Some of the best dividend stocks might sit right in front of your eyes every day, yet be constantly overlooked. That's simply because some of the products that people use routinely, and that businesses generate a wealth of revenue from, aren't flashy or sexy. That goes for two dividend stocks that provide a combination of upside and stability for dividend investors: Hanesbrands (NYSE:HBI) and Chicago Bridge & Iron (NYSE:CBI).
Get your hands on Hanes
Hanesbrands is a leading manufacturer and marketer of basic apparel through an assortment of brands such as Hanes, Champion, and Playtex. The company is coming off a slightly disappointing first quarter, in which organic sales dropped 4%, but the headwinds should be short-lived as management believes it'll still hit its full-year guidance and recent acquisitions will push overall sales growth into the high single digits.
But the real story with Hanesbrands is its multiyear initiative, launched late during the first quarter of 2017, to increase investment aimed toward growth, reduce costs, and increase cash flow from operations. Management calls it Project Booster, and it's designed to take the company's business model into the "next phase" -- with a stronger focus on leveraging its growing global scale.
If management executes Project Booster the way it plans, it expects to deliver a run rate of full annualized benefits by the end of 2019. That means reducing roughly $150 million of annual costs from its operations in addition to driving roughly $200 million of improvements in working capital, which will boost annual cash flow from operations.
As you can see in the graph above, Hanesbrands has only recently become a dividend play, and with a current dividend yield of 2.6%, it's often overlooked. However, with the company's track record of folding in acquisitions and the prospect of creating cost efficiencies with its new Project Booster plan, investors could be well-rewarded with an increasing dividend at a price well below its 2015 peak and a price-to-earnings ratio of roughly 16.
A super cheap dividend
Chicago Bridge & Iron is an unusual dividend stock with an unusual story, and requires thorough research from investors before diving in, but there's little question shares are incredibly cheap -- at about five times forward earnings, per Morningstar. The company boasts a long list of services but specializes in large, complex construction and development projects -- large developments you might drive by and never think twice about. Despite a crippled stock valuation, one of the company's largest overhangs was recently removed.
In 2015 Chicago Bridge sold the Shaw Group nuclear construction unit to Westinghouse Electric Company. That acquisition later proved to be a bad deal for Westinghouse, and in hopes to limit its losses, it sued Chicago Bridge, alleging bad accounting practices at CB&I led it to overpay for Shaw Group. The problem for Chicago Bridge investors is that Westinghouse was seeking $2 billion in compensation. The good news for investors is that in late June the Delaware Supreme Court threw out Westinghouse's accounting claim, which effectively removed a large cloud of uncertainty.
All is not hunky-dory -- that decision could be appealed and the development might drag on for years -- but it certainly appears Chicago Bridge has the upper hand in the matter. More good news for investors: The company has been on a winning streak for large projects over the past couple of years. New awards for the first quarter were $3.3 billion, compared to the $1.2 billion in the prior year, and the company's backlog at the end of the first quarter was valued at $19.3 billion.
The dividend currently sits at 1.5%, which is above its historical trend as Chicago Bridge is opting for smaller yet sustainable payouts. Thus, investors have a unique opportunity to get an average yield at a rock-bottom price, and hope for upside in the stock price in addition to dividend payments.