Cheap dividend stocks can generate stable cash flow for long-term investors. The appeal behind these stocks is that you do not have to sell any shares to realize some of your returns. Retirees can live off their dividends, Social Security and other income streams.

Accumulating shares of your favorite dividend stocks now will put you in a better position when it’s time to retire. Even if you don’t retire, building a dividend portfolio will give you more options with your lifestyle. Buying and holding undervalued dividend stocks can lead to higher returns. Investors may want to look at these three cheap dividend stocks.

Main Street Capital (MAIN)

Main Street Capital (NYSE:MAIN) is a business development company that lends money to businesses. The firm is off to a great start with a 12% year-to-date gain. The stock has also been up by 24% over the past year. 

The stock has received plenty of attention due to its high 5.91% yield that coincides with monthly dividend payouts. Main Street Capital recently announced its third-quarter dividends, a monthly total of $0.245 per share. That’s a 6.5% increase compared to the same period last year.

Main Street Capital only trades at a 9 P/E ratio and has the financials to support a good valuation moving forward. Net investment income increased by 11% year-over-year in the first quarter of 2024. Main Street Capital achieved those returns with $7.4 billion in assets under management. The company has its capital invested in 191 businesses. The average investment size is $19.2 million.

American Express (AXP)

American Express (NYSE:AXP) is one of the most affordable credit stocks. It trades at a 20 P/E ratio and has outpaced the stock market with a 29% year-to-date gain. The stock currently offers a 1.15% dividend yield and an impressive growth rate. American Express has maintained an annualized dividend growth rate of 10.51% over the past decade.

The fintech firm has plenty of room to run. Most of its new customers are Millennials or Gen Z consumers. That’s not the only nugget from American Express’ Q1 2024 results. Revenue increased by 11% year-over-year, while net income increased by 34% year-over-year. Profit margins are expanding and should continue to grow in the years ahead.

American Express anticipates revenue growth from 9% to 11% per year beyond 2026. The firm also expects the EPS growth rate to stay in the mid-teens past 2026. Those projections suggest American Express is reasonably valued, especially compared to other credit and debit card stocks. Many of its peers have P/E ratios above 30. 

Caterpillar (CAT)

Caterpillar (NYSE:CAT) has almost 100 years of experience creating and selling construction equipment. It’s a leader in the industry and trades at a 16 P/E ratio. The stock has consistently outperformed the market. It’s up 22% year-to-date and has surged 190% over the past five years.

The stock has a 1.46% yield that has risen over the past few years. Caterpillar has maintained an annualized dividend growth rate of 8.04% over the past decade. Caterpillar allocated $5.1 billion toward stock buybacks and dividend distributions in the first quarter 2024. Revenue stayed flat while net income surged by 47% year-over-year.

Caterpillar has raised its dividend for 30 consecutive years and has endured many economic downturns, including the Great Depression. The quarterly dividend payouts will be much higher by the time you retire and are ready to use cash flow to cover your living expenses.

On the date of publication, Marc Guberti 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.