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2 Cheap Dividend Stocks You Can Buy Right Now

By James Brumley – Jun 19, 2020 at 10:38AM

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Wild marketwide action and an uncanny interest rate backdrop haven't knocked all dividend names out of contention.

Between the market's big rally since March's low and the low interest rate environment it looks like we'll be stuck in for months (if not longer), it would be easy to give up a search for new dividend stocks. Don't do it. The fact is, there are plenty of income-producing companies that can be added to your portfolio for little more than a song. Two names, in particular, stand out as ones to consider.

Genuine Parts Company isn't just auto parts

It remains to be seen if the auto business will stage a full recovery from the fallout of the coronavirus outbreak. The industry was already struggling headed into the contagion, after reaching cyclical "peak auto" sales sometime in 2016.

But, for Genuine Parts Company (GPC -0.35%), it doesn't really matter. The average car driven on U.S. roads is now nearly 12 years old, according to data from IHS Markit, which further reports there are more than 278 million vehicles being regularly used by the nation's drivers. They may be better and last longer than they ever have, but with that many vehicles still in use, the need for repairs is sure to be steady. Genuine Parts will always have a healthy market for its replacement auto parts.

Desktop, with roll of cash bills, calculator, and post-it with the word dividends written on it

Image source: Getty Images.

Largely lost in most discussions of the company is the fact that it's not just car parts. That's still the lion's share of its top line, accounting for 56% of its first-quarter revenue. But another one-third of last quarter's revenue was driven by sales of industrial machinery. The remainder came from business products like office furniture and cleaning supplies. The mix of different product categories limits sizable swings of the organization's top and bottom lines, which in turn means the income behind its dividend is relatively well protected.

To that end, while a rocky economic environment may be waiting for all of us in the foreseeable future, Genuine Parts Company has some wiggle room. Although its first-quarter numbers weren't quite as strong as expected, the projected twelve-month dividend payout of $3.16 per share is still less than the $4.20 worth of earnings analysts are currently modeling. That should be the worst of any earnings headwind too. Thomson Reuters data calls for new profit growth starting in the third quarter.

Genuine Parts Company (GPC) revenue, per-share earnings, and per-share dividends, past and projected

Data source: Thomson Reuters/Refinitiv. Chart by author.

By the way, at the stock's current price of $88.50, Genuine Parts Company is valued at less than 17 times next year's anticipated profits, and yielding 3.7%.

Synchrony Financial isn't so out-of-sync

Once the coronavirus outbreak made landfall in the United States and it became clear there was nothing that could be done to stop its spread, Synchrony Financial (SYF -0.79%) took one on the chin. Consumer debt was already getting a bit wobbly in the western half of the world, with household debt in the United States racing to a record $14.3 trillion as of the end of the first quarter. COVID-related shutdowns and the subsequent ripple effect they would have on the economy set the stage for a perfect storm of problems for lenders of all sorts, including Synchrony. From its February peak to its March trough, shares of the stock fell more than 60%.

Synchrony's since partially recovered, regaining roughly half of what was lost once it become clear the world can at least slow the disease's spread. Companies can more or less work around it, providing a glimmer of hope for the company and its rattled shareholders.

The market may still be underestimating where Synchrony Financial stands, though, pricing shares at only 8.4 times next year's earnings. While it will undoubtedly face challenges related to soured loans, analysts are modeling per-share earnings of $1.12 for this year and $2.98 next year, and then calling for a return to near-normal profitability by 2022. That lull will temporarily drag the company's earnings to near its current annualized payout of $0.89, but not below it on a full-year basis. Newcomers will be plugging into a trailing twelve-month yield of 3.7%.

Synchrony Financial (SYF) revenue, per-share earnings, and per-share dividends, past and projected

Data source: Thomson Reuters/Refinitiv. Chart by author.

Besides, even income that rolls in less than a dividend payout doesn't necessitate a dividend cut. Companies can tap cash balances to maintain payouts in the interim; financial companies generally sport more than enough liquidity to do so on a regular basis.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Genuine Parts Company Stock Quote
Genuine Parts Company
GPC
$156.96 (-0.35%) $0.55
Synchrony Financial Stock Quote
Synchrony Financial
SYF
$31.50 (-0.79%) $0.25

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