If you're buying a dividend stock that's trading near its low for the year, it stands to reason that the yield is also higher than it would normally be. If the stock recovers from those lows, those who buy in end up profiting from an increase in share price as well as locking in the better-than-typical dividend yield.
That suggests there is a double incentive to buy quality dividend stocks that are trading near their 52-week lows. The tough part is ensuring you have found a quality stock. Three that qualify are Johnson & Johnson (JNJ 0.23%), Paychex (PAYX 0.37%), and Keurig Dr Pepper (KDP -1.14%). Let's learn a bit more about these three dividend stocks trading near 52-week lows and how a $5,000 investment can help you generate a decent return along with quarterly income.
1. Johnson & Johnson
Johnson & Johnson stock just got a whole lot better now that it has spun off its consumer health business into Kenvue. While the spinoff won't fully erase the legal issues J&J faces relating to baby powder products, it does at least allow the company focus on the faster-growing segments of its business, such as medical devices and pharmaceuticals.
This Dividend King recently raised its payout for the 61st consecutive year, pushing its yield up to around 3%, well above the S&P 500 average of 1.7%. It recently raised its dividend a generous 5%. On a $5,000 investment in the stock, you could be collecting around $150 in dividends each year -- an amount likely to climb in the future.
The business has a strong track record for profitability, with an operating margin of 25% last year. While nonoperating items (e.g., lawsuits) can weigh down its bottom line, the company's strong margins have enabled it to manage those costs.
Johnson & Johnson's stock isn't trading far from its 52-week low of $150.11, making it attractive to buy and hold right now. While its earnings multiple of 34 might seem expensive, remember that's also with near-term legal costs weighing down its recent numbers. In the long run, this can make for an excellent dividend stock to hang on to.
2. Paychex
Paychex provides businesses with payroll and human resource solutions that can help automate and improve processes. That can be particularly helpful when companies are looking to become leaner and more efficient. According to its website, over 730,000 businesses are Paychex customers.
When it last reported earnings on March 29, the company posted solid 8% revenue growth with sales for the three-month period ending Feb. 28 climbing to a little under $1.4 billion. Operating income of $611.9 million also increased by 9%. Paychex forecasts that its adjusted earnings will grow by at least 13% this fiscal year (which ends on May 31).
Due to the strong outlook, Paychex bumped up its dividend payments by 13% last month, with its shareholders now collecting $0.89 per share every quarter. At 3.3%, the stock pays a higher yield than Johnson & Johnson.
At 23 times estimated future earnings, Paychex's valuation is a bit expensive. But with the decent growth it has been generating amid challenging macroeconomic conditions, it could be worth it. The stock currently trades within a few dollars of its 52-week low of $104.78.
3. Keurig Dr Pepper
Another dividend stock with some good value is Keurig Dr Pepper. The consumer goods company known for its beverages -- including 7 Up, Canada Dry, and Schweppes -- pays a dividend that yields 2.5%. If you were to invest $5,000, you could earn $125 annually in dividend payments.
Like many other companies with popular consumer brands, Keurig Dr Pepper was able to battle inflation by raising prices, which helped the top line. For the first three months of the year, Keurig's net sales of $3.4 billion were up nearly 9% year over year. And for the full year, the company anticipates that without factoring in the effects of foreign exchange, its sales will grow by 5%, while adjusted earnings will improve by at least 6%.
At 18 times estimated future earnings, Keurig's stock is trading at a decent valuation in line with the S&P 500 average, and it could make for a solid pick right now since it's near its 52-week low of $31.90.
