The markets are off to a tumultuous start to 2016, and that has many investors looking for safer places to stash their cash. The S&P 500 is already off more than 8%, which means the benchmark index has lost more than 1.7% per week on average for every full week of trading.
If anything, it’s highly unlikely that markets will keep falling so quickly — at that pace, most of the stock market would evaporate by the end of the year.
But any continued losses are unwelcome losses, so investors are rapidly fleeing to more risk-light assets. The problem is the 10-year Treasury yield now yields a mere 1.74%, and many traditional safe-haven stocks have actually enjoyed buying amid the downturn, helping to drive down their yields.
Investors do have a few options for meaningful yield, though. The very downturn that has investors scurrying to find safe-havens has created a bevy of cheap dividend stocks to buy, most of which yield about two or three times the miserable yield on the 10-year.
Let’s take a look at some of the best cheap dividend stocks in the stock market today:
Cheap Dividend Stocks to Buy: Xerox Corp (XRX)
Dividend Yield: 3.5%
Share Price: ~$9
Xerox Corp (XRX), fresh off announcing a major company restructuring, looks awfully cheap at current levels. Shares shot 5% higher after the printing and copying giant announced it would be splitting off its services business from its hardware division, but several weeks later, shares already trade below pre-split announcement levels.
At under $10 a pop, shares look even cheaper, especially when viewed through the lens of its forward price-to-earnings ratio, which sits at a mere 7.5. With a hefty 3.5% dividend yield and a payout ratio of less than 30%, not only can Xerox still afford to pay its dividend, but there’s a good argument to be made that it can afford to increase it … meaningfully.
XRX certainly isn’t a high-growth play, but it’s one of the more attractive cheap dividend stocks to buy today.
Cheap Dividend Stocks to Buy: Fifth Third Bancorp (FITB)
Dividend Yield: 3.5%
Share Price: ~$15
Fifth Third Bancorp (FITB) is another company that’s looking awfully cheap — all while paying a healthy dividend.
The Midwest lender, like Xerox, yields 3.5% on a payout it’s more than able to afford. The payout ratio of 33% means FITB can also afford to increase its payment this year, continuing a tradition that’s been going strong for five years now.
Income investors should love this stock, which trades at 7 times earnings and 8 times forward earnings.
With the Fed’s recent decision to raise rates in December, regional banks should be able to improve their net interest margin as they raise the rates they charge to borrowers while only paying nominally more on deposits.
Not that FITB needs the central bank to make moves to be viable. CEO Greg Carmichael recently said, “We’re going to be successful in 2016 regardless of Fed moves.”
Cheap Dividend Stocks to Buy: Ford Motor Company (F)
Dividend Yield: 5.3%
Share Price: ~$11.40
One of the major things income investors look for when searching for the best dividend stocks is reliability. It doesn’t get much more reliable than Ford Motor Company (F), a titan of American industry since 1903.
It’s somewhat of a head-scratcher that Ford trades at these prices. Its dividend alone should give the stock a floor not far from where it currently sits, just above $11 per share. Ford has grown its dividend 50% over the past three years, and yet iconic automaker can still easily afford to boost its payout once more in 2016, as evidenced by its rock-bottom 30% payout ratio.
And while Ford’s recent decision to double down on production in Mexico is understandably controversial, it should help trim production costs and thus be a boon to shareholders.
Cheap Dividend Stocks to Buy: Pearson PLC (ADR) (PSO)
Dividend Yield: 7.3%
Share Price: ~$10.80
Shares of education-focused publisher Pearson PLC (ADR) (PSO) are dramatically outperforming the market this year, due to a significant restructuring that should cut tons of costs for the company. PSO will be cutting 4,000 jobs, or about 10% of its global workforce, in an effort to become more profitable as its textbook business declines.
Sure, there are some long-term concerns with this market, as students increasingly turn to less expensive, more durable digital textbooks. This clearly calls for Pearson to expand into the digital realm itself, which the company is indeed doing.
Shares trade at just $11 a pop, and the forward P/E of 10.4 is plenty palatable.
Cheap Dividend Stocks to Buy: Staples, Inc. (SPLS)
Dividend Yield: 5.6%
Share Price: ~$8.50
The future of Staples, Inc. (SPLS) and its desired merger with Office Depot Inc (ODP) is very much uncertain. Right now it doesn’t look like things will go through — at least in the U.S. — as antitrust regulators are fighting back against the proposed union.
The company cleared a major hurdle today, however, as the European Union just announced its willingness to let Staples to buy Office Depot if the company agrees to divest ODP’s contract business and the entirety of Office Depot’s operations in Sweden.
Staples has agreed to both these stipulations; now American regulators must be won over.
The two companies would be stronger if they merged, and Staples claims that the combination would deliver over $1 billion in annualized synergies by the third full fiscal year after the deal closes.
Even if the U.S. doesn’t allow the merger, Staples isn’t exactly in trouble as it stands right now, especially when you look at its ability to pay its hefty 5.6% dividend. Its payout ratio of 52% makes the massive dividend easily affordable, and a dividend growth record of six straight years, while not unheard of, is still solid.
Cheap Dividend Stocks to Buy: Huntsman Corporation (HUN)
Dividend Yield: 6%
Share Price: ~$8.30
Shares of Huntsman Corporation (HUN), like many of the stocks on this list, have seen better days. But in those better days, Huntsman would scarcely have made the cut as one of the top cheap dividend stocks to buy. Off 65% in the past year, this specialty chemicals giant now yields an impressive 6% annually — and with a payout ratio of less than 30%.
Huntsman has suffered over the past year as the commodity markets have continued to tank. Weakened demand from Asia, a stronger U.S. dollar and slower global growth in general have tugged on everything from the price of oil to the price of titanium dioxide (TiO2), which is a big part of Huntsman’s current business.
CEO Peter Huntsman said in January that he was “optimistic” about a rebound in TiO2 prices, and that restructuring savings should amount to $100 million this year.
Cheap Dividend Stocks to Buy: HP Inc (HPQ)
Dividend Yield: 5.4%
Share Price: ~$9.40
It’s no coincidence we’re finding a lot of unpopular companies on the list of cheap dividend stocks. When a company pays a set dividend, and its share price falls, the dividend yield increases. It’s just how math works.
And so we come to HP Inc (HPQ), the newly spun off division of HP that focuses on the printer and PC biz.
Everybody and their mother knows that these two segments, in an age of mobile and digital consumption, are far from high-growth fields. That’s not the argument. The argument is that, at under $10 per share and trading at just 4 times earnings, HPQ is too cheap to pass up.
I’m sorry, but at these levels, that much is painfully obvious.
Sure, all things being equal, I’d rather own a piece of Hewlett Packard Enterprise (HPE), which has a far more exciting growth outlook. But all things are not equal. HPQ trades at a criminally low multiple and yields more than 5% annually.
I’ll take it.
Cheap Dividend Stocks to Buy: UBS Group AG (USA) (UBS)
Dividend Yield: 3.8%
Share Price: ~$15
It’s hard to leave UBS Group AG (USA) (UBS) off today’s list of cheap dividend stocks, since shares are down about 25% in 2016 already.
But at just 8 times earnings, I like my chances.
UBS, unlike some other large banks, is employing some commonsense cost control measures that should serve its investors well. It’s freezing pay for its investment bankers, who frequently tend to be rewarded with absurd, eye-popping bonuses.
I understand the need to retain talent, but in a world where the UBS brand does most of the work, there’s no reason to keep hiking investment bankers’ pay (especially when young first- and second-year employees slave away and put in the longest hours).
Consider me a fan.
Cheap Dividend Stocks to Buy: Credit Suisse Group AG (ADR) (CS)
Dividend Yield: 5.4%
Share Price: ~$13.70
Last bank stock on this list, I promise. But again, Credit Suisse Group AG (ADR) (CS) is just too cheap to ignore.
Admittedly, momentum isn’t exactly on its side, and shares are down 36% in the last year. But if you’re into value, and okay with waiting a little longer to realize gains, Credit Suisse could be your stock.
Importantly, the company’s dividend yield is more than three times the current yield on 10-year treasuries, which is absolutely wild. Even with a yield that high, Credit Suisse’s payout ratio is a measly 32.1%.
And just as UBS is freezing the pay of its investment bankers, Credit Suisse’s top brass are content to see their pay cut as performance lags. CEO Tidjane Thiam actually asked the board of directors to reduce his bonus after fourth-quarter results — a wish that was swiftly granted.
Cheap Dividend Stocks to Buy: Potash Corporation of Saskatchewan (USA) (POT)
Dividend Yield: 6.5%
Share Price: ~$15.30
Last but not least, we find another chemicals company, Potash Corporation (POT) yielding well over 6% while looking awfully cheap at the same time.
Like Huntsman, Potash has performed miserably over the last year; shares are down 57% in the past 52 weeks.
Unlike Huntsman, however, paying its lofty dividend won’t be easy-peasy for Potash, which has a payout ratio of 98%. While it’s not unusual for some companies to have payout ratios over 100% in the short-term (using borrowed money instead of earnings to pay dividends), that’s no way to do things over the long-term, and it’s not exactly ideal or sustainable.
But, with the stock trading at just 10 times earnings and just over $15 per share, Potash stock is certainly affordable.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at email@example.com.