For today’s article, I wanted a simple list of high-yield dividend stocks for 2020. But not just that — the other criteria is that the stock has to be cheap. Essentially, I was looking for a series of dividend stocks that the 2019 stock market rise bypassed.
So I set out to find high-yield dividend stocks whose payouts represent 5% or more of the stock price — aka yields of 5% or more. For this list, it didn’t matter so much that the dividends may not be growing. They are ample as is. What matters is that the company can afford the high-yield dividend payment. Moreover, the investor will not have to pay dearly for this high yield.
So I also set the payout ratio to be less than 100%. In other words, the company must be able to comfortably afford the dividend. No debt should be incurred to pay the dividend.
In addition, I set the price-to-earnings ratio to be fairly low. This will signify that the stock was clearly being overlooked.
Value investors believe that historically low price-to-earnings stocks do reasonably well over time. But this can take some time. So, in return, they want to get paid to wait. They want the stock to have a have dividend yield to make the wait worth the time waiting.
These five stocks have those characteristics.
High-Yield Dividend Stocks: Gap (GPS)
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Dividend Yield: 5.6%
Price-to-Earnings: 10.5x
Gap (NYSE:GPS) stock has a $6.8 billion market value. It has over 3,396 company-owned apparel stores and 542 franchises. GPS stock’s store brands include Gap, Banana Republic, Old Navy, Athleta, Intermix, and Hill City.
Analysts project 2019 earnings (ending January 2020) will be $1.75. That puts The Gap stock at a little over a 10x price-to-earnings ratio. It also means that earnings more than cover the 97-cent dividend. So the 5.6% dividend yield looks reasonably safe.
Old Navy is set to be spun off tax-free to shareholders as a separate public company in 2020. The remaining Gap company will have all the other brands. It will have $9 billion in revenue and Old Navy will have about $8 billion.
The capital structure of both companies is not yet set. The number of shares of Old Navy shares to be received per Gap share is not yet set either. The timing of the spin-off is not yet set.
Gap stock is still seen as a “mall” stock, with all those negative connotations. The company does not disclose its internet sales mix. Until Gap returns to “growth” in sales, it will not likely gain a higher valuation.
Like other high-yield dividend stocks, investors wait for growth to return. But with GPS stock, they get paid to wait with the high yield and low valuation.
Power Financial (POFNF)
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Dividend Yield: 5.1%
Price-to-Earnings: 9.9x
Power Financial (TSE:PWF, OTCPK:POFNF) is a 13 billion CAD market capitalization life and health insurance stock. The company also offers mutual funds and investment and advisory services.
One reason Power Financial is so cheap is that it is majority-owned by another public company: Power Corporation (TSE:POW, OTCPK:PWCDF). Power Corp trades for just 10 times forward earnings.
But recently good news emerged. On Dec. 13, the two companies agreed to merge. Power Financial shareholders will receive 1.05 shares in Power Corporation for every Power Financial share they own. They also get one cent CAD in cash per share.
Therefore, this deal brings several benefits for Power Financial shareholders. It will simplify the company. Also, it will help Power Corp to restructure resulting in lower costs. Third, Power Corp has a higher NAV than Power Financial but a lower price-to-earnings ratio.
Lastly, Power Corp expects to raise the dividend in Q2 2020. Power Financial has a 5.1% dividend yield. The higher Power Corp dividend will bring its yield close to that of Power Financial.
Look for these initiatives to boost the value of Power Corp stock during Q2 2020 after the merger closes.
Meredith Corporation (MDP)
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Dividend Yield: 7.3%
Price-to-Earnings: 4.8x
Meredith Corporation (NYSE:MDP) is the number-one magazine operator in the U.S. It publishes People, In-Style, Better Homes and Gardens and Martha Stewart Living.
It also owns 17 TV stations.
Meredith Corp is very cheap, selling at around 5 times its expected non-GAAP June 2020 earnings, based on MDP’s guidance.
Moreover, MDP stock’s $2.34 dividend per share is more than covered by its expected earnings. Earnings per share for June 2020 is expected to be $6.20 per share.
MDP stock’s dividend yield is 7.3%. Therefore, shareholders earn high yields while they wait for MDP stock to rise.
The Chemours Company (CC)
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Dividend Yield: 5.9%
Price-to-Earnings: 7.3x
The Chemours Company (NYSE:CC) makes performance chemicals, including fluoroproducts like refrigerants. It also makes specialty chemicals for gold, electronics and oil and gas production. Its third division produces titanium pigments for plastics and furniture makers.
Nobody likes chemical companies these days. For example, movies love to portray them as evil corporations. That, to be blunt, is why the stock is so cheap. It is also why you, as a contrarian investor, should buy CC stock.
Chemours trades for just 7.3 times earnings and has a 5.9% dividend yield. Moreover, its EV/EBITDA ratio, a cash flow metric, is just 7.2 times as well.
Recently Chemours posted earnings that beat expectations. Some analysts expect lower earnings in the future. But Seeking Alpha shows that analysts project earnings per share of $3.28 for 2020. That puts CC stock on an incredibly cheap price-to-earnings ratio of just 5.3 times.
In short, as with other high-yield dividend stocks, reap those dividends until CC stock recovers.
Rio Tinto (RIO)
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Dividend Yield: 9.8%
Price-to-Earnings: 9x
Rio Tinto (NYSE:RIO) is a global company that mines and produces aluminum, silver, molybdenum, copper, diamonds, gold, borates, titanium dioxide, salt, iron ore, and uranium. Rio Tinto is based in London.
Analysts expect this high-yield dividend stock to earn $6.57 per share this year ending Dec. 2019. Therefore, that puts RIO stock at a price-to-earnings ratio of just 9x.
So that means the stock is very cheap for value investors, who are willing to wait for a higher valuation.
Also, Rio pays its dividends twice annually, along with special dividends depending on earnings. For example, this year, including special dividends, RIO has paid out $6.35 in dividends.
Based on the traditional semi-annual and annual dividends, the yield is about 5.4%. But including special dividends, the total dividend rate is $5.74, based on Rio’s traditional high payout ratio. Therefore, that gives RIO stock almost a 10% dividend yield for prospective investors.
As of this writing, Mark Hake, CFA does not hold a position in any of the aforementioned securities. Mark Hake runs the Total Yield Value Guide which you can review here. The Guide focuses on high total yield value stocks. Subscribers a two-week free trial.
