Best Cheap Stocks With High Dividends

What are dividend stocks?

In today’s inflationary environment, investors are flocking toward dividend-paying stocks. Why? Because cheap dividend stocks paying dividends provide an inflation hedge. According to one recent study, high-dividend stocks provide long-term potential returns that have historically outpaced inflation.

Not all stocks pay dividends. Those that do, pay out a portion of their net earnings in dividends. Dividend forms and amounts vary based on a number of factors. For example, dividends can be paid out as company stock of the company declaring the dividend, other company stock, cash, or different assets (e.g., real estate, inventory).

Stocks with high dividends are popular among investors who are seeking regular income. This is particularly true among retirees relying on investment income. You can also find out information about top undervalued fintech stocks that are worth buying.

Dividend stocks are considered less risky than non-dividend-paying stocks. These stocks typically have more consistent earnings and are generally less susceptible to stock market volatility.

The dividend yield of a cheap dividend stock will depend on a number of factors, including the market price of the stock. However, on average, cheap or inexpensive dividend stocks can be considered as those stocks generating a dividend yield of 5 percent or more.

A closer look at some promising cheap dividend stocks

We will delve deeper into some promising cheap dividend stocks that are currently priced under $40. These stocks, spanning various sectors and industries, offer potential investors a diverse selection to consider for their portfolios. Let’s take a closer look.

AT&T (T)

AT&T is a well-recognized telecommunications giant with a solid footprint in the global market. Its stock is currently priced below $40, making it an alluring choice for many investors. The key metric underpinning AT&T's stock rate is its dividend yield. The dividend yield is a fiscal ratio that illustrates the amount of money paid out in dividends each year relative to the stock's cost. According to the latest figures, AT&T's dividend yield is 6.99%, with an annual dividend of $1.11 per share. For investors, this yield is a considerable return on their investment.

Verizon Communications (VZ)

Verizon Communications is a dominant force in the telecommunications sector, having been around for a prolonged time. A significant marker of its success is reflected by its dividend yield. Currently, the company has a yearly dividend of $2.66 per share, with a forward yield of 7.42%, remitted every 3 months. It has seen a rise of an average of 2.02% for the past three years and has been granting its dividend for the past 19 years.

Enterprise Products Partners L.P.

Enterprise Products Partners is a prominent limited partnership dedicated to transporting and processing natural gas, natural gas liquids, crude oil, refined products, and petrochemicals. This company is one of the largest midstream firms, executing activities in most production venues in the continental US.

Presently, Enterprise Products Partners has a 12-month trailing dividend yield of 7.22% and a 12-month forward dividend yield of 7.39%. This data implies that investors anticipate higher dividend payments during the upcoming 12 months. Recently, the company declared a dividend of $0.5 per share.

Avangrid (AGR)

Avangrid, an energy services holding corporation, works in the controlled energy transport and distribution, along with renewable energy production industries in America. The company announced a cash dividend of $0.44 with an ex-date of November 30, 2023. The dividend yield of the stock stands at 5.53%. The dividend is paid out every three months and it has an annual dividend of $1.76 per share.

Franklin Resources (BEN)

Franklin Resources is a publicly owned asset management holding company. The company provides its services to individuals, institutions, pension plans, trusts, and partnerships through its subsidiaries.

One of the key indicators for Franklin Resources is its dividend yield. As of November 1, 2023, its dividend yield was 5.32%. This yield is strong, especially in the current low-interest-rate environment. The annual dividend for Franklin Resources shares is $1.20. Moreover, the company’s earnings are forecasted to grow by 10.06% per year. Dive in now, explore these promising stocks under $40, and take the first step toward building a diverse and profitable portfolio.

How to choose dividend stocks under $40?

Consider a number of factors before adding a dividend-paying stock to an investment portfolio.

Focus on $40 dividend stocks with a track record of paying out dividends. Of course, a history of past dividend payments is no guarantee of future payments. However, a history of dividend payments provides a strong indicator for future actions. Also, investigate whether this dividend payout stream has increased or decreased over time.

If the company has a history of paying out dividends, determine its average dividend yield. The dividend yield is used to identify the annual return that a company’s dividend provides as a percentage of its stock price.

To compute a company’s dividend yield (“DY”), take the annual dividend per share and divide it by the current stock price. For example, if a company pays a semi-annual dividend of $2.50 (2x/year) and its current stock price is $100.00, the dividend yield can be computed as:

DY = 5% ($5.00/$100.00).

A higher yield designates a better return on investment. However, it is recommended to compare a company’s dividend yield to industry peers and to other companies having similar dividend histories.

Also, consider certain corporate financial fundamentals. For example, look to see how much revenue the company is generating and compare this company inflow versus company outflow. These outflows would include the company’s reasonable business expenses, costs, and taxes.

Corporate revenue growth is another indicator of how well the company is performing. That is, compounding sales revenue year in and year out. If the company continues to earn more cash than they are spending and keeps growing its revenues, that is a positive sign.

Cash flow is also an important financial metric. Cash flow relates to money flowing into and the money flowing out of the company. Interested investors want a company with more money inflows than outflows.

Other items to consider include:

List of dividend stocks under $40

TU’s experts provide their recommended best cheap dividend stocks under $40. These cheap dividend stocks have a respectable average dividend yield of at least 3%.

These experts have also considered and evaluated various business factors underlying the companies of these stocks such as earnings, profitability, cash flow, and historical dividends.

Here is TU’s recommended list of dividend stocks under $40:

*This list does not contain investment recommendations. Consult an investment advisor before making investment decisions. All data is actual for 01.11.2023. Please, check the current data.

Are dividend stocks under $40 a good idea?

Companies generate cash from their day-to-day business operations. This cash can be reinvested in business operations or can be paid out as dividends. Some investors believe that a high dividend yield is always a great thing. But this belief is not universal.

For example, some stock analysts argue that dividends represent a cash payout of the company’s profits. In some situations, it might be better for the corporation’s financial future to reinvest this cash to generate further revenue growth and hence generate higher long-term returns for shareholders.

Other reasons against using excess cash to pay out dividends are summarized below.

However, during times of market volatility and for risk diversification, there are many reasons to invest in dividend producing stocks.

First, dividends account for a major source of long-term market returns. For example, from 1930 through 2017, dividends accounted for roughly 40% of the S&P Index’s total return. And during the 1970s and 2000s, dividends accounted for well over half of the market’s return.

For a growth stock that does not pay a dividend, the only way shareholders can earn a return is through share price appreciation. And the markets can go through extreme cycles of volatility, where a bear market can potentially claw back most if not all shareholder gains.

On the other hand, a quality dividend growth stock can provide investors with a rising income stream, which can then compound in repeated investments. As dividends are continuously reinvested, then when a bear market emerges, investors will still be provided with a dividend stream. These dividends can be reinvested at lower, bearish prices while still earning new shares. And over the long term, these new shares gain price appreciation.

Indeed, dividend growth stocks have outperformed the stock market over time. Companies that have consistently paid and increased their dividends have historically outperformed non-dividend-paying stocks. Average annual returns from 1972 to 2017 show that all dividend-paying stocks returned an average of 9.25% per year. These average annual returns were greater than the S&P 500’s annualized return of 7.5% and the 2.5% average annual returns of non-paying dividend stocks over this same period of time.

How many stocks should I buy?

Investment experts, like those at TU, generally agree that diversified dividend investing involves investing in a range of stocks across different market sectors and industries. As just one example, some believe that a portfolio of 10 to 30 cheap dividend-paying stocks provides ample investment diversification.

Investing in lower-priced dividend stocks can be a wise move, especially for novices who aim to get into the stock market. The yield on these stocks can guarantee a steadier continual income, making them a desirable alternative for investors who are looking for both growth and income. Here are some tips to help beginners reduce the risk of investing in the best cheap stocks with high dividends:

Why is it important to time the purchase of dividend stocks?

Before pulling the trigger on purchasing a cheap dividend stock, be aware of the stock’s ex-dividend date. Ignoring this date may make a new shareholder ineligible to receive a dividend payout.

A stock’s ex-dividend date (“ex-date”) is the date on or after which a stockholder will not receive the next dividend payment. If a stockholder purchases a stock on or after the ex-dividend date, that stockholder will not be entitled to receive the upcoming dividend payment. This ex-dividend date is set by the stock exchange and is typically two business days before the record date. The stock record date, or record date (“date of record”), is the cut-off date by which an investor must be listed as a shareholder in order to be eligible to receive the dividend. You might be interested in learning more about Dividend Capture Strategy.

Here is an example.

Suppose ABC Company declares a dividend with a record date of March 1st and an ex-dividend date of February 25th. Investors who purchase ABC Company stock on or after February 25th will not be eligible to receive the dividend payment. Investors who own the stock prior to February 25th will receive the dividend payment. The dividend payment date is typically several weeks after the record date.

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