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3 Dividend Stocks to Buy on Sale

By Chuck Saletta – Oct 10, 2021 at 7:30PM

Key Points

  • Dividends and value can work together to provide shareholders a decent total return.
  • A solid balance sheet can provide a great buffer for businesses in tough industries.
  • You'll want a long-term perspective to see the greatest potential returns from these types of investments.

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When companies that pay you to own them can be purchased at a bargain price, it's certainly worth your time to consider it.

In today's market, bargain-priced companies are hard to find. When you add the fact that low interest rates have forced income-oriented investors farther up the risk curve for income, finding deals on stocks that pay their owners has become even more challenging.

Fortunately, deals do exist among some dividend-paying companies. Often these days, they can be found among companies in out-of-favor business lines or ones where short-term problems have spooked the market. As long as you're willing to go against the general market's consensus, you just might find that these three dividends stocks appear to be on sale and may be worth buying.

Woman holding cash and smiling.

Image source: Getty Images

No. 1: A leader in fast delivery

FedEx (FDX -0.45%) has seen its shares slump in recent weeks as its earnings missed expectations and it offered downbeat guidance for the near-term future. Those short-term worries have opened up what looks like an opportunity for patient investors to scoop up its shares at a potentially bargain price.

At a recent market price of $223.44, it's trading at barely 10 times analysts' fiscal year 2023 earnings estimates of $22.27 per share. That looks like a bargain in a market that currently trades at around 22 times forward projected earnings. Especially when combined with FedEx's anticipated earnings growth rate of nearly 12% annualized over the next five years, the company's shares look reasonably priced.

From a dividend perspective, FedEx currently offers its investors $0.75 per share per quarter. Its dividend has been generally increasing over time, but the company doesn't boost its payout every year. That works out to a current yield of around 1.3%, which isn't too bad if you consider the potential for long-term dividend growth. Even with the short-term challenges facing the company, that dividend consumes only around 15% of its earnings, which gives reason to believe that growth can continue.

No. 2: A hard money lender with pristine balance sheet

Broadmark Realty Capital (BRMK 1.32%) is a publicly traded hard-money lender that's focused on the construction industry. That means it focuses on making loans that could otherwise fall through the cracks of traditional real estate lending -- such as rehabs, project completion, and bridge loans.

That's a bit of a risky business, which is probably why the market offers its shares at around 15 times trailing and 10 times anticipated 2022 earnings. That reasonable price is part of what makes it attractive. In addition, the company is structured as a real estate investment trust (REIT), which means Broadmark Realty Capital must pay out at least 90% of its earnings as dividends. That requirement, combined with its reasonable valuation, means it offers investors a current yield of around 8.4%.

The REIT dividend requirement combined with the company's anticipated earnings growth means investors may see an even higher payout in the future if those earnings materialize. Of course, since the industry it operates in is known to be a risky one, there's always a chance those higher earnings don't actually show up.

To attempt to offset a decent amount of that risk, Broadmark Realty Capital has two key things going for it: a pristine balance sheet and lending standards that help mitigate its risk of significant losses. The company has exactly $0 in debt on its own balance sheet, although it does have a moderate amount of lease obligations reflected as liabilities. Even those lease obligations are low compared with the company's cash on hand, which gives it an incredibly healthy balance sheet for a company in the lending business.

From a lending standards perspective, Broadmark Realty Capital insists on a loan-to-value ratio of no more than 65% when it underwrites its loans. That gives good reason to believe that even if one of its borrowers gets into trouble, the company has a good chance of getting a big chunk of its capital back.

No. 3: An insurance titan with a rock-solid reputation

Prudential Financial (PRU -0.64%) is so focused on being a rock-solid business that it uses an actual rock -- the Rock of Gibraltar -- as its corporate logo. That focus on its strength means it's not exactly among the high-growth cohort of stocks that the market loves, which is a key reason its shares are available at such a reasonable price.

Investors today can pick up Prudential Financial for around 8 times the company's anticipated earnings, and those earnings are expected to increase around 8% annualized over the next five years. That low valuation means that Prudential Financial can offer investors a yield of around 4.2%, while still paying out only about a quarter of its trailing earnings.

The company has a history of increasing its dividend annually, though it did cut its payment during the financial crisis. The current dividend is well ahead of where it was before that crisis, which shows that it will reward its shareholders when it can, but that it really does prioritize protecting its balance sheet in a crisis. For investors with a long-term focus, that should be a good sign of its ability to adapt over time.

With a long-term focus, these dividend stocks may be worth owning

Dividend stocks like FedEx, Broadmark Realty, and Prudential Financial may not be the fastest growers out there, but if you can buy them at decent prices, they might provide reasonable long-run returns. Just be sure to have both the patience to let that long term play out and the willingness to keep an eye on their operations to make sure they continue to be worth owning as you wait.

Of course, as you wait, those dividends pay you for your patience, and those payments become part of your total return on investment. To collect their next dividends, though, you need to own shares before the companies' next ex-dividend date. So get started now, and decide for yourself whether these three dividend stocks are on sale enough to be worth buying now.

Chuck Saletta owns shares of Broadmark Realty Capital, FedEx, and Prudential Financial and has the following options: long January 2022 $100 calls on Prudential Financial, short January 2022 $100 puts on Prudential Financial, short January 2022 $115 calls on Prudential Financial, and short January 2022 $95 puts on Prudential Financial. The Motley Fool owns shares of and recommends FedEx. The Motley Fool has a disclosure policy.

Stocks Mentioned

Prudential Financial Stock Quote
Prudential Financial
PRU
$102.63 (-0.64%) $0.66
FedEx Stock Quote
FedEx
FDX
$172.28 (-0.45%) $0.77
Broadmark Realty Capital Inc. Stock Quote
Broadmark Realty Capital Inc.
BRMK
$3.83 (1.32%) $0.05

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

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