5 Dividend Stocks Trading Under $10
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While the traditional starting point for many smaller investors was money-market accounts, returns on these investment vehicles have remained sluggish. Those with smaller sums to invest, but who also want to obtain yield might consider consistently paying, low-priced dividend stocks. While they do not offer the near guarantee that a money market account might, most of the following have a consistent history of paying dividends to their shareholders.
Alcoa (NYSE: AA) -- AA has recently been trading at the lower end of its 52-week range, and pays quarterly dividends, yielding 1.3%. This low dividend did not keep AA from trading 2% higher on Jan. 11, as Ilan Moscovitz at The Motley Fool noted because of higher expected aluminum demand in 2012. Still, this Seeking Alpha article casts doubts on AA’s continued dividend performance, though the company did have $1.9B cash on hand at the end of the year.
For those interested in aluminum stocks, the only other publically traded company of size is Aluminum Corporation of China (ACH). However, AA compares favorably to ACH as the Chinese competitor trades at 29 times earnings as compared to Alcoa’s 10, and ACH pays a stingy .3% dividend, compared to AA’s 1.3%. Furthermore, AA has a long history of paying dividends, and investors' expectation of current income may make AA think twice before drastically cutting or ceasing a dividend declarations.
Nokia (NYSE: NOK) -- As a dividend stock, Nokia’s large 9.2% dividend yield is attractive, however, its closest competitor LM Ericsson Telephone (Nasdaq: ERIC) is a better value. While ERIC’s dividend yield is a more muted 2.7%, it sells for about 14 times earnings as compared to relatively more expensive NOK with a P/E of 23. NOK has a projected negative quarterly revenue growth, which is a threat to continued dividends that are paid once annually. ERIC’s quarterly revenue growth is much more optimistic at 16.9%.
NOK has paid an annual dividend since at least 1996; ERIC has been less consistent in this department. ERIC has $3.48 in cash per share available versus NOK’s $3.84. However due to ERIC’s smaller divided, it is easier for ERIC to pay dividends in the longer term. Due to better value metrics, more encouraging revenue growth, and available cash ERIC may be a better choice than NOK in the telecommunication manufacturer industry.
Bank of America (NYSE: BAC) -- Battered Bank of America has lost over half of its value in the last year, and given its continued earnings struggle, this does not come as much of a surprise. As a dividend stock, the bank yields a paltry .6%, which is well off BAC’s five-year average of 4%. While BAC has continued to pay dividends through good times and bad, this cannot be sustained with continued negative earnings.
Because banks are tied to a growing domestic economy, sustained economic growth bears directly on BAC’s ability to return to profitability and its ability to continue to pay dividends. Relative to BAC’s 52-week low of $4.92, BAC is still overpriced for an unprofitable bank at this juncture in the economic recovery. Mortgage lending is still reserved for those with the best of credit, and with continued high unemployment, creditworthy borrowers are hard to come by in this economy.
Hudson City Bancorp (NASDAQ: HCBK) -- This smaller bank operating 97 branches struggles with negative earnings. This continued unprofitability will make it difficult for HCBK to sustain the hefty 4.7% yield it currently pays. However The Street’s Philip van Doorn includes HCBK on his list of 10 well-run, profitable banks here. In that article, he claims that HCBK has performed well for having a low Q3 overhead operating costs as a percentage of operating revenue. This Seeking Alpha article notes that the stock is trading at two-thirds of its book value and projected to return to profitability.
Despite this encouraging news, banks still have difficulties in this challenging mortgage market, especially when all of their business is concentrated in one region of the United States. There are better choices when it comes to smaller bank companies, such as New York Community Bancorp (NYB) and People’s United Financial (PBCT), which offer better yields, profits, and are still under $15 a share.
Regions Financial Corp. (NYSE: RF) -- RF is trading nearly in the middle of its 52-week range, but trades at an expensive 27 times earnings. A dividend yield of under one percent is significantly less than its five-year dividend yield of 3.3%, which should have investors looking elsewhere for better yield and value. One might consider RF’s competitors of BB&T Corp. (BBT) and SunTrust Banks (STI), both of which top RF in both operating margin and dividend yield.
RF also faces the same economic difficulties that both BAC and HCBK, which is exacerbated by its regional presence in the Southeastern U.S. Investors interested in bank stocks should look for banks with either national presence, to combat the effects of regional concentrated downturn, or banks with a diverse portfolio of loans. Until the glut of foreclosures have cleared the markets, banks profitability will continue to be under pressure, thus jeopardizing continued income from these stocks.
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