The silver lining of the market sell-off in 2022 is that it has created plenty of dirt cheap dividend stocks that investors can buy now and hold for at least a decade to create lasting wealth. The great thing about buying dirt cheap dividend stocks is that it combines the advantages of two time-honored, battle-tested disciplines of investing: dividend investing and value investing. Dividend investing has beaten the S&P 500 over time and provides investors with multiple ways to win because dividend stocks generate income as well as appreciate over time. Value investing is a winning strategy over the long run because value investors buy shares of underappreciated businesses, which can rise over time as more investors begin to appreciate the company's business and results. By buying companies for less than their intrinsic value, value investors give themselves a nice margin of safety.
Here are three dirt cheap dividend stocks that can be bought and held over the long term.
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1. FedEx
NYSE: FDX
Key Data Points
Trading at just over 10 times next year's earnings, FedEx (FDX 0.41%) stock checks the value box. There is an old investing adage that says the safest dividend is the one that was just raised. Not only did FedEx recently raise its dividend, it increased its payout by over 50%, from $0.75 a quarter to $1.15. After the increase, shares now yield 2%. The company's payout ratio is minimal so there is plenty of room for the dividend to grow in the future. . While FedEx is not a Dividend Aristocrat, as its dividend was stagnant for several years between 2019 and 2021, it has paid out a consistent dividend since 2003 and it seems that the management team, led by new CEO Raj Subramaniam, is placing a priority on ramping up returns to shareholders.
2. Camping World Holdings
NYSE: CWH
Key Data Points
Trading at just four times earnings and yielding almost 10%, Camping World Holdings (CWH +0.62%) is perhaps the best combination of a low valuation and high yield that an investor will find in the market today.
If you liked FedEx's dividend increase, you'll love Camping World's. The Illinois-based seller of recreational vehicles (RVs) and outdoor accessories has been raising its dividend substantially over the last few quarters, from $0.25 to $0.50 in the second half of 2021, to $0.625 in March 2022, which equates to an annual payout of $2.50 and a current yield of 9.9%.
Shares have struggled this year because investors are worried that higher gas prices and a potentially slowing economy could put a damper on demand for RVs. But this pessimism seems to already be baked into the stock price, with shares of Camping World changing hands at just 4 times earnings. The company posted record revenue results in the first quarter of 2022, when these concerns were already starting to surface in the market. . The user base of RVs is larger than in the past as many people took up the hobby during the pandemic, and Camping World sells a variety of products and services to RV owners, such as roadside assistance, maintenance, and repairs. . While RV sales will decline if the economy deteriorates (sales for the industry fell in April ), Camping World's rock-bottom valuation and dividend that pays you a near double-digit yield while you wait for the economy to turn around make this risk more palatable.
Marcus Lemonis, the company's visible and outspoken CEO, recently purchased $1 million worth of shares on June 10, indicating that the person who knows the company best believes its stock is undervalued.
3. ExxonMobil
NYSE: XOM
Key Data Points
If you're looking for a long-standing and high-yielding dividend, you can't go wrong with ExxonMobil (XOM +1.86%). The largest energy company in the United States by market cap has been paying a dividend for over 100 years and has increased its dividend payment for 39 consecutive years, making it a Dividend Aristocrat.
The stock has done well this year, soundly outperforming the broader market with a 40% gain year to date while the Dow Jones Industrial Average and S&P 500 have lost 18% and 23%, respectively, over the same time frame. Even after this run, shares of ExxonMobil look inexpensive, trading at just 9.5 times next year's earnings.
Shares are likely trading this cheaply because some investors don't think the increase in oil prices that has buoyed shares this year is sustainable and believe that in the future oil usage will decrease. However, despite many countries attempting to decrease fossil fuel reliance, the world is going to need oil for a long time.
Even in the event of decreased oil usage in the future, Exxon is diversifying and has investments in multiple alternative energy sources that could pay off in the future. The company believes carbon capture and storage can be a $4 trillion market opportunity by 2050. ExxonMobil is also investing heavily in "blue hydrogen," which is produced from natural gas and may one day be a low-cost, climate-friendlier option for fuel certain applications.
Combining a value-oriented approach with dividend investing gives investors the ability to buy income-generating stocks with a margin of safety. All three of these stocks offer both and thus look like sound buys for now and over the long term.
