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3 Cheap Dividend Stocks You Can Buy Right Now

By Sean Williams - Dec 17, 2014 at 1:03PM

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These three cheap dividend stocks may not stay cheap for long. Find out what makes these three companies so attractive for income investors.

Source: via Flickr.

Dividend stocks are the cornerstone of many well-run retirement portfolios -- that's a fact. The reason is that dividend stocks act as a beacon to investors, inviting them to take a deeper look into a company whose business model is so sound it can pay out a percentage of its annual profits on a regular basis to its investors.

Even more so, dividends can provide a downside hedge in volatile and bear markets. Investors in dividend stocks tend to be more long-term oriented, which usually means far less day-trading and less volatility.

Lastly, dividends can be reinvested, giving the buyer a chance to really compound gains over the long run. These payouts can mean the difference between simply retiring and retiring the way you've always dreamed.

With that in mind, let's have a look at three cheap dividend stocks you can consider buying right now.

1. AT&T (T 1.27%)
When it comes to cheap high-yield dividends, there may not be more of a "go-to stock" than telecom service provider AT&T.

In both growing and volatile markets, AT&T offers practically everything that an income investor would be looking for. First, AT&T offers an inelastic product (wireless, landline, television, and Internet service) in an industry with an extremely high barrier to entry. It would take a rival an extremely long time to start from scratch and make a dent in AT&T's consumer base, which means AT&T's prices are rarely in need of discounting. That leads to healthy and predictable margins.

Source: AT&T.

AT&T's products and services are also bordering on being necessity items with today's younger, tech-driven generation. I'd suggest that if a recession were to occur, we wouldn't see very many phone or Internet service contract cancellations since these are becoming necessary items. In other words, AT&T is somewhat buffered against a recession.

Third, and building on the prior two points, AT&T isn't very volatile. AT&T's beta of 0.18 signifies it's only about 18% as volatile as the S&P 500, which is good news if you, like myself, want to sleep well at night and not worry about where your stocks will be at tomorrow morning when you wake up.

Lastly, AT&T pays out a hearty dividend that currently totals $0.46 per quarter, or $1.84 per year. Its dividend has grown by 47% over the past decade, and it's increased its shareholder payout in each of the past 30 years! If AT&T's stock price remained unchanged and its dividend continued to grow by about 2% annually, an investor would double their money by reinvesting their payouts in a hair over 11 years!

Valued at just 12 times forward profit estimates and carrying a 5.6% yield, I'd suggest income investors looking for a bargain give AT&T a closer look.

2. Macy's (M 2.20%)
There's little denying that this holiday season is poised to be tougher for retailers than last year's, with discount-hungry shoppers out in full force. Luckily, department store giant Macy's has one trick up its sleeve that many of its peers simply don't have: branding power.

Source: Macy's. 

Unlike J.C. Penney, practically every teen retailer, and nearly all mature women's clothing retailers, Macy's has an identity. Macy's sits in the perfect middle ground between Penney's and Nordstrom, and is able to attract discount seekers who would otherwise frequent Penney's as well as higher-income individuals seeking out brand name apparel and accessories who typically visit Nordstrom. By occupying this middle ground Macy's is finding steady success.

In the third quarter, Macy's delivered 3.4% same-store sales growth (i.e., growth from stores open at least one year) and looks poised for strong holiday season sales, with the weather largely cooperating so far. It's also a possibility that retailers like Macy's could see a boost in profits from falling oil prices. Transportation costs do factor into each stores' budget, so a few extra discounts on the sales rack this year may not hurt Macy's margins as much as some Wall Street firms might lead you to believe.

With Macy's focused on improving its employee training process and expanding its direct-to-consumer business, I personally foresee more potential upside than downside. Trading at just 13 times forward earnings and carrying a 2% yield, Macy's could be the perfect stocking stuffer this holiday season.

3. New York Community Bancorp (NYCB 1.13%)
Finally, if you want a truly remarkable cheap high-yield dividend stock from the financial sector, then perhaps it's time to consider New York Community Bancorp and its 6.4% yield.

Despite what you might be thinking considering its high yield, New York Community Bank isn't a real estate investment trust. Instead, New York Community Bancorp sticks to its niche, which just happens to be buying and selling residential and commercial mortgage-backed securities in New York City, a region with a high demand for real estate investment. Based on the company's latest quarterly results, multi-family loans comprised almost 71% of its held-for-investment loans, with commercial loans equaling nearly 24% of its held-for-investment loans.

Source: New York Community Bancorp.

All the major metrics a value and dividend investor would look for in terms of sustainability are present. Non-performing non-covered assets fell 17% from Q4 2013 to just 0.31% of total assets, which speaks to the improving credit quality of its assets. Also, New York Community Bancorp's efficiency ratio stood at just 43.35% (the lower this ratio is below 100%, the higher the margin) due to lower expenses, in spite of its multi-family loan portfolio growing by 13.9% on an annualized basis. The company's efficiency ratio is among the lowest in the industry, and ergo among the best you'll find.

The result is that New York Community Bancorp makes predictable profits quarter after quarter. What investors may give up in share price growth they make up for with its hefty dividend. At 14 times forward earnings, it's a name for income investors to seriously consider.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool recommends Nordstrom. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

AT&T Inc. Stock Quote
AT&T Inc.
$18.27 (1.27%) $0.23
New York Community Bancorp, Inc. Stock Quote
New York Community Bancorp, Inc.
$10.77 (1.13%) $0.12
Macy's, Inc. Stock Quote
Macy's, Inc.
$19.96 (2.20%) $0.43

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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