With the massive paradigm shifts that erupted this year, more investors look toward cheap dividend stocks to buy. As inflationary forces diminished the dollar’s purchasing power in the first half of this year, many sought to arrest this trajectory through passive income. And while the Federal Reserve intends to effectively introduce deflationary forces by raising the benchmark interest rate, the underlying chaos still makes dividend payers look good.
Another reason to consider cheap dividend stocks is that they offer stability at a discount. While it’s unfair to make blanket statements, companies pay dividends from their profits. Naturally, this circumstance implies earnings generation, meaning they’re not purely growth driven. Therefore, businesses with solid track records should be able to weather storms better than non-passive-income providers.
Finally, many may question the word “cheap” in cheap dividend stocks. For that, I will rely on valuation metrics and implied value against forward-looking industry or business-specific fundamentals.
It’s not an exact science, but I’m going to throw some quantifiable reasoning here. And with that, here are seven cheap dividend stocks to consider.
|JNJ||Johnson & Johnson||$165.11|
|TROW||T. Rowe Price||$111.54|
|UPS||United Parcel Service||$167.93|
Johnson & Johnson (JNJ)
Johnson & Johnson (NYSE:JNJ) is a global household name representing a pharmaceutical giant featuring several over-the-counter products. Undergirding an investment profile that caters to everyday necessities, JNJ is a smart buy, no matter the circumstances. However, with the present chaos in the market, it makes for one of the best cheap dividend stocks to buy.
For one thing, you can look at the company’s year-to-date performance in the equity price charts. JNJ is down about 3.7%, which arguably belies its all-around pertinence. More importantly, the underlying firm provides a decent forward yield of 2.74%. Perhaps not the most remarkable figure, it does exceed the median yield of 1.58% for the healthcare segment.
According to Gurufocus.com, JNJ is fairly valued. Fair enough. However, Johnson & Johnson features financial strengths across the board. The company enjoys balance sheet stability, solid growth metrics, and excellent profitability indicators. Since stability commands a fundamental premium during these tumultuous times, JNJ ranks among the cheap dividend stocks to buy.
A German multinational software company, SAP (NYSE:SAP), represents a stalwart of stability in the global business ecosystem. It plays a critical role in the efficient flow of supply chains. Ironically, the coronavirus pandemic disrupted such business networks, leading to sharp corporate losses. In turn, the red ink filtered down SAP’s ability to generate income.
Investors can see the damage for themselves. Since the start of the year, SAP stock has slipped nearly 38%. Still, for the contrarian, the crimson ink may represent an opportunity. As well, per the subject of this article on cheap dividend stocks to buy, SAP offers passive income. Specifically, it provides a forward yield of 2.38%. In contrast, the technology sector’s average yield sits at 1.37%.
Gurufocus.com labels SAP stock as modestly undervalued. As with JNJ, SAP enjoys solid financials across the board, including solid growth metrics and a stable balance sheet. Perhaps most notably, SAP features a forward price-earnings ratio of 14.3x. The software industry’s median forward PE stands at 22x.
Texas Instruments (TXN)
A technology firm, Texas Instruments (NASDAQ:TXN), specializes in designing and manufacturing semiconductors. As well the company focuses on the development of integrated circuits. Of course, because of the severe disruption of the Covid-19 pandemic, few eagerly touch semiconductor investments like TXN stock. That might be a mistake in the long run.
To be fair, TXN initially presents an uninviting profile, shedding over 13% YTD. Over the trailing year, it’s down a bit more at a loss of nearly 15%. Still, these represent far superior numbers than the underlying benchmark tech index. In addition, TXN separates itself from other tech plays by offering passive income. It features a forward yield of 3%, above the average industry yield of 1.4%.
Notably, Gurufocus.com labels TXN as modestly undervalued. Per the resource’s proprietary valuation metrics, it views Texas Instruments as an excellent all-around investment. Most significantly, the company enjoys a net margin of nearly 44%, above approximately 98% of other tech firms. Therefore, TXN ranks easily among the best cheap dividend stocks to buy.
Focused on industrial supplies, Fastenal (NASDAQ:FAST) represents the largest fastener distributor in North America, per its website. Still, this impressive status also points to significant risks. Should the Fed’s hawkish monetary policy inadvertently slip the U.S. economy into recession, Fastenal brings an uncertain outlook. I’m not saying this to be negative on FAST stock. It’s just a risk factor to acknowledge.
Another danger to FAST stems from broader market volatility. Since the start of the year through the Oct. 4 session, Fastenal dropped 22% in equity value. However, contrarians might consider this an opportunity for an eventual economic comeback. To be fair, FAST doesn’t represent one of the most generous cheap dividend stocks. Still, its forward yield of 2.58% beats the industry average of 2.36%.
Moving onto Gurufocus.com, it labels Fastenal’s business as modestly undervalued. Per the investment resource, the company commands excellent growth and profitability metrics. As well, its books are stable. For instance, Fastenal’s equity-to-asset ratio stands at 0.69, beating nearly 85% of sector peers.
Robert Half (RHI)
An employment services agency, Robert Half (NYSE:RHI), connects professional talent with hiring enterprises. It then acts as a middleman entity, collecting fees for its services. While many may criticize Robert Half for “fleecing the flock,” the reality is that not all companies have the resources to hire qualified talent. Therefore, they outsource the (often cumbersome) process to firms like Robert Half.
Still, with Covid-19 imposing strange dynamics in the employer-employee relationship, RHI stock suffered from relevancy loss. Therefore, RHI slipped 27% YTD. Anecdotally, I’m almost sure that these strange dynamics will correct themselves. At the end of the day, employers sign the checks. Employees must either put up or shut up. This statement is harsh, but it’s also a reality.
Let’s look to Gurufocus.com for some numbers. RHI rates as modestly undervalued. Arguably, the company’s highlight financial metric is its return-on-equity of nearly 50%, blasting the industry median of 8.6%. RHI also features a forward yield of 2.16%, which isn’t great. However, the combo of likely surging relevance (from desperate workers amid a possible recession) bolsters the case for RHI as one of the cheap dividend stocks to buy.
T. Rowe Price (TROW)
An investment management firm, T. Rowe Price (NASDAQ:TROW), may immediately appear to be one of the cheap dividend stocks. However, critics may argue that it’s for the wrong reasons. As an investment management firm, T. Rowe performed well through 2021. The reason? Inflation, baby! With the greenback’s purchasing power guaranteed (under the dovish monetary ecosystem) to decline, investors have an active incentive to invest. Otherwise, the dollar’s value goes into the toilet.
Under a deflationary system – that is, rising purchasing power – the incentive flips on its head. Essentially, if investors do nothing and sit on cash, they enjoy a guaranteed positive return of relative wealth. Thus, any investment opportunity must be so compelling that people will give up guaranteed returns. On a related note, that’s the reason why, arguably, most folks hate deflationary cycles.
Not surprisingly, then, Gurufocus.com considers TROW significantly undervalued. Still, contrarian investors may appreciate the opportunity as the underlying company features its industry’s top-level growth and profitability metrics. In addition, T. Rowe features a forward yield of 4.24%.
United Parcel Service (UPS)
If you thought buying the above idea for cheap dividend stocks was extremely risky, look at United Parcel Service (NYSE:UPS). I don’t want to spend too much time beating a dead horse. However, the consumer economy suffered badly this year. As a result, a rival courier service disclosed terrible pre-earnings figures that sent shockwaves throughout the market in September.
Understandably, UPS finds itself in the crosshairs. Nevertheless, its performance isn’t too awful, losing about 21% YTD in the price charts. Fundamentally, the hesitation is understandable given that the ratio of e-commerce sales relative to total retail sales has diminished conspicuously since the Covid peak. Nevertheless, the ratio did pick up in the second quarter of this year.
For the extreme contrarian seeking cheap dividend stocks, Gurufocus.com labels UPS modestly undervalued. Despite incoming challenges, the company currently stands strong regarding growth and profitability metrics. The deflated equity value and the forward yield of 3.6% might make shares worthwhile for gamblers.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.