Are you looking for dividend stocks to add to your portfolio? If so, you will likely want to focus on stocks that aren't too expensive -- there's more potential to earn a good return when you buy at a low price, and if a stock isn't rising in value, that means its yield isn't shrinking in the process.
Two stocks that are cheap and attractive investments today are AstraZeneca (AZN 1.03%) and Campbell Soup (CPB -0.35%). Both stocks have underperformed the markets year-to-date, but here's why they could still make for good income investments.
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1. AstraZeneca
AstraZeneca pays investors a dividend that totals $1.40 per year, which translates to a yield of 2.85%. That is well above the 1.5% that the average stock in the S&P 500 pays. The healthcare stock is down by about 1% year-to-date, while the index has risen by 10%. AstraZeneca's stock is trading near its 52-week low of $46.48, meaning now could be a great time to invest.
Investors may be concerned about the negative news surrounding AstraZeneca's COVID-19 vaccine causing blood clots in some people. Despite health officials' statements that the benefits outweigh the risks, some countries, particularly in Europe, have limited the use of the vaccine.
Income investors shouldn't be too worried about these results either way. The company wasn't planning to get rich off the vaccine in the first place -- AstraZeneca previously stated that it wouldn't look to make a profit until after the end of the pandemic (a timeline that would be based on the company's own assessment).
AstraZeneca's ability to pay dividends isn't going to depend on the success of the vaccine. What matters is that the company still has a solid business that has turned a profit in each of the past five years. From 2016 to 2020, sales grew steadily by 15.7% per year. The bulk of the company's top line comes from oncology revenue, which in 2020 grew at a rate of 23% and accounted for 43% of the company's total sales. Biopharmaceutical products were up a more modest 3% and represented 38% of revenue. The company's business is diverse and relatively stable. If its vaccine does well, it should be a bonus for income investors, not the main reason to invest in AstraZeneca.
Although the company's payout ratio sits at 112% right now, and that may be a bit concerning if your focus is the dividend, this is actually lower than it has been in previous years:
AZN Payout Ratio data by YCharts
Accounting income isn't always the best measure of a company's ability to make dividend payments. Over the trailing 12 months, AstraZeneca has generated $4.8 billion in cash from its day-to-day operations, which is more than the $3.6 billion it paid out in dividends during that time.
At a forward price-to-earnings (P/E) multiple of less than 13, AstraZeneca stock is a relatively cheap buy -- Johnson & Johnson and GlaxoSmithKline trade at multiples of more than 16.
2. Campbell Soup
Campbell Soup makes for an even safer income investment to hold. The stock gained popularity during the pandemic as consumers loaded up their pantries with essentials, and Campbell's products were in high demand. In fiscal 2020, which ended in July, sales hit $8.7 billion, representing growth of 7.2% -- an extremely high rate given that in the previous fiscal year its sales declined by 6.7%.
And although there is hope the pandemic may be ending, Campbell is still performing well. The company released its second-quarter results on March 10, with net sales of $2.3 billion for the period ending Jan. 31, up 5.4% year-over-year. Although management expects sales to slow down in fiscal 2021 by as much as 3.5%, they still think adjusted per-share earnings will rise between 3% and 5%.
Year to date, the stock has fallen nearly 2% as investors' focus has been elsewhere, including traditional growth businesses as well as meme stocks that offer more gains (at significantly higher risk). For income investors, however, that's good news, because it has kept Campbell's stock from becoming too expensive. It currently trades at a forward P/E of 16, which is right in line with where Kraft Heinz trades today and a bargain when compared to the average stock in the SPDR S&P 500 ETF Trust, where investors are paying 28 times earnings.
With a payout ratio of 53%, Campbell's dividend looks incredibly safe, and its 3% yield is even higher than AstraZeneca's. Campbell may not be the most exciting stock out there, but it is an investment you can buy and forget about for many years.
