By buying stocks trading for cheap prices, you position yourself to profit even from even relatively small boosts in share price. If you reinvest your recurring dividend payment along the way, those returns can grow even faster. But finding cheap dividend stocks can often be challenging. Many value buys and aren't typically trading at high prices to begin with, and it can be hard to differentiate between cheap and expensive long-term winners.
However, that doesn't mean that there aren't bargains out there. Three stocks that you can buy today at some pretty low prices and that pay more than the average S&P 500 yield of 2% include Gilead Sciences (GILD 2.20%), Enbridge (ENB 3.34%), and the Kellogg Company (K 2.06%). They've all been underperforming the markets this year, and aside from Gilead, they've been paying dividends for over a decade. Here's a closer look at how their performances could benefit today's investors, tomorrow.
1. Gilead Sciences
Gilead has been an intriguing coronavirus stock, enjoying lots of optimism surrounding its antiviral drug, remdesivir. Many were hoping the treatment would be a silver bullet for patients with COVID-19. But the results have been mixed thus far. A National Institutes of Health (NIH) study in April showed that the drug accelerated the recovery of patients with advanced COVID-19 by four days, but the mortality rate of 8% wasn't a whole lot lower than a placebo group where 11.6% of patients with severe COVID-19 died.
Even though the U.S. Food and Drug Administration (FDA) approved remdesivir for use in hospitalized patients (who are at least 12 years of age) in October, its effectiveness is still questionable. There hasn't been a definitive study to show that it can stop the illness and prevent fatalities. This month, a panel of doctors from the World Health Organization (WHO) went so far as to recommend that physicians not use remdesivir to treat their patients, coming to the conclusion that the drug "has no meaningful effect on mortality or on other important outcomes for patients, such as the need for mechanical ventilation or time to clinical improvement."
But without counting on remdesivir as a treatment for COVID-19, Gilead is still worth investor consideration. Although the company's sales of $22.1 million for the year-ending Dec. 31, 2019, only grew 1.5%, Gilead has posted a profit of at least $5.4 billion in each of the past two years. Its HIV drugs have been the source of much of the company's growth, with revenue from those products rising 12% in both 2019 and 2018. So far in 2020, through the first nine months, Gilead has recorded sales of $17.3 million, up 4.2% from the same period last year.
Gilead pays a quarterly dividend of $0.68 today, yielding 4.5% annually. That's well above what you can earn from the average S&P 500 stock. It's trading near its 52-week low and at a forward price-to-earnings (P/E) ratio of around nine. The healthcare company is a cheap buy when compared to the typical stock on the SPDR S&P 500 ETF Trust, which trades at more than 25 times future earnings.
Enbridge's quarterly payment of $0.81 Canadian dollars yields approximately 8.4%, earning it the highest payout spot on this list. But Enbridge's high yield isn't the only gold star on the company's resume. In December 2019, the Alberta-based company raised its dividend payments for the 25th year in a row, making it a Dividend Aristocrat.
But that yield comes with risk. The oil and gas industry isn't the most stable place to be investing right now; demand for oil is low because people are not traveling amid the coronavirus pandemic. The industry has been struggling since 2014 as an excess supply of oil ha seen the price of West Texas Intermediate (WTI), a key North American benchmark, fall from more than $110/barrel down to less than $60/barrel in 2019. Oil is currently trading at around $43/barrel. During the early stages of the pandemic, WTI's price even briefly went negative as traders were desperate to unload oil contracts with storage space running out. Although the price has stabilized since then, supply issues remain a top concern for investors today.
The positive takeaway, however, is that amid all these challenges, Enbridge has still posted a profit in three of the past four quarters while also generating positive free cash flow. Enbridge's stock is another cheap buy that currently trades at a forward P/E of 14.
Kellogg's is known for its popular cereal brands, which have been in especially strong demand this year as people spend more time eating and cooking at home. The Michigan-based company has been consistent over the long term, posting a profit in each of the past 10 years. There has been limited sales growth over the years, but since 2015, the company's top line has finished within a fairly narrow range between $12.9 billion and $13.6 billion in revenue. Year to date, Kellogg's has generated $10.3 billion in revenue, which technically is flat from the same period last year. But that's also because the company's business has gotten leaner.
The company's organic net sales are actually up 7.2% during that time. The main reason that the top line isn't looking that strong is due to the absence of businesses that are no longer part of Kellogg's nor contributing to its revenue. In 2019, Kellogg sold its Keebler and Famous Amos brands to Ferrero for $1.3 billion.
Kellogg's business is doing well enough that the company raised its full-year guidance on Oct. 29, when it released its third-quarter results for the period ending Sept. 26. The company is now projecting its net organic sales will rise by 6% in 2020, which is an increase from the 5% growth it previously forecast.
The company's overall stability and consistency are key reasons why investors will love this stock. Today, Kellogg's pays a quarterly dividend of $0.57 that yields 3.5%. With a forward P/E of 16, this is technically the most expensive stock on this list.
Stocks to build your dividend empire around
From healthcare to grocery store goods to oil and gas, the three stocks listed above can give your portfolio some great diversification and dividend income at relatively cheap prices. Unfortunately, year to date, they've all underperformed the S&P 500 and its 10% returns:
But I don't believe these downward trends will last over the long term.
As the economy recovers and more people begin traveling again, oil and gas stocks like Enbridge could see some increased bullishness. A lot of the recent negativity surrounding Gilead is due to remdesivir, but with the stock trading at a lower price, it could soon attract more bullishness from value-oriented buyers. Investors today are focused on high-performing coronavirus vaccine stocks, and many of them may be overlooking the value that the treatment stock possesses right now. Kellogg's may not see a surge in price unless stay-at-home trends continue, but at the very least, it should make for a stable dividend stock to hold on to for the long term.