Income investors take note. These are the some of the best cheap stocks out there right now — and they pay substantial dividends, too.
Of course, there are plenty of stocks available at comparatively cheap prices. But for people looking to receive steady income from their holdings, stocks that pay high dividend yields are the way to go. And the cheaper the stock price, the more shares you can purchase and hold.
In this article, we look at four of the best cheap stocks that have extremely high dividend yields right now. These stocks would be a worthy addition to any investor’s portfolio.
- Walgreens (NASDAQ:WBA)
- Lloyds Banking Group (NYSE:LYG)
- Lumen Technologies (NYSE:LUMN)
- Annaly Capital Management (NYSE:NLY)
The Best Cheap Stocks: Walgreens (WBA)
WBA stock is quite discounted presently, down 38% year-to-date. That makes it one of my top picks for the best cheap stocks.
Like many, the U.S. pharmacy retail chain has been hurt by the forced closure of its stores and the economic downturn. But investors with a glass-half-full view of things may see WBA stock as a buying opportunity at its current price of about $36. Why?
Because the company’s stock consistently traded above $50 before the novel coronavirus, since 2013. And, in addition to being cheap right now, Walgreens is also a “dividend aristocrat” — the company has increased its dividend payouts for over 40 years.
Currently, Walgreens stock pays quarterly — its trailing annual dividend yield is 4.9% this year, more than double the 2% investors earn from the average S&P 500 stock. And, at a price-to-earnings ratio of about 8 and a price-to-book multiple of about 1.5, Walgreens is quite a cheap dividend stock, even for finicky value investors.
Walgreens is also taking a number of steps to respond to the novel coronavirus and right its own ship. These solutions include launching a drive-thru where customers can pick up their online orders at more than 7,300 participating locations across the country. Additionally, the company has implemented drive-thru Covid-19 testing in 49 states and Puerto Rico.
Despite the challenges this year has posed, Walgreens has remained consistently profitable. The company has posted solid results in each of the past four quarters. For investors who prize dividend payments, Walgreens is a solid choice.
Lloyds Banking Group (LYG)
The next of the best cheap stocks is Lloyds Banking Group, a multinational bank based in the United Kingdom that has operated since 1695.
Today, Lloyds Banking offers retail and commercial banking services, insurance and more. Despite its history and pedigree, LYG stock has been seriously depressed since the Great Recession of 2008, when it received a sizable bailout from the British government. The stock currently trades on the New York Stock Exchange (NYSE) for $1.44 a share and is down 56% year-to-date. Yet, despite being a penny stock, Lloyds remains a strong dividend play. Just over a year ago, the stock traded at $3 a share and paid a dividend yield of 7.02%.
At the height of the pandemic, The Bank of England did suspend dividend payouts from banks. But it’s expected to remove that suspension by the end of the year. This will pave the way for Lloyds to resume its payout.
Finally, Lloyds Banking also has a pretty massive pile of cash on hand, while its debt-to-equity ratio stands at 2.41.
All that said, there is a lot to like about Lloyds. Investors who are comfortable investing in a penny stock should consider putting some money into LYG stock so that they can reap the benefits when its healthy dividend resumes in the next few months.
Lumen Technologies (LUMN)
Formerly known as CenturyLink, Lumen Technologies has one of the best forward annual dividend yields around at 10.8%. The U.S. telecom company is now paying a quarterly dividend per share and has maintained its dividend through good times and bad. Additionally, LUMN stock has gotten a boost during the pandemic, now seen as essential to national internet infrastructure.
LUMN stock currently trades at about $9 a share. Stocks that trade for under $10 and offer a double digit dividend yield are pretty rare these days. That alone is definitely worth considering for your portfolio.
But what’s more, the company is also in the process of ridding itself of several legacy communications services such as “landline phones, cable television and DSL internet.” This shift is occurring so that the company can focus almost entirely on its fiber optic products — expanding that coverage under a new brand image is Lumen’s plan to jump start its business and spur future growth. And that looks to be a solid plan. The company is also developing products for “cloud computing, edge networking” and more.
Lumen remains profitable, with free cash flow of about $3 billion on revenue of $22 billion over the past year. That makes it one of the best cheap stocks you can find right now.
Annaly Capital Management (NLY)
A dividend yield of 12% deserves to be noticed. And that is what shareholders get from diversified capital manager Annaly Capital Management.
The company invests in assets in “both the residential and commercial markets,” primarily through mortgage-backed debt and similar securities. Earlier this year, the stock took a hit when pandemic fears were at their peak. But it has since stabilized somewhat. Today, NLY stock trades at $7.14 a share. That’s up almost 80% from its early April low of $4.02.
Although NLY dividends tend to fluctuate each quarter, investors can rely on the company’s massive portfolio. Those real estate investments keep generating strong cash flow for Annaly Capital, and that should help secure the dividend. Based on a trailing annual dividend rate of 97 cents, NLY’s current yield is among the highest on Wall Street today.
On top of this, Annaly Capital bought back $175 million worth of common stock earlier this year. This helped boost the share price and shield against the pandemic’s downturn. Additionally, most of Annaly Capital’s investments are currently in government-backed mortgages, and the company has a 11.8% discount-to-book value on top of its 12% yield. That represents great potential returns for those seeking regular income from their holdings. Finally, Annaly Capital has also been reducing its debt in recent years, lessening its exposure to non-guaranteed residential mortgage loans and commercial loans.
All told, this shows that Annaly Capital is another one of the best cheap stocks on the market now. It’s a great choice for investors seeking affordable shares and big dividend payments.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
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