Many go price hunting during a bear market. However, I prefer hunting for total return. After a severe market drawdown, high-dividend-yielding stocks could set you up for early retirement.
Nonetheless, examining which stocks will sustain their dividend payouts is critical. I generally prefer scanning for best-in-class assets and counter-cyclical companies as they’re more likely to weather the storm in today’s fading economy.
My screening process for this article was quite simple. I looked at stocks that I am or have been invested in myself and combined my theoretical knowledge to make sense of their total return prospects. I discovered a few gems, so without further delay, here are seven cheap income stocks everyone should own.
Cheap Income Stocks: British American Tobacco (BTI)
At a beta coefficient of 0.41, British American Tobacco (NYSE:BTI) stock is safe and ideal to own during a risk-off market. Moreover, British American Tobacco provides a sumptuous dividend, yielding 7.6%.
Many believe that BTI stock’s days are numbered due to the negative outlook on the tobacco industry. However, a closer vantage point reveals that the firm’s embedded growth remains robust. British American Tobacco’s “new products category” is growing at a CAGR (compound annual growth rate) of 31%, and non-combustibles products now comprise 14.6% of the company’s revenue mix. Furthermore, broad-based growth remains intact at a 5-year CAGR of 11.22%, which is well above the normalized global GDP growth rate.
Lastly, the company is shareholder-driven as its 12 years of consecutive dividend distributions signals loyalty. Therefore, BTI stock is a prime income-generating asset.
Devon Energy (DVN)
Devon Energy (NYSE:DVN) has to be on this list, considering its second-quarter earnings triumph and its acquisition of the Williston Basin bolt-on project.
The company surged past earnings estimates in its second quarter as it reported surplus EPS (earnings-per-share) of 22 cents per share and a revenue beat of $880 million. Additionally, the firm’s management raised DVN’s dividend distribution by 22%, resulting in a forward dividend yield of 10.23%.
As mentioned, Devon Energy recently acquired the Williston Basin bolt-on project, which is expected to be immediately accretive.
According to the company’s president and CEO, Rick Muncrief:
This bolt-on acquisition is highly complementary to our existing position in the Williston Basin and is immediately accretive to our financially-driven strategy. … RimRock’s directly adjacent acreage offers strong operational synergies, adds to our high-quality inventory in the core of the play and positions us to further increase the return of cash to shareholders.
DVN stock looks like a sustainable, income-based investment. The stock provides nice dividend distributions and seems undervalued, considering its normalized price-earnings ratio is at a 60% discount.
Cheap Income Stocks: Impala Platinum (IMPUY)
Impala Platinum (OTCMKTS:IMPUY), also known as Implats, is an up-and-coming PGM (platinum group metals) miner. This mining house operates a streamlined business that concentrates its capital expenditures on high-growth assets. Also, Implats’ refinery segment means that it’s vertically integrated, providing it with cost-efficiency, as displayed by its gross profit margin of 38.59%.
The company is in the process of acquiring the remainder of its Royal Bafokeng subsidiary’s shares. I believe the merger could provide significant on-balance sheet advantages to Implats, ultimately benefitting its shareholders.
Simon Property Group (SPG)
Simon Property Group (NYSE:SPG) is a listed real estate investment trust specializing in North-American leisure centers and malls. Although I’m not overly bullish on consumer discretionary activities, I believe SPG is an exception at its current price level, especially considering its best-in-class attributes.
The fund recently released its second-quarter financial results, revealing a funds from operations target beat of 7 cents per share. Subsequently, the company raised its full-year guidance on the basis of increasing capacity utilization. Also, SPG boosted its dividend distribution to $1.75 per share.
Property investing is a solid move if you’re looking for asset exposure that doesn’t correlate to the stock market. In addition, Simon Property Group will likely continue to outperform the market for as long as inflation remains elevated.
Cheap Income Stocks: Taiwan Semiconductor (TSM)
I include Taiwan Semiconductor (NYSE:TSM) stock on this list because I don’t think we’ll see it this cheap again. TSM isn’t a dividend pure-play, instead it’s a quality total-return stock that I think will rebound soon.
Taiwan Semiconductor has a massive advantage in the semiconductor industry due to its comparative advantage. The company’s low cost of labor and marginal cost advantages is clearly conveyed by the fact that its gross profit and EBIT (earnings before interest and tax) margins exceed the sector average by 8.48% and 4.8x, respectively.
Furthermore, TSM stock exhibits a high-growth trajectory with a capital expenditures to sales metric of 47.17% and a 3-year CAGR of 22.98%. The prior indicates that TSM is investing aggressively in growth initiatives, while the latter suggests that its heavy spending is being monetized successfully.
Agree Realty (ADC)
Agree Realty (NYSE:ADC) is an efficient net-leased retail REIT. I’m a fan of this REIT as it follows a core-anchor strategy by accommodating high-profile tenants to lure in smaller tenants at premiums. Some of the REIT’s most prominent tenants include Walmart (NYSE:WMT), Costco (NASDAQ:COST) and Home Depot (NYSE:HD).
This investment vehicle has produced total shareholder returns of 90.3% over the past five years, a 12.7% compound annual return since its initial public offering in 1994, and a dividend growth rate of 5.5% per year during the past decade.
Furthermore, the REIT’s portfolio is 99.6% leased, with 67.5% of its base rent tenants falling in the “investment grade” category. As such, Agree Realty looks like one of the most sustainable REITs on the market, with a lucrative total return profile.
Cheap Income Stocks: Citigroup (C)
I think Citigroup (NYSE:C) stock could be friendlier to long-term investors than it has been in the past. The bank’s pivot into a lower-risk services model means it will be less susceptible to cyclicality while maintaining dominant services revenue. Furthermore, the bank will be able to utilize its dry powder better as it decentralizes from a risk-weighted asset business into a deal-making machine.
Warren Buffett recently increased his Citigroup position, and I can see why. The stock provides an attractive dividend yield of 4.8% and is trading at a price-to-book discount of 1.82x, prompting me to conclude that we’re looking at a potential index-beating asset here.
On the date of publication, Steve Booyens held indirect long positions in BTI, DVN, IMPUY, WMT, and C. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.