Dividend stocks can be foundational to your portfolio and help you build it up year after year. The recurring income that these investments generate can help offset declines elsewhere or allow you to collect cash without having to sell shares. Buying stocks trading at discounts can also increase your odds of coming away with a great return on your investment years later.
A couple of incredibly cheap dividend stocks you can buy today include Viatris (VTRS 2.44%) and Kraft Heinz (KHC +2.98%). They are trading well below their book values, and also offer some mouth-watering yields on their dividends. Let's find out a bit more about these two stocks.
NASDAQ: VTRS
Key Data Points
1. Viatris
Viatris specializes in generic drug production. That should make it a fairly stable investment given the need for ongoing healthcare, but investors haven't been willing to pay much for the business lately. At a price-to-book (P/B) value of 0.53, the stock is trading at a steep discount to its stated value.
One reason is likely investor concern about a high debt load. At the end of the second quarter (for the period ending June 30), Viatris' total debt was $21.3 billion, putting it at a debt-to-equity (D/E) ratio of 1.06. Interest expense of $145.9 million in Q2 was more than one-quarter of its operating profit of $548.7 million. What investors may not be acknowledging is that Viatris is making efforts to reduce its debt, and will have cash to do just that with the sale of its biosimilars portfolio to Biocon Biologics for $3.3 billion, a transaction that it expects will close before the end of the calendar year.
Viatris' business has shown some resiliency, as sales in Q2 were down just 3% operationally (i.e. excluding the impact of foreign exchange) at a time when the economy was still in the early stages of returning to some level of normalcy in a pandemic. Long-term, Viatris' should do even better as people resume regular visits to the doctor's office.
Given the huge discount the stock is trading at today, Viatris has the potential to deliver some strong returns on top of its attractive dividend, which currently yields 5.4% (roughly three times the S&P 500 average of 1.8%).
NASDAQ: KHC
Key Data Points
2. Kraft Heinz
Another stock that isn't getting much love from investors is Kraft Heinz. At 0.85, its P/B multiple is higher than that of Viatris, but it too trades at a noticeable discount to book value. It's also carrying more than $21 billion in debt on its books -- but given its size, that's much more modest, as that puts the food company's stock at a D/E ratio of only 0.4.
Interest expense isn't insignificant, and totaled $234 million last quarter (the period ended June 25), which was 43% of operating income of $542 million. However, the company has paid down $660 million worth of debt this year, as Kraft Heinz too is working on improving its balance sheet. Another positive is that the company has been effectively fighting inflation with price increases, and is potentially one of the safer stocks for investors to buy in a recessionary economy thanks to having top brands in its portfolio such as Jell-o, Kool-Aid, and Oscar Mayer, to go along with Kraft and Heinz. Sales of $6.6 billion in the most recent period were down just 0.9% year over year. And with the economy still returning to normal, Kraft could also potentially improve upon these numbers as the year goes on.
Kraft's stock pays a dividend yielding 4.7%, which can give investors some valuable recurring cash flow at a time when losses from the stock market are mounting. Buying the stock at a discounted price is a move that could pay off in the long run for investors.
