A more expensive stock may have a higher dividend payout, but that doesn't necessarily mean it's a better dividend stock. It's all about the yield. If a lower-priced stock has a higher yield than the more expensive one, it can deliver more dividend income for the same dollar amount invested. And steady, increasing income is often a prime reason for getting into dividend investing, even if you don't have a lot to invest.
Let's take a closer look at two high-yield dividend stocks that you can buy for under $50 per share.
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1. Franklin Resources: About $26 per share
Franklin Resources (BEN -0.98%) is an asset manager that has raised its dividend for 40 consecutive years, making it a Dividend Aristocrat. There are only about 35 other S&P 500 stocks that have a longer streak. Franklin Resources, which owns Franklin Templeton funds, among other fund families, has been able to continually increase its dividend through some lean years last decade when investors turned en masse to index funds and this primarily active manager underperformed.
Now, Franklin is in great shape to continue to increase that dividend. It made a big move in 2020 to acquire one of its rivals, Legg Mason, to give it added scale and make it a top-10 asset manager. Legg Mason brought world-class fixed income management to Franklin, as well as significant institutional assets. Franklin also just closed on its deal to buy private equity firm Lexington Partners. These moves provide it with a diversity of assets that should serve it well in the choppy markets that are expected.
Franklin is coming off a strong 2021 and finished the year with revenue up 11% and operating income up 36% in the fourth quarter, year over year. It has over $4 billion in cash and a high 25% operating margin.
The firm just distributed a $0.29 per share dividend in the first quarter at a yield of 4.3%, which is historically high. The last time it was in that range was when it jumped to 6% at the start of the pandemic when the share price plummeted. Another plus about Franklin is that it has a low payout ratio of about 27%, which indicates the dividend is easily sustainable and has plenty of room for further growth.
2. Bank of America: About $39 per share
Bank of America (BAC 1.70%) is a megabank -- the second-largest in the U.S. It is also the second-largest holding of Warren Buffett, founder and CEO of Berkshire Hathaway.
Bank of America's stock is down about 11.2% year to date, but it is poised to outperform the market in 2022. It posted some solid numbers in the fourth quarter with revenue up 10%, deposits up 16%, and loan balances increasing 6%, year over year. Also, net income was up 27% year over year in Q4.
The numbers were buoyed by the addition of 901,000 new checking accounts in 2021, up 64% over pre-pandemic levels, while new net investment accounts jumped 24% over that same time period. Further, Bank of America's efficiency ratio, the percentage of expenses it takes to earn $1 of revenue, is 66%, down from 68% in Q4 2020.
There is reason to be hopeful that the momentum will continue in 2022 and beyond. The Federal Reserve boosted interest rates in March and the expectation is that it will boost rates perhaps six more times this year and more next year to curb inflation. This is great news for banks, as higher interest rates translate to higher interest income and more revenue.
Loan growth is also expected to be robust, with a high-single-digit percentage increase expected in 2022. That, of course, hinges on whether the Fed can get inflation under control and if Russia's invasion of Ukraine doesn't derail economic growth. CEO Brian Moynihan projected a revenue increase of $6.5 billion with a 100-basis-point increase in rates on the fourth-quarter earnings call.
Bank of America paid out a dividend of $0.21 per share in the first quarter at a yield of 2.1%. That's lower than Franklin, but above the 1.3% average on the S&P 500. Like Franklin, it also has a low payout ratio -- just 21%, so with the earnings expectations, the dividend is quite sustainable.
These are two well-established companies that should not only continue to produce good dividends but should also see solid returns in a volatile market -- and they are both trading under $50 per share.
