Stocks in general are pretty expensive right now, with the average S&P 500 stock trading at around 26.5 times earnings. And with interest rates still at historically low levels, it's doubly hard for investors to find reasonable deals on dividend stocks.
But not all dividend stocks are expensive -- and some are even downright cheap. If you're looking for great value in a dividend stock you can buy now, keep reading to learn why Ford Motor Company (NYSE:F) and Nucor Corporation (NYSE:NUE) should be at the top of your list.
The auto market has peaked, but Ford is still cheap
Since the beginning of 2015, Ford's stock price has fallen almost 30%, even as profits have skyrocketed:
This has been in part a product of the North American auto market reaching a cyclical peak, with auto sales expected to be flat or even slightly down in coming years. In the past, the cyclical nature of the car business has seen Ford's profits and losses swing wildly:
In other words, Mr. Market seems to expect Ford to start losing money any day now. This is where it's important for investors to recognize a couple of things: First, Ford is a more geographically diverse company today than it has ever been. And while the U.S. market is still its bread and butter, the company is better-positioned to ride out weak domestic sales than it has ever been.
Second, there's a difference between the U.S. auto market having peaked, and it set to crash. The economy remains relatively strong, with most economic data indicating it is still improving. Jobs numbers are generally better with each passing report, incomes are going up, and more people are looking for work. These trends tend to indicate that auto sales aren't about to fall significantly. At the same time, Ford continues to do well with its higher-margin products, including pickups and SUVs, helping make up for less volume in lower-profit vehicles.
Finally, Ford is a better-run business today, generating gobs of cash flow that it's able to reinvest in product development -- including electric vehicles and fuel efficiency -- while still having a lot left over to return to shareholders. Trading for 7.3 times next year's earnings estimates and yielding 5% at recent prices, Ford is a cheap dividend stock worth buying right now.
The best steelmaker to own is cheaper than it looks
Trading at more than 24 times last year's earnings, Nucor doesn't look cheap on the surface, and its 2.5% yield may not be that robust. But what this rearview mirror perspective misses is that buying Nucor today isn't about what the company did last year; it's about what the company can do going forward. And frankly, there is probably no other steelmaker as well-positioned for the future as Nucor.
To start, the domestic steel market has been very tough in recent years. Even with U.S. steel consumption at near-record levels, steel prices have been in the dumps, in large part because of illegal steel dumping from state-run (or state-funded) overseas competitors. But a number of anti-dumping cases have been ruled favorably for U.S. steelmakers, driving imports down and prices up. Nucor has been a big beneficiary of this, seeing both steel volumes and revenue climb, driving profits higher as a result.
Furthermore, Nucor is positioned to benefit from any eventual infrastructure spending growth that happens. And while our political leaders have yet to prove they can get much done since the inauguration of Donald Trump as president, a vast majority of Americans across party lines strongly support investing in fixing our infrastructure.
But one of the things that makes Nucor worth buying now is that the company doesn't need a big government infrastructure spending plan to profit. As the low-cost leader across the products it makes, the company is easily the best steelmaker to own. Trading at 14 times next year's earnings makes it worth buying right now.