The best dividend stocks to buy are, in theory, pretty easy to identify.
Obviously, income investors are looking first and foremost for companies with generous dividends that are sustainable in the long term. After all, the best dividend stocks are ones that you can rely on — not ones you need to dump in six weeks when they slash payouts or see big problems in their underlying business.
Next up, it’s also important to many investors that their dividend stocks be low-priced companies that allow you to buy multiple shares with ease.
Then, it’s crucial to remember that income from these dividend stocks goes hand in hand with share appreciation over time.
If you can hit all three of those items, then you can have confidence that you’re really buying the best dividend stocks on the market right now.
And as it happens, I have five picks that happen to hit all of those important metrics. Here they are:
Best Cheap Dividend Stocks: Star Gas Partners, L.P. (SGU)
Price (5/14): $7.78 per share
Dividend Yield: 4.9%
Industry: Energy distribution
YTD Performance: +27% vs. +3% for the S&P 500
Star Gas Partners, L.P. (NYSE:SGU) was highlighted by Louis Navellier, the editor of Blue Chip Growth, at the end of November as a great combination of growth and yield. That call has proven to be a good one, with shares up 16% since then — and based on recent momentum, new money can still have confidence that this energy stock will outperform.
SGU is a master limited partnership, meaning it has a mandate for big yield. But it also has power that belies its $400 million market cap, as Star Gas has become one of the largest retail distributors of natural gas in the U.S. by constant acquisition of smaller players across the country. On top of that, SGU also sells propane and provides heating and air conditioning service as well as plumbing and home security systems.
The reliable revenue stream from monthly service fees allows SGU to pay a reliable 9.5 cents quarterly to shareholders, good for a 5% dividend yield at current prices. That’s up from 8.75 cents as recently as January, and very sustainable at roughly half of projected earnings.
If you want to play energy but you’re afraid to get too deep into exploration stocks amid this volatile market for crude oil prices, rely on this stable MLP as a way to get a nice dividend over time — and the potential for continued share appreciation in the long term.
Best Cheap Dividend Stocks: Nevsun Resources (USA) (NSU)
Price (5/14): $4.15 per share
Dividend Yield: 3.9%
YTD Performance: +7%
Nevsun Resources (USA) (NYSEMKT:NSU) explores, develops and operates mineral properties in Africa.
The focus on gold, copper, zinc and silver deposits may seem a dangerous business to be in right now amid a strong U.S. dollar and the pressure on commodity prices right now. But it’s important to remember that as a small-cap stock, this mining company has remained focused and agile despite the ups and downs of the broader industry or even the market writ large. In fact, revenue has remained pretty stable at around $550 million annually since 2011 — barring a big one-time charges in late 2013 that briefly weighed on results.
The bottom line is that high-grade metals in Nevsun’s deposits result in high profit margins, supporting a roughly 4% yield very comfortably. In fact, the dividend was just 34% of last year’s earnings and should be less than half of FY2015 forecasts.
If you’re looking to stake out a claim in the mining sector while prices are good and valuations are attractive, now may be a good time to consider Nevsun Resources. The yield is attractive and sustainable, and unlike other battered stocks in the space, NSU has been hanging tough since 2013.
If you’re looking for a cheap stock off the beaten path, this is it.
Best Cheap Dividend Stocks: Scorpio Tankers Inc. (STNG)
Price (5/14): $9.50 per share
Dividend Yield: 5.1%
Industry: Energy services
YTD Performance: +9%
I recently highlighted this energy services stock as one of my favorite unknown dividend stocks to buy now, and I’ll go back to the well in this list because it is pound-for-pound one of your best income options right now.
I know, I know — tanker stocks are notoriously volatile, and investors who were burned a few years ago as the sector collapsed may have sworn them off forever. But hear me out on Scorpio Tankers Inc. (NYSE:STNG), which is up nicely year-to-date and offers a juicy and sustainable dividend.
Specifically, STNG stock pays 12 cents quarterly after a recent increase this year and is projected to earn 95 cents per share in FY2016, giving it a payout ratio of about 50% if distributions remain constant across the next year or so.
The mere fact that the company is profitable is very noteworthy in an environment when many midcap energy stocks are suffering from the weak prices for both oil and natural gas right now.
It’s also noteworthy that earlier this month, DNB Markets upgraded the stock from “hold” to “buy” after a successful secondary offering of the stock raised almost $140 million. This money will help Scorpio plan for future growth while delivery of previous tanker builds are coming online right on schedule — with seven deliveries expected in the current quarter that should really juice revenue and profits going forward.
Yes, the shipping market is incredibly competitive and rates can be volatile — particularly if there is excess capacity in the industry. But tanker stocks seemed to have learned their lesson, and Scorpio is in the right place at the right time in 2015 with its fleet.
Investors can reap the rewards with a juicy and sustainable dividend going forward.
Best Cheap Dividend Stocks: TrustCo Bank Corp NY (TRST)
Price (5/14): $6.83 per share
Dividend Yield: 3.9%
YTD Performance: -6%
A number of bank stocks reported solid quarterly numbers over the last few weeks, and FactSet has reported that the financial sector as a whole is enjoying a nice 13% earnings growth rate even as the rest of the market struggles.
That, coupled with the prospect of legislators easing up on some regulations and a higher-interest-rate environment boosting margins on lending, hints that financials could be a great place for you to put your money right now.
So what’s the best cheap dividend stock in the space? I think it’s TrustCo Bank Corp NY (NASDAQ:TRST), a banking company that services both businesses and individuals mostly around New York City through more than 140 offices.
TRST stock is an admittedly small player that hasn’t gone much of anywhere in the last year-and-a-half. But with revenue solidly consistent, you can at least depend on stability even if you can’t hope for massive growth — and that’s a trade-off many income investors are happy to make.
Also, with earnings running at about 45 cents annually but dividends at just 26 cents, the payouts are very sustainable and offer a nearly 4% yield.
And for what it’s worth, those earnings have met or exceeded expectations in each of the last four quarters — proving TRST is reliable and holding steady right now.
If you’re optimistic about the financial sector and you’re looking for the best dividend stocks to buy under $10 per share, put TrustCo at the top of your list.
Best Cheap Dividend Stocks: BlackRock Capital Investment Corporation (BKCC)
Price (5/14): $9.38 per share
Dividend Yield: 9%
Industry: Private equity
YTD Performance: +14%
BlackRock Capital Investment Corporation (NASDAQ:BKCC) has been on my radar (well, off and on) as a cheap stock to buy for a few years now. And while shares haven’t really gone anywhere since 2012, it’s important to remember that the robust dividend annualizes to a 9% yield at current prices — quite a return, even if the stock itself has struggled to break out.
BKCC is a different twist on the recovery in the financial sector then our last pick because it’s a business development company instead of a conventional bank. As a BDC, BlackRock Capital Investment Corporation generates revenue from investments in and loans to midsize companies. As that capital generates returns, BKCC shares generate big dividends.
You can look into BlackRock Capital’s full list of investments here for more detail … but the good news is that, broadly, the American economy continues to improve and there appears to be a durable recovery underway. And that will benefit of host of picks in the BKCC portfolio.
As the economy continues to pick up steam and more midsize companies look to expand, BlackRock Capital will benefit handsomely. This company’s great dividend and the fact it trades for a roughly 10% discount to its book value also are big pluses.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at email@example.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.