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3 Cheap Dividend Stocks You Can Buy Right Now

By Sean Williams - Mar 10, 2015 at 8:04AM

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These might be three cheap dividend stocks now, but give them some time and they could gallop significantly higher.

Source: Flickr user Tom_Bullock.

Dividend stocks are the cornerstone of many well-run retirement portfolios -- that's a fact. This is because dividends 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 profit to shareholders.

Dividends can also provide a downside hedge in volatile and bear markets. Investors in dividend stocks tend to be oriented more toward the long term, which usually makes for less day trading and less volatility. Lastly, dividends can be reinvested, giving buyers an opportunity to compound gains over the long run. These payouts can mean the difference between simply retiring and living out your dream retirement.

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

1. JPMorgan Chase (JPM -0.78%)
Last week didn't end on a high note for the largest bank by assets in the United States, JPMorgan Chase. Following its annual stress tests, the Federal Reserve noted that for the first time all 31 banks passed. However, certain banks are clearly better positioned to thrive than others. Some Wall Street firms, including Citigroup's research arm, said JPMorgan Chase might not have much wiggle to room to boost its dividend and buy back stock in 2015 following the results.  

Although this might seem like a temporary downer for shareholders, JPMorgan is still doing much right.

Source: Chase, Facebook.

For starters, JPMorgan Chase recently received the top brand loyalty honor for banks by research firm Brand Keys. This signifies JPMorgan has built trust with its consumers, that it is perceived to be financially sound, and that it is successfully attracting millennials and older affluent customers.

We've witnessed this dual target on display in recent years as the bank has aimed new technology at a tech-savvy younger audience while pitching its investment banking private client services to upper-income individuals. Shortly after its investor day last month JPMorgan Chase announced the closure of 5% of its branches, or 300 locations, over the next two years. The move is being made to shave $1.4 billion off expenses, but also to reflect the changing dynamic of banking in which fewer people are actually depositing their money with a teller. Lower expenses for JPMorgan Chase and a more convenient experience for millennials are a great combination for improved profitability.

Many of JPMorgan Chase's fundamental figures are also heading in the right direction. Deposits and loans are rising, which will bode well when interest rates do begin to climb; noninterest expenses are falling; loan credit quality remains strong; and the company should be nearing the end of any legal ramifications from the housing bubble in 2008-2009.

Currently sporting a forward P/E below 10, JPMorgan Chase looks incredibly cheap relative to the S&P 500's average P/E, which is closer to 20. Tack on the bank's 2.6% yield and you have all the makings of a cheap dividend stock.

This name likely isn't as familiar as JPMorgan Chase, but could be just as scintillating if you're an income investor looking for a cheap dividend stock.

GATX is primarily a leasing company, owning more than 126,000 railway cars in the U.S. and approximately 22,000 in Europe. It also operates 17 vessels that transport dry cargo.The company is set up perfectly to succeed in an uncertain or tight spending environment because the cost of new railcars and shipping vessels is high and certain businesses might not want to spend a lot of money to buy their own. Instead, GATX can capitalize on the lower costs of leasing to lock in customers for long-term logistics contracts.

Source: Kool Cats Photography via Flickr.

According to GATX's latest quarterly results, its railcar fleet utilization in the U.S. rose 70 basis points year over year to 99.2%. Furthermore, at the end of the year the average lease renewal was for 67 months, up from 60 months in the year-ago period. For the trifecta, its lease pricing rose as well. What we have here is higher demand for leasing, along with better prices for GATX that are being locked in for an even longer period of time. That's great news.

GATX's subsidiary, American Steamship, delivered comparably strong results. Segment profit doubled to $10.2 million as the company shipped more tonnage at more favorable rates, although it had two additional vessels in operation in 2014 compared to 2013.

If lending rates begin to rise in 2015, as economists widely anticipate, logistics companies could have even more impetus to lease instead of buy, strengthening GATX's buying power just that much more. At a forward P/E of just 11 and sporting a  2.4% dividend yield, GATX has all the makings of an under-the-radar income investor's dream stock.

3. Qualcomm (QCOM 1.92%)
Finally, we have technology giant Qualcomm.

As you can probably tell by Qualcomm's share price, it has not had an easy go of things the past couple of quarters. As announced in its first-quarter earnings report in January, Qualcomm is struggling with lower demand for its Snapdragon processors, as well as heightened competition in China. Any time a company that has been as dominant for as long a period of time as Qualcomm lowers its full-year EPS estimates, Wall Street takes notice, and investors pounced on the stock in a bad way.

Source: Qualcomm, Facebook.

However, there are reasons to believe these recent challenges are nothing more than speed bumps. Qualcomm holds the majority of global baseband processing market share, and is unlikely to give that up anytime soon. Even with Intel infiltrating the LTE baseband space, Qualcomm's technological dominance, reputation, and vertical integration should allow it to maintain this dominant position and reap sizable margin benefits.

Similarly, rising competition in China in no way makes it any less of an attractive market for Qualcomm. China is only just beginning its 3G/4G LTE rollout, giving Qualcomm an opportunity to take advantage of first-time cellular sales to suburban markets, as well as consumer upgrades to faster LTE-capable devices. In short, there are plenty of ways for Qualcomm to boost its margins and grow its profits in foreign markets.

Based on Qualcomm's reasonably low PEG ratio of less than 1.4, its forward P/E of 13, and its eye-catching 2.4% yield, I'd suggest this borderline growth stock could pay handsome rewards for investors over the long term.

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 owns shares of Citigroup, JPMorgan Chase, and Qualcomm, and recommends Intel. 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

JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
$121.64 (-0.78%) $0.95
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QUALCOMM Incorporated
$151.38 (1.92%) $2.85

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