For income investors, what is better than a good dividend stock with a high yield? How about a good dividend stock with a high yield that is also ridiculously cheap, with the potential to deliver solid earnings growth and above-average returns?

Here are two stocks I see as excellent choices: Prudential Financial (NYSE:PRU) and Citigroup (NYSE:C).

Prudential Financial has a dividend yield of 4.4%

Prudential Financial is known as one of the largest life insurance companies in the U.S., but it has three primary revenue streams. It has a U.S. business, which includes insurance, annuities, and retirement plan servicing; an international insurance business; and an investment arm, PGIM Investments. Prudential had a difficult 2020, hurt by low interest rates and increased claims due to the pandemic. The stock price was down about 11% in 2020, but it has bounced back in 2021, up 32% year to date through the end of June.

Businessperson looking skeptically at a colleague.

Image source: Getty Images.

Prudential reported record operating income of $1.7 billion in the first quarter, driven by PGIM and the retirement plan servicing businesses, which had record quarters due mainly to increased investment income, higher fee income, and the sale of its Italian asset management business. It offset losses in the U.S. life insurances businesses.

Despite the strong performance, the stock remains a great value with a forward price-to-earnings ratio of 8.8 and an extremely low price to price-to-book value of 0.69, which means it is trading well below its book value. It is well-positioned to grow, as analysts project earnings growth in 2021 and 2022 due to a recovering economy and widespread vaccinations.

So, Prudential is cheap with good growth prospects. It also has a fantastic dividend with a yield of 4.4%, which is among the highest on the market. Prudential increased its quarterly dividend this year to $1.15 per share, its seventh straight year of dividend increases. Over the past five years, the dividend has averaged growth of about 11% annually. The payout ratio is on the high side at 66% over the trailing 12 months, but that includes some lean quarters in 2020. With its earnings outlook looking brighter, and its strong expense management, that payout ratio should go down to a more manageable level.

Citigroup is trading well below book value

Citigroup, the fourth largest bank in the U.S., is also ridiculously cheap right now. It is trading below book value with a 0.79 price-to-book (P/B) ratio and has a forward price-to-earnings (P/E) ratio of around eight. Citigroup made news last week when the Federal Reserve announced that all 23 large banks passed its stress tests. But Citibank was one of the few that did not indicate that it, with that bit of good news, would raise its dividend. Most did, and some, like Morgan Stanley, doubled the quarterly dividend.

Instead of raising its dividend, Citigroup is focused on maximizing its stock buybacks, at least for the upcoming quarter. As CEO Jane Fraser said, share repurchases are "particularly attractive when our stock price is below tangible book value per share." That makes sense, given Citigroupʻs low valuation. Fraser said to expect a dividend of "at least $0.51 per share" quarterly, which is the current level.

But the fact is, Citigroup pays out a pretty good quarterly dividend already with a yield of 2.9%. On an annual basis, it pays out $2.04 per share and has a low payout ratio of 32%.

Citigroup has underperformed its large bank peers this year, but it still had a solid first quarter as net income climbed to $7.9 billion, up from $4.3 billion in the fourth quarter and $2.5 billion a year ago. The gains were led by investment banking, corporate lending, and treasury and trade solutions businesses. The stock price is up about 15% year to date.

But the company is in a period of transition as Fraser, who took over in March, has begun to transform it in several ways. Her initial moves include improving internal controls, exiting some low-growth international markets to focus on major international wealth centers, and boosting the wealth management business. Weʻll need a few quarters to see the fruits of these changes, but she appears to have the bank on a good track, and with a recovering economy, Citigroup is expected to see earnings growth the next couple of years.

Like Prudential, Citigroup is at too good a valuation to pass up right now -- with the added benefit of an above-average dividend. They are both stocks that income investors should put on their radar. 

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.