The S&P 500 Index recently fell into bear market territory, defined as a 20%-year-to-date decline. The good news is that investors now have multiple quality stocks trading at discounted valuations. When the market finally turns around, investors buying at current prices could generate superior returns. The following 3 cheap dividend stocks have high appeal for value and income investors.
Cheap Dividend Stock: Qualcomm (QCOM)
Qualcomm is a tech stock that develops and sells integrated circuits for use in voice and data communications. The chip maker receives royalty payments for its patents used in devices that are on 3G and 4G networks.
Qualcomm continues to generate excellent growth, even in a highly challenging economic backdrop. In the most recent quarter, Qualcomm’s revenue increased 41% year-over-year, while adjusted earnings-per-share increased 69%.
Future growth looks promising for Qualcomm. The company has grown earnings-per-share at a rate of 6.6% per year over the last decade. An agreement with Apple and Huawei, a lower share count and leadership in 5G should allow the company to grow in the coming years. In addition, demand for 3G/4G/5G headsets will increase following a recovery from the COVID-19 pandemic.
In the meantime, Qualcomm is an attractive dividend growth stock. Qualcomm recently increased its dividend by 10%, and the stock now yields 2.3%. The company has increased its dividend for 20 consecutive years. With a 2022 P/E ratio of 10.2, we view the stock as significantly undervalued, given its long-term growth prospects.
Cheap Dividend Stock: Synchrony Financial (SYF)
Synchrony Financial is a consumer financial services company. It operates through the following business units: Payment Solutions, Retail Credit, and CareCredit. Synchrony Financial offers private label credit cards, small-size business credit products, promotional financing for higher-priced consumer goods, promotional financing for healthcare procedures such as dental and vision, as well as a range of other services to its customers.
In the 2021 first quarter, the company generated revenues of $3.4 billion during the quarter, which was down by a marginal 0.6% versus the previous year’s quarter, despite an expansion in the company’s net interest margin.
The company also saw its credit quality improve, as net charge-offs dropped from a level of 3.62% one year ago to 2.73% during the most recent quarter, reflecting the healthy macro backdrop for consumers. The lower charge-offs had a positive impact on Synchrony’s profitability.
Synchrony Financial generated earnings-per-share of $1.73 during the first quarter, which beat the analyst consensus estimate by $0.19. Profits were up substantially on a sequential basis, climbing by almost 30% quarter-over-quarter.
SYF has increased its dividend for four consecutive years, including a 5% dividend hike in April. The company also approved a $2.8 billion stock buyback, which will help boost future earnings-per-share growth. The stock has a 3.1% dividend yield, with a 2022 P/E under 5 which makes the stock appear significantly undervalued.
Cheap Dividend Stock: Big Lots (BIG)
Big Lots is a beaten-down retail stock, having lost over 50% of its share price value year-to-date. Big Lots is a discount retailer. This year has been particularly challenging, as the company has posted weak quarterly results. For example, in the most recent quarter the company reported a 15.4% sales decline, due to a 17% decline in comparable sales. However, the company faces difficult comparisons to last year’s pandemic-fueled surge in sales.
In addition, inflation has put pressure on margins. The company reported a loss of $0.39 per share in the first quarter. However, looking back further, the company has posted a 3-year comparable sales growth rate of 2%, meaning Big Lots has generated growth from the pre-pandemic levels.
Big Lots expects a similar decline in comparable sales for the current quarter, but the company sees some recovery toward the back half of the year.
The huge decline in share price this year has elevated the dividend yield to 5.5%, which is a very high yield. Importantly, with 2021 earnings of $5.33 per share, and a forward annualized dividend of $1.20, the dividend is well covered by their existing business, despite the decrease in earnings since 2020 where they reported $7.35 per share in earnings. Big Lots has a 2022 P/E ratio of just over 4, which makes the stock appear significantly undervalued.
Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.
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