Most stocks trading under $20 a share are priced that way for a reason. Either they're unproven (such as a clinical-stage biotech company) or they have had some financial difficulty.

That's what makes finding cheap dividend stocks difficult. Yes, there are plenty of stocks out there with high dividend yields, but many of those stocks got that high yield because of a plummeting stock price and the yield may not be sustainable.

To find a bargain dividend stock that's solid, it helps to keep the screening for this choice simple. Look for stocks that were well-priced compared to their peers, but with a dividend yield above 5% and a share price of $20 or below. It also helps to look for stocks whose share prices were down for the year but appear to be back on the upswing.

Vodafone (NASDAQ:VOD) and Annaly Capital Management (NYSE:NLY) checked off all the boxes when it comes to dividend stocks that are cheap but worth buying right now.

Man in suit letting coins drop through his fingers.

Image source: Getty Images.

1. Vodafone: Finding a way back to profitability

Vodafone, based in London, is the largest phone company in Europe. Its share price is down more than 15% over the past year, but up more than 17% over the past three months, thanks to improved financials.

The company's fiscal 2021 second-quarter report showed that six-month group revenue through Sept. 30 was down 2.3% year over year, with the company citing pandemic-related travel slowdowns for lower revenue from roaming charges. With that anticipated revenue not factored in, however, service revenue grew 1.5%, Vodafone said. Over the period, it said it increased European customers by 1.8% to 65 million and broadband customers by 3% to 25.4 million.

Even with revenue down, it reported a profit of 1.6 billion euros for the first six months, a rise of 182% year over year. Vodafone said its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) also increased 2.5% to 44.6%.

The company raised its forecast for the full fiscal year (ending in March 2021) from down or flat to flat or up, saying it expected adjusted core earnings of 14.4 billion euros to 14.6 billion euros, compared to 14.5 billion euros in 2020.

Vodafone also said it plans to spin off its service tower segment, into Vantage Towers' initial public offer, later this year, and that could bring the company 20 billion euros while streamlining its business.

Vodafone's improved outlook is one reason to buy the stock, but its dividend, with a yield of 5.94%, is certainly another. The stock is well-priced with a forward price-to-earnings (P/E) ratio of 17.44, compared to 30 for the wireless industry as a whole.

I still have two concerns about Vodafone. It cut its dividend for the first time in 2019 by 40%, but at least that move trimmed its cash dividend payout ratio to a sustainable 25.67%. The company also carries too much debt, with a debt-to-equity ratio of 1.179, though that will likely change when the company spins off its tower business.

VOD Chart

VOD data by YCharts

2. Annaly Capital Management: Its demise was greatly exaggerated

Annaly Capital Management is a different type of real estate investment trust (REIT) in that it doesn't own real estate, but rather it owns residential mortgage debt. When the pandemic first began creating shutdowns in the economy, the company's stock fell as investors worried whether there would be massive mortgage defaults, as there were during the housing crisis of 2007-2010.

That explains why the stock price lists at only $8.21 as of close on Jan. 13 and is down more than 14% for the year (though it has risen more than 12% the past three months). The risk was overblown, though. Annaly's mortgages are protected by the federal government through Fannie Mae, Ginnie Mae, and Freddie Mac, and there haven't been massive mortgage defaults, despite the economic woes brought on by the coronavirus pandemic.

To be sure, the company did take a hit financially this past spring. In April, the company estimated that its book value on March 31 was between $7.40 and $7.60 a share, a drop from its book value of $9.66 a share on Dec. 31, 2019.

In the third quarter, the company's book value per share of $8.70 was a 4% increase over the prior quarter, though down 5% year over year, and the company's net income of nearly $1 billion worked out to $0.70 per share, a rise of 21% over the prior quarter and a big improvement from the $0.54 loss per share, year over year.

Annaly's dividend yield is outstanding at 11.04%, and if home buying continues to grow this year as it did last year, that's good news for the company. As it is, Annaly is priced well compared to other popular REITs, based on its price to book value.

NLY Price to Book Value Chart

NLY Price to Book Value data by YCharts

My biggest concern is not so much with the company's financial health, but with its tendency to cut its dividend. Last year, it cut its dividend by 12% to $0.22 per share, citing the need to keep the dividend sustainable compared to core earnings.

The choice, in this case, is easy

Though I think these are both good low-priced dividend stocks, I see Annaly Capital Mortgage as the better choice. It offers a better dividend and a stronger financial cushion for investors.

It's also priced more competitively, with a forward P/E of 7.71 to 17.69 for Vodafone. To be sure, you should know there's plenty of risks when you're looking for a "cheap" dividend stock, but looking at Annaly's track record and substantially higher dividend, it seems the better choice of the two.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.