When the going gets tough on Wall Street, smart investors turn to dividend stocks. That's because dividend-paying companies are often consistently profitable. These are businesses that have shown Wall Street they can navigate choppy waters and come out stronger on the other side.
Income stocks also have history on their side. Based on a report released 10 years ago by J.P. Morgan Asset Management, a division of money-center bank JPMorgan Chase, publicly traded companies that initiated a dividend and increased their payout over time absolutely crushed non-paying stocks over the long run. Between 1972 and 2012, income stocks delivered an annualized return of 9.5%, compared to just a 1.6% annualized return for publicly traded companies without a dividend.
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With the bear market still in full swing, deals abound among income stocks. What follows are three of the cheapest high-yield dividend stocks on the planet you can confidently buy right now.
AT&T: 5.68% yield
The first ultra-cheap high-yield income stock that's begging to be bought in the new year is telecom giant AT&T (T +1.26%).
For much of the past decade, historically low lending rates attracted investors to faster-growing companies. This made AT&T Wall Street's version of chopped liver (sorry for those of you who love chopped liver). But with the major stock indexes tumbling in 2022, the stability of AT&T's operating cash flow, coupled with two very clear catalysts, has made it quite an attractive investment.
NYSE: T
Key Data Points
The key to lifting AT&T's organic growth rate over the next (at least) three years is 5G. Telecom companies are steadily upgrading their wireless infrastructure to support 5G download speeds. Since it's been in the neighborhood of a decade since wireless download speeds were substantially improved, 5G offers a tangible lure for consumers and businesses to upgrade their devices and consume more data. Not surprisingly, AT&T's 5.6% wireless segment revenue growth during the September-ended quarter was its fastest pace of growth in over 10 years.
The other important tailwind for AT&T was the April 2022 spinoff of content arm Time Warner, which was subsequently combined with Discovery to create new media company, Warner Bros. Discovery. When this merger took place, it included the assumption of select lots of debt that AT&T had previously carried on its books, as well as a cash payment. AT&T's balance sheet is now in much better shape, and its 5.7% payout looks to be in no danger of being reduced.
AT&T stock is an incredible deal, with shares of the company currently valued at less than 8 times Wall Street's forecast earnings for 2023.
NASDAQ: ARLP
Key Data Points
Alliance Resource Partners: 9.72% yield
For income investors who love near-double-digit yields, coal stock Alliance Resource Partners (ARLP 0.66%) is one of the cheapest dividend stocks on the planet that can be confidently purchased right now.
Some of you are probably repulsed by the idea of investing in a coal company at a time when renewable energy sources seem to be all the rage. However, the worldwide energy supply chain is dealing with problems that won't be solved anytime soon. Reduced capital investment during the pandemic, coupled with Russia invading Ukraine in February 2022, has made it virtually impossible to ramp up crude oil and natural gas supply in the short run. That's the ideal recipe for coal to step in and shine.
In addition to significantly higher coal prices, Alliance Resource Partners benefits from its forward-looking operating approach. Specifically, the company tends to lock in volume and price commitments years in advance. Alliance Resource is on track for approximately 37 million tons of coal production in 2023, but has priced and committed 32.9 million tons for 2023 as of the end of September, and another 22.8 million tons for 2024. This leads to highly predictable cash flow, which the company can use to conservatively expand its output or increase its inflation-crushing distribution.
Alliance Resource Partners also holds various crude oil and natural gas royalty rights. If the global energy supply chain remains broken, the expectation would be for energy commodity demand to outpace supply. This would imply oil and gas prices would remain elevated, and ultimately provide a lift to Alliance Resource Partners' adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) from its royalty segment.
Despite a global renewable energy push, Alliance Resource Partners is downright cheap at less than 4 times Wall Street's consensus earnings for 2023.
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Walgreens Boots Alliance: 5.22% yield
A third glaringly cheap high-yield dividend stock that's ripe for the picking is pharmacy chain Walgreens Boots Alliance (WBA +0.00%). Walgreens' payout has proved to be rock-solid, with the company increasing its base annual dividend for the past 47 years.
The reason Walgreens Boots Alliance stock can be scooped up for less than 8 times Wall Street's consensus forward-year earnings is simple: The company was clobbered by reduced foot traffic during the initial stages of the COVID-19 pandemic. But with a trio of initiatives currently in play, Walgreens looks poised for a strong bounce-back.
NASDAQ: WBA
Key Data Points
To begin with, management has emphasized the importance of convenience in the wake of the pandemic. Walgreens has heavily invested in beefing up its online presence and promoting drive-thru pickup. Although most of its revenue still derives from its physical stores, Walgreens can generate sustained double-digit organic sales growth from digital sales.
As a Walgreens shareholder, I'd say its partnership with, and majority investment in, VillageMD is the most exciting catalyst. This duo has opened 200 full-service clinics co-located at Walgreens stores, as of the end of November. Having physicians in its clinics is a true differentiator from most in-store clinics, which are only able to handle vaccinations or a simple sniffle. Look for these clinics to drive repeat visits and boost customer loyalty.
Finally, Walgreens has been trimming the fat, where necessary. Even with these aforementioned investments designed to boost its organic growth rate, the company's annual operating expenses have been reduced by more than $2 billion. These initiatives are a recipe for a higher valuation.
