Do you like bargain-priced stocks? How about bargain-priced dividend stocks? How about bargain-priced dividend stocks that you've actually heard of? Well, you're in luck! The stocks of two iconic American brands are currently sitting in the bargain bin.
The companies are shipping behemoth UPS (UPS 0.65%) and appliance maker Whirlpool (WHR 0.74%). Both stocks have been slowly sinking for years, with share prices now down more than 60% from their all-time highs!
Both stocks fell again -- by more than 15% -- after their recent second-quarter earnings reports, but one looks more likely to recover.
Image source: Getty Images.
Only one cut its dividend
Both UPS and Whirlpool have long histories of paying and regularly increasing their dividends. By July, their share-price slumps had pushed both of their dividend yields above 7%.
A yield that high is tempting, but neither company was on track to generate enough free cash flow to cover it. When a company can't cover its dividend with free cash flow, it has to dip into the cash on its balance sheet, take on additional debt, or find some other way to fund the payout.
NYSE: UPS
Key Data Points
UPS is going to try to make it work somehow, according to CEO Carol Tome on the Q2 earnings call. She told investors, "You have our commitment to a stable and growing dividend." That means the company will be on the hook for at least $5.5 billion in dividend payouts this year, which seems almost certain to exceed its free cash flow for the year. That keeps UPS's yield high for now, but investors should remember that there's no guarantee the company's position won't change without warning, resulting in a surprise dividend cut.
Whirlpool, on the other hand, cut its annual payout in half from $7 per share to $3.50 per share. That means its yield is now much lower than UPS's (4% vs. 7.5%), but its $190 million total payout is also much more manageable, making its dividend more sustainable over the long term. It also means the dividend cut is baked into the company's current share price, whereas if UPS makes a cut, its stock price will probably sink even lower in response.
The ups and downs of tariffs
UPS and Whirlpool are both bracing for the impact of tariffs, but in different ways.
For UPS, the tariffs are a huge risk. They will likely cause imports to decline, resulting in lower shipping volumes. With some tariffs kicking in just as the labor market shows signs of weakness, they could negatively impact overall consumer spending (and thus, shipping) during the critical holiday shopping season.
NYSE: WHR
Key Data Points
On the other hand, the tariffs may actually help Whirlpool by hurting its foreign competitors like LG, Samsung, and Haier. The Trump administration has proposed high tariffs on countries that happen to export lots of large appliances to the U.S. These include South Korea (25%), Thailand (36%), Vietnam (46%), and China (as high as 145%). Many of these rates are in flux, but even if they end up at 10% or 15%, it will still give Whirlpool, which manufactures more than 80% of its products in the U.S., a big pricing advantage.
Although UPS's yield may now be higher than Whirlpool's, its prospects are looking dimmer thanks to economic factors outside of its control. Meanwhile, even after its dividend cut, Whirlpool still offers a decent yield and a compelling valuation. If I were to pick one, I'd go with Whirlpool hands down.
