Dividend stocks may be boring compared to high-flying technology stocks, but boring can be good in a market that has been so wild and unpredictable lately.
One of the best places to look for good dividend stocks is the financial sector, for a few reasons. One, the sector is generally filled with large, established, stable companies that are known for paying good dividends. Two, the sector is poised to outperform in this rising-interest-rate market cycle. And three, you can find a lot of good value there. Here are three cheap dividend stocks to provide some ballast to your portfolio.
1. Prudential Financial
Prudential Financial (PRU 0.43%) is one of the largest life insurance companies in the U.S., and it is a top-10 asset manager. The company has been realigning itself by selling off ancillary businesses to expand its asset management business and into emerging markets and paying down debt. In recent years it sold off insurance businesses in Taiwan and Korea, and on April 4, it completed the sale of its retirement plan business to Empower Retirement, which is owned by Great-West Lifeco, for $3.5 billion.
As a result of this streamlining, Prudential has increased its cash position with $28.4 billion in cash and cash equivalents and $9.8 billion in operating cash flow. This will help Prudential to continue supporting its dividend, which is one of the best on the market. In the first quarter, Prudential boosted its quarterly dividend to $1.20 per share at a 4.1% yield with a payout ratio of around 31%. That comes out to $4.80 per share annually.
Also, the share price is up about 8% year to date as of April 6, and it is extremely cheap, trading below book value with a price-to-earnings (P/E) ratio of around 6.
2. Principal Financial Group
Principal Financial (PFG 0.83%) is a financial services firm that offers retirement plan administration, investments, and insurance. The firm is coming off an excellent 2021 when it boosted operating income by 43% to $2.3 billion and increased net income by 21% to $1.7 billion. Its retirement plan arm is its largest revenue generator, and it increased operating earnings by 23% in the fourth quarter to $330 million. But all of its business segments were up in the quarter and for the full year.
Its outlook is good, particularly for income investors. In its 2022 outlook, Principal expects 10% to 13% earnings-per-share growth and will return $2.5 billion to $3 billion in capital to shareholders in dividends and share repurchases with dividends paid out at a 40% payout ratio.
Principal currently pays out a $0.64-per-share quarterly dividend at a yield of 3.4% and a payout ratio of 36%. That comes out to $2.56 per share annually. The stock price is up about 2% year to date as of April 6 and has a low 1.2 price-to-book (P/B) ratio and a P/E ratio of 11.
Citigroup (C 1.00%) is one of the four megabanks in the U.S., with about $1.7 trillion in assets. Citigroup has lagged behind its megabank peers in recent years, stemming partly from poor risk management and oversight, which led to a hefty fine from the Federal Reserve about a year and a half ago.
More recently, Citigroup's share price has dropped as the company revealed that it had some exposure to Russian assets, which could be hit by sanctions. The assets amounted to about $5.4 billion, more than its peers, but a small percentage compared to its nearly $2 trillion in assets overall. But the market reacted, and the stock price dropped.
The share price is down about 16% year to date as of April 6, but Citigroup should be in decent shape going forward. The Federal Reserve has already raised rates once, and it has indicated that there could be more than a handful of rate increases over the next couple of years to get inflation under control. Interest rate increases are good for banks in general, provided they succeed in lowering inflation. Higher interest rates mean the bank can earn more interest income on its loans. Wall Street analysts set a median price target of around $70 per share for Citigroup over the next 12 months, which would be about a 40% increase over its current $50 per-share price.
Citigroup is dirt-cheap right now with a P/B ratio of 0.57 and a P/E ratio of just 5. The quarterly dividend is $0.51 per share, where it has remained since before the pandemic, with a yield of 4%. With a payout ratio of just 20% and solid earnings expectations ahead, the bank should be in a good position to finally raise its dividend.
All three of these stocks should boost your dividend income while also driving some decent returns in a volatile market.