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3 Embarrassingly Cheap Dividend Stocks

By David Jagielski – Dec 4, 2019 at 5:00AM

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These companies have had some challenges this year, but they could be great buys heading into 2020.

Dividend stocks can be a great source of recurring income for your portfolio. What can make them even better is if they're low priced, as that will give them the opportunity to generate even better returns through capital appreciation. The stocks might also be at less risk of a correction should the markets turn bearish, because they aren't significantly overpriced.

Below are three stocks that are trading at very low multiples. They could make for very attractive dividend and value investments as well.

Bank building.

Image Source: Getty Images.

1. Goldman Sachs

Goldman Sachs (GS 1.86%) is one of the top investment banks in the world, although it is coming off a disappointing third quarter in which it fell short of expectations. The bad news is that Goldman's net revenue was down 5.6% from the prior-year quarter, and its investment banking segment saw a decline of 14.8%. Financial advisory net revenue being down 22% really stood out, as the bank noted less activity in mergers and acquisitions.

It's a troubling result, but the good news is that this might only prove to be an anomaly for Goldman, which has been beating expectations for multiple quarters in succession. It's too early for investors to be worried just yet, since there's no reason to believe that these are long-term issues that will cause problems for the company. The stock has proven to be very consistent over the years, and with the economy still looking strong, the bank could rebound next quarter.

Goldman is trading at a very modest 10 times earnings today, and it's right around its book value as well. The stock price is very cheap for a company that has generated strong profits over the years and that could prove to be an excellent long-term investment. Currently, the stock pays investors a solid dividend of 2.2% to pad its impressive returns, which, year to date, have been around 30%.

2. General Motors

General Motors (GM 1.92%) has had a very volatile year in 2019, as concerns surrounding tariffs have made investors hesitant to invest in the automaker.  If tariffs are imposed on Mexican imports, GM's stock could be adversely affected. Currently, nearly one-third of the company's imports (29%) come from Mexico, which is more exposure than its rivals have.

In addition, there have been headwinds as a result of the United Auto Workers strike, which has weighed on the company's results. But since the two sides recently reached a deal, that's at least one problem that looks to be out of the way for 2020.

In this tumultuous year, GM's stock has been very volatile. Year to date, it is up 7%, well below the 25% returns that the S&P 500 has enjoyed in 2019. With the stock yielding a solid 4.2% and trading at around 6 times earnings and 1.1 times its book value, investors are paying a very low price for one of the top auto stocks in the country. A year from now, it could look like a steal of a deal.

3. Capital One

Capital One Financial (COF 2.10%) became the latest big-name company to suffer from a data breach earlier this year, one that affected 106 million customers. The compromised information included Social Security numbers, dates of birth, and income, as well as other information that's available on a credit card application. It's a serious breach that could have consumers and investors second-guessing the bank's safeguards.

Perhaps as a way to show that it is taking the matter seriously, in November, Capital One announced that its chief information security officer would be moving to a new position as it looks for a permanent replacement.

Capital One's stock did fall after news of the breach hit, but as we've seen with other stocks, like Equifax, that have dealt with significant breaches, Capital One has since recovered. Year to date, it is up more than 29%. However, investors are still not placing a high value on the company. It is trading below book value at a multiple of 0.89, and its price-to-earnings ratio is around 9, making the stock a very cheap buy.

Currently, Capital One yields 1.6%, and it could be another good deal for investors who are looking for a quality dividend stock to add to their portfolios.

Key takeaways

All three companies on this list have stumbled at some point during this past year, and that's likely why they're not valued as highly as they otherwise could have been. However, they all have solid track records, and 2020 could prove to be a much better year for them. That's why their stocks could be very hot buys today.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool is short shares of Equifax. The Motley Fool has a disclosure policy.

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