In this article, we will take a detailed look at the 13 Cheap High Dividend Stocks To Invest In Now. For a quick overview of such stocks, read our article 5 Cheap High Dividend Stocks To Invest In Now.
Dividend investing strategies especially those with a focus on high yields have taken a backseat in the recent past amid a broader shift towards growth stocks. The rise of AI further dampened the appeal of investing money just for the sake of steady dividends. Yields have also declined over the past few decades.
Can Dividend Investing Make a Comeback?
According to a report by the Financial Times, about 70% of the S&P 500 companies pay dividends but most of these payouts are small, and yields are hovering around 2% over the past two decades. But the report said that there has been a subtle shift towards dividend investing, triggered by a general disappointment and high volatility that comes with solely focusing on high growth stocks. Many dividend-focused indices and markets have performed well recently, urging investors in the US to consider income stocks. For example, Italy’s FTSE MIB, where average dividend yield is about 4%, gained 39% in 2023, compared to the S&P 500 return of just 26%.
The FT report quoted Hans-Jörg Naumer, global head of thematic research at Allianz Global, who said that “an income stream” helps to overcome the feeling of loss in investing.
Returns and Performance of High-Yield Dividend Stocks
While investing experts never recommend solely focusing on high yields without paying attention to underlying business and long-term catalysts, high dividend stocks have strong historical returns in the past especially during high interest rate environment which make them worthy of a detailed examination today. For example, a 2018 report by Global X took a look at the performance of high dividend stocks during high interest rate periods. The report said that high dividend stocks generated on average annual dividend yield of 6.4% from 1960 through 2017, while these stocks outperformed the S&P 500 by 3.0% on an annualized basis.
Investing in Dividend Stocks When Interest Rates are Rising
Should you invest in high dividend stocks when interest rates are rising or high or continue to invest in safe dividend stocks with average yields like Procter & Gamble Co (NYSE:PG), Exxon Mobil Corp (NYSE:XOM) and Coca-Cola Co (NYSE:KO). If history is a guide, the answer would be yes. The Global X report said that high dividend stocks outperformed the S&P 500 during 7 out of the 10 rising interest rate periods since 1960 through 2017.
Another research conducted at the University of Nevada, entitled Which One Is Better Off: Investing In High Dividend Or Low Dividend Stocks?, in 2014, took a look at portfolios of high dividend yield stocks, low dividend yield stocks and medium yield stocks to gauge the performance of these categories of stocks over the long run. The research found that high dividend portfolios outperform low and medium dividend portfolios over a longer period of time.
“The average return in each year indicates that the high dividend yield portfolio beat the low dividend portfolio in 16 out of the 26 single year periods in the entire sample. For high dividend yield portfolios, average return is 10.82% and geometric return is 9.27% with a minimum return -42.07% in 2007 and a maximum return 35.3% in 1994. For medium dividend yield portfolios, average return is 8.34% and geometric mean is 7.03% with a minimum return -28% in 2000 and a maximum return 41.51% in 1994. For low dividend yield portfolios, average return is 3.3% and geometric return is 0.76% with a minimum return -43.15% in 2007 and a maximum return is 2012. This analysis confirms that in the long run the high dividend portfolios performed better than the moderate and low dividend yield portfolios. The overall average return of Top Ten portfolios was over three times higher than overall average return of the low dividend yield portfolios and over 2% higher than the average return of the medium dividend yield portfolios. What’s more, the annual compound return of high dividend yield portfolio is more than nine times higher than the annual compound return of low dividend yield portfolio.”
Performance of High Dividend Stocks in 2024?
Having said that, it’s important to see how have high dividend yield stocks been performing this year? Vanguard High Dividend Yield Index Fund ETF (NYSEARCA:VYM), which tracks the performance of companies that pay dividends that generally are higher than average, is up 6.2% year to date through April 8, compared to the 9% gain posted by the broader market. But the ETF is up 36% over the past one year, compared to the S&P 500’s gain of about 26%. Over the past five years the S&P 500 is up 79% while the VYM ETF has gained about 36%. The ETF saw huge declines in 2020 amid massive dividend cuts and suspensions triggered by the coronavirus crisis.
Methodology
For this article we first used a stock screener to identify stocks with dividend yields of 7%+ and PE ratios under 15 as of April 5. From these stocks we chose 13 stocks with the highest number of hedge fund investors. Why do we pay attention to what hedge funds are up to? Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).
Don’t Miss: 25 Things Every Dividend Investor Should Know.
13. Itau Unibanco Banco Holding SA ADR (NYSE:ITUB)
Number of Hedge Fund Investors: 22
A total of 22 hedge funds tracked by Insider Monkey had stakes in Brazilian financial services company Itau Unibanco Banco Holding SA ADR (NYSE:ITUB) as of the end of 2023.
In January, BofA upgraded the stock to Buy from Neutral and said that the bank is well ahead of its peers in Brazil when it comes to Cloud technology and strategy for high income clients.
12. Enterprise Products Partners LP (NYSE:EPD)
Number of Hedge Fund Investors: 23
As of the end of the fourth quarter of 2023, 23 hedge funds tracked by Insider Monkey had stakes in pipeline company Enterprise Products Partners LP (NYSE:EPD). The stock is up about 13% over the past one year.
11. Vodafone Group Plc (NASDAQ:VOD)
Number of Hedge Fund Investors: 24
Vodafone Group Plc (NASDAQ:VOD) is one of the cheap high dividend stocks hedge funds like. Recently, it was reported that competition authorities in the UK plan to open a probe into the merger of U.K. telecommunication businesses of Vodafone Group Plc (NASDAQ:VOD) and CK Hutchison’s Three UK as they believe the combination could result in high prices and reduced competition.
In addition to Vodafone, hedge funds also like Procter & Gamble Co (NYSE:PG), Exxon Mobil Corp (NYSE:XOM) and Coca-Cola Co (NYSE:KO).
10. DHT Holdings Inc (NYSE:DHT)
Number of Hedge Fund Investors: 25
Oil tanker company DHT Holdings Inc (NYSE:DHT) is one of the stocks with high dividend and low PE ratios that hedge funds like.
Jefferies recently upgraded the stock to Buy with a $14 price target.
A total of 25 hedge funds tracked by Insider Monkey had stakes in DHT Holdings Inc (NYSE:DHT) as of the end of the last quarter of 2023.
9. Columbia Banking System Inc (NYSE:COLB)
Number of Hedge Fund Investors: 27
Columbia Banking System Inc (NYSE:COLB) ranks ninth in our list of the cheap stocks with high dividends. The stock’s dividend yield stands at 7.8% as of April 5. In February Columbia Banking System Inc (NYSE:COLB) posted Q4 results. GAAP EPS in the period came in at $1.39 beating estimates by $0.01. Revenue in the quarter came in at $1.1 billion, surpassing estimates by $10 million.
As of the end of the fourth quarter of 2023, 27 hedge funds tracked by Insider Monkey had stakes in Columbia Banking System Inc (NYSE:COLB). The biggest stake in the company is owned by Ken Griffin’s Citadel Investment Group which had a $92 million stake in Columbia Banking System Inc (NYSE:COLB).
8. Western Union Co (NYSE:WU)
Number of Hedge Fund Investors: 30
Western Union Co (NYSE:WU) ranks eighth in our list of the stocks with high dividend yields and low PE ratios. The stock’s dividend yield stands at almost 7% as of April 5. In February, Western Union Co (NYSE:WU) posted Q4 results. EPS came in line with estimates while revenue beat estimates by $30 million.
Ariel Focus Fund stated the following regarding The Western Union Company (NYSE:WU) in its fourth quarter 2023 investor letter:
“Global leader in money transfer services, The Western Union Company (NYSE:WU), traded lower in the period, despite the delivery of solid earnings and a subsequent raise in full year guidance. These results were aided by regulatory change in Iraq and margin expansion in the retail business. Meanwhile, management continues to make progress executing on its Evolve 2025 Strategy and continues to return capital to shareholders through dividends and share repurchases. Although the company anticipates the macroeconomic environment will continue to slow, it reminded investors remittances have proved resilient in prior periods of economic contraction. At current levels, WU is trading at a discount to our estimate of private market value.”
7. Kohls Corp (NYSE:KSS)
Number of Hedge Fund Investors: 31
Department store retail chain Kohls Corp’s (NYSE:KSS) is one of the notable stocks with high dividend yields and low PE ratios.
Insider Monkey’s database of 933 hedge funds shows that 31 funds reported having stakes in Kohls Corp (NYSE:KSS). The biggest stakeholder of Kohls Corp (NYSE:KSS) during this period was Frederick Disanto’s Ancora Advisors which owns a $63 million stake.
Like Kohls, hedge funds are also buying Procter & Gamble Co (NYSE:PG), Exxon Mobil Corp (NYSE:XOM) and Coca-Cola Co (NYSE:KO).
6. OneMain Holdings Inc (NYSE:OMF)
Number of Hedge Fund Investors: 32
Financial services company OneMain Holdings Inc (NYSE:OMF) shares have gained about 34% over the past one year. Yet the stock’s PE ratio is 9.15 while its dividend yield stands at 8.23%.
Out of the 933 funds tracked by Insider Monkey, 32 funds reported owning stakes in OneMain Holdings Inc (NYSE:OMF).
Patient Capital Management stated the following regarding OneMain Holdings, Inc. (NYSE:OMF) in its fourth quarter 2023 investor letter:
“OneMain Holdings, Inc. (NYSE:OMF) is a name we have owned for years. It’s a high return, well-managed franchise that has successfully navigated credit cycles for nearly a hundred years. The stock has continued to climb higher with prudent risk management and an 8% dividend yield.”
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Disclosure. None. 13 Cheap High Dividend Stocks To Invest In Now was initially published on Insider Monkey.