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3 Embarrassingly Cheap Dividend Stocks

By Keith Speights - Mar 21, 2021 at 6:01AM

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Income-seeking investors will love these stocks with great dividends and attractive valuations.

You'd think that investors would be willing to pay more for stocks that pay them back every quarter with a juicy dividend. However, that's not always the case.

There are plenty of dividend stocks with valuations that are attractive. And some of them are really inexpensive. Here are three dividend stocks that are almost embarrassingly cheap.

"Dividends" written on a sticky note next to a roll of $100 bills, a marker, and a calculator

Image source: Getty Images.

1. AbbVie

AbbVie (ABBV -0.38%) arguably ranks as one of the best dividend stocks on the market. Its dividend currently yields nearly 5%. The drugmaker is also only one dividend hike away from becoming a Dividend King -- an elite group of S&P 500 members that have increased their dividend for at least 50 consecutive years.

The stock is also quite cheap right now. AbbVie's shares trade at close to 8.5 times expected earnings. That's well below the forward earnings multiples for most of the company's big pharma peers. 

Why is AbbVie valued so attractively? Many investors are concerned about Humira losing U.S. exclusivity in 2023. The drug currently generates around 37% of the company's total revenue. 

However, AbbVie's lineup includes several strong growth drivers. These include newer autoimmune disease drugs Rinvoq and Skyrizi, blood cancer drugs Imbruvica and Venclexta, and antipsychotic drug Vraylar. The company expects its total revenue will decline in 2023 but rebound the following year. AbbVie projects high single-digit-percentage growth through the rest of the decade.

2. Bristol Myers Squibb

Like AbbVie, Bristol Myers Squibb (BMY -1.87%) is one of the dirt cheap big pharma stocks that Warren Buffett really likes these days. And it's even more of a bargain than AbbVie with shares trading at 8.2 times expected earnings. 

Bristol Myers Squibb also offers a solid dividend. Its yield currently stands at close to 3.2%. The company has increased its dividend payout every year since 2010.

There's another common denominator that BMS shares with AbbVie. The company's top-selling drug, Revlimid, will soon lose U.S. patent exclusivity. The blood disorder drug faces limited-volume generic competition beginning in 2022. Revlimid accounted for nearly 30% of BMS' total revenue in the fourth quarter of 2020. 

But Bristol Myers Squibb has multiple products that should pick up the slack. Blockbuster blood thinner Eliquis and cancer immunotherapy continue to deliver sizzling sales growth. Another immunotherapy, Opdivo, should regain momentum as it wins additional approved indications. BMS' lineup also features new products with tremendous potential, notably including multiple sclerosis drug Zeposia and anemia drug Reblozyl.

3. Viatris

Technically, Viatris (VTRS 2.00%) isn't a dividend stock just yet. However, it will be soon. The company was formed in November 2020 with the merger of Pfizer's Upjohn unit and Mylan. Viatris intends to initiate a dividend program in the second quarter of this year and increase the payout each year going forward. The expected initial dividend yield will be in the ballpark of 3%.

Viatris is also one of the cheapest stocks you're going to find on the market. Its shares trade at around 4.7 times expected earnings.

The company looks for 2021 to be a "trough year" as it deals with declining sales for some older drugs. However, its free cash flow should continue to grow. Viatris also thinks it will achieve over $1 billion in synergies from the Upjohn/Mylan merger by 2023.

Beginning in 2024, Viatris anticipates that it will deliver consistent revenue growth each year. The company also expects to buy back shares once it reduces debt to target levels.

Viatris won't be the kind of stock that excites growth investors. However, it should be exactly the type of stock that income-seeking investors will like over the long run.

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Stocks Mentioned

Viatris Inc. Stock Quote
Viatris Inc.
VTRS
$12.25 (2.00%) $0.24
Bristol Myers Squibb Company Stock Quote
Bristol Myers Squibb Company
BMY
$76.14 (-1.87%) $-1.45
Pfizer Inc. Stock Quote
Pfizer Inc.
PFE
$53.91 (-0.15%) $0.08
AbbVie Inc. Stock Quote
AbbVie Inc.
ABBV
$150.00 (-0.38%) $0.57

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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