nilly — one of the most tragic pitfalls of investing is the siren-esque allure of the value trap — Ford Motor Company (NYSE:F) stock is hard to ignore from a fundamental standpoint.
F stock changes hands for less than 9 times forward earnings, and Ford stock’s price-to-sales ratio is just 0.44, 40% lower than the industry’s.
So, while we’ve nailed the “cheap” category, is Ford a quality dividend stock worth buying? Simply put: yes. Ford has plenty of qualitative factors going for it as well, as I noted in my January article applauding its 20% dividend hike:
“With the kinks finally worked out of the new F-150 production process, oil prices at multiyear lows, five straight years of U.S. sales growth in the auto industry and 2014 marking the biggest year for U.S. auto sales since 2006, F stock is primed for success.”
Although January was a rocky month for Ford sales, the entire auto industry suffered through soft business in the first month of the year. With a long-term horizon in mind, extrapolating one month’s worth of data won’t help you much. Ford stock is still cheap, and one of the more attractive dividend stocks to buy.
Cheap Dividend Stocks to Buy Now: Nucor Corporation (NYSE:NUE)
Market Capitalization: $15 billion
Dividend Yield: 3.1%
The recent strength of the auto industry is good news for steel manufacturer Nucor Corporation (NYSE:NUE). NUE stock, like many companies in the basic materials sector, has faced currency headwinds over the last year as the strengthening U.S. dollar put pressure on dollar-denominated commodities.
NUE won’t be growing revenues at double-digit clips anytime soon, but it’s still one of the cheapest dividend stocks to buy on Wall Street. When it comes to boosting payouts to shareholders, NUE is hard to beat. We highlighted Nucor as one of the 15 Top Dividend Stocks of the Past Decade late last year, with the stock growing its dividend by an average of 22% annually in the last 10 years.
Nucor has increased its dividend for a staggering 41 straight years, and still maintains just a 54% payout ratio, meaning there’s plenty of room left for NUE stock to keep rewarding its shareholders.
Cheap Dividend Stocks to Buy Now: Dow Chemical Co (NYSE:DOW)
Market Capitalization: $57 billion
Dividend Yield: 3.4%
Dow Chemical Co (NYSE:DOW) will never be a growth stock. But it may excite value investors, as it currently trades for just 13.7 times forward earnings. Income investors should also give it a look, as its 3.7% dividend and 53% payout ratio make it one of the best cheap dividend stocks to buy now.
Shares of the diversified chemical company came under fire last year as activist investor Daniel Loeb took a large stake in DOW stock and began pushing for management to spin off or sell lower-margin businesses and segments with high exposure to swings in commodity prices.
Loeb remains an investor and his investment company, Third Point, now has three board seats, so this drama isn’t over yet. But for starters, Dow Chemical is divesting itself of its chlorine business; it plans on pawning off additional segments worth between $4.5 billion to $6 billion by the end of 2015.
When all’s said and done, DOW should be a leaner, meaner cash cow by the end of this year. And as far as cheap dividend stocks go, I don’t expect Dow to stop paying a dividend anytime soon — it’s been paying one quarterly for more than 100 years.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
