Today, June 22, 2022, Dow Jones is trading at ~30,659, the S&P 500 at ~3,784, and Nasdaq at ~11,140. In this bear market, asking what the best stocks that pay dividends are is a sensible question.
We asked it ourselves and started thinking over what would make a dividend-paying company good. Considering how dividend investors are concerned about stability, it turned out the answer wasn’t too far away.
In this post, we found 4 cheap stocks issued by large, profitable, and stable companies that have at least a 5% dividend yield.
Let’s get right into it…
1. Devon Energy Corp (NYSE: DVN)
Business
Devon Energy, founded in 1971 and based in Oklahoma City, is one of the largest US companies that are engaged in hydrocarbon exploration.
It primarily operates in the Barnett Shale STACK formation in Oklahoma, Eagle Ford Group, Delaware Basin, and the Rocky Mountains
It’s worthy of note that Devon is ranked 520th on the Fortune 500 and that at year-end 2021, its reserves totaled 1.6 billion barrels of oil equivalent.
Forecast
Based on the 28 analysts’ 12-month median price target of $80.5 and the stock’s trading price, DVN now has a 40.5% upside. The highest price target is $103 which represents a 79.8% upside and the lowest is $65 which represents a 13.5% upside.
The highest price target suggests a very optimistic upside which is probably going to be realized soon, but not within 12 months. On the other end, the lowest price target is too conservative.
The median price target is the most reasonable prediction here, considering the fundamentals.
Speaking of which…
Fundamentals
First things first, Devon Energy has an 8.39% dividend yield which is very good considering how big this corporation is.
It also had a great performance last year. It generated a 30% return on its equity and it grew revenue by 253.6% on a YoY basis.
On top of that, the stock is only trading at 13.7 times its EPS and 4 times its book value.
And since you will most likely be holding this dividend stock for a while, it’s good to know that Devon has strong liquidity and isn’t too leveraged. Its current assets were last reported as 1.4 times its current liabilities and it has no interest expenses. Further, its D/E ratio was last observed as 1.2x.
All in all, with such a great yield and price, this large-cap stock deserves some further due diligence. If it continues being so profitable, it might be a great fit for a long-term dividend growth portfolio.
Source: DVN Annual Report
2. Dow Inc (NYSE: DOW)
Business
Dow Inc, a spinoff of DowDuPont headquartered in Midland, Michigan, is a diversified chemical manufacturing company and a DJIA component.
The company combines technology with science to create innovative solutions essential to human progress. Its portfolio consists of 6 global business units that are organized into 3 segments:
- Packaging & Specialty Plastics
- Industrial Intermediates & Infrastructure
- Performance Materials & Coatings
Forecast
Based on the 21 analysts’ 12-month median price target of $72 and the stock’s trading price, DOW now has a 39% upside. The highest price target is $80 which represents a 54.5% upside and the lowest is $49 which represents a 5.4% downside.
If you examine the fundamentals of DOW, you will realize that the lowest price target is unreasonably pessimistic. Actually, its recent performance and current valuation make both the median and the highest estimates good guesses.
Let’s take a look…
Fundamentals
DOW is one of those large-cap stocks with a great yield (5.1%) and a lot of growth prospects.
Its recent performance was spectacular. It grew revenue and EPS by 42.6% and 410.9%, respectively (YoY). It also generated a 34% return on its equity.
As for price, it is trading at only 6.6 times its EPS and 2.2 times its book value. The market seems to be ignoring this highly undervalued spinoff; but for how long if the performance trend continues?
Last but not least, its current ratio was last observed as 1.6x and its interest coverage as 12x. Also, its debt to equity ratio was 2.3 times, which is not too high for such a big corporation.
Source: DOW Annual Report
3. Leggett & Platt Inc (NYSE: LEG)
Business
Leggett & Platt Inc, founded in 1883 and headquartered in Carthage, Missouri, is a designer and manufacturer of engineered components found in homes and automobiles.
It does business through the following 3 segments:
- Bedding Products
- Specialized Products
- Furniture, Flooring, and Textile Products
The company’s products include bedding components, specialty bedding foam and private label finished mattresses, automotive seat support and lumbar systems, flooring underlayment, components for home furniture and work furniture, adjustable beds, and various other products.
Forecast
Based on the 3 analysts’ 12-month median price target of $41 and the stock’s trading price, LEG now has an 18.2% upside. The highest price target is $50 which represents a 44.2% upside and the lowest is $36 which represents a 3.8% upside.
The median price target is a reasonable expectation, albeit a bit conservative. The fundamentals of the company disagree with the lowest one, while the highest one is an accurate reflection of them.
Fundamentals
First of all, Leggett & Platt has a 5.08% yield right now thanks to its low-trading price. It is trading at 11.9 times its EPS and 4.2 its book value. While it’s not too low, besides the good dividend yield it offers a great entry point for someone who aspires for growth.
And that’s because the company’s recent performance has been ignored by the market. Last year, it generated a 24.4% return on its equity. Further, it grew revenue and EPS by 18.5% and 58%, respectively, on a YoY basis.
It also has very strong liquidity (current ratio: 1.5x, interest coverage: 7.8x) and not a dangerous capital structure (D/E: 2.2x).
Source: LEG Annual Report
4. Newell Brands Inc (NASDAQ: NWL)
Business
Newell Brands Inc, founded in 1903 and headquartered in Atlanta, Georgia, is an American global consumer and commercial goods provider.
It operates its business through 5 segments:
- Commercial Solutions
- Home Appliances
- Home Solutions
- Learning and Development
- Outdoor and Recreation
Most of the company’s revenue is derived from the “Learning and Development” segment, which offers infant care and baby gear products.
Forecast
Based on the 12 analysts’ 12-month median price target of $26.5 and the stock’s trading price, NWL now has a 45.2% upside. The highest price target is $38 which represents a 108.2% upside and the lowest is $20 which represents a 9.5% upside.
The lowest price target is a bit pessimistic, based on the fundamentals of the company, but nevertheless, the most reasonable here.
Fundamentals
Newell Brands currently has a 5.02% yield. Further, its price is trading at just 13.6 times its EPS and 1.9 times its book value.
As for profitability, the company did well last year. It grew revenue by 14% on a YoY basis and generated a 13% return on its equity. Nothing spectacular, but if it can maintain profitability, your dividend will be safe.
Last, it has a current ratio of 1.3x and interest coverage of 3.7x. It’s also not overleveraged considering its D/E ratio of 2.4x.
Source: NWL Annual Report
What about Growth though?
Now you know what the best stocks that pay dividends are. Frankly, it’s difficult to go wrong with any of the above picks if you’re looking for a strong dividend growth portfolio.
But you might be interested in a growth stock ideas flow if you want to tackle the capital appreciation issue. Dividends can be reinvested, of course, but it makes no sense for you to do so if your portfolio includes some growth stocks that will take care of that.
That is why we created a free newsletter where we provide you with 2 growth stock ideas per month. Three of our latest picks had a combined return of 382%! On top of that, 90% of all of our ideas have been outperforming the market for the last 3-4 years.
Hurry up and sign up for free today for our next growth stock pick! Link to sign-up form.
