In this article, we will take a look at some of the best dividend stocks with low P/E and high dividend yields.
A low price-to-earnings (P/E) ratio indicates that a stock may be undervalued relative to its earnings, presenting a potential buying opportunity for investors looking to acquire shares at a reasonable price. Stocks that combine low P/E ratios with high dividend yields tend to attract those seeking both value and steady income.
One of the reasons these investment strategies remain effective is their long history of delivering strong returns. Approaches centered on identifying undervalued stocks or prioritizing dividend-paying companies have consistently produced favorable results over time. Heartland Advisors referenced a study analyzing US stock returns from 1802 to 2002, which found that dividends and their growth contributed 5.8% to the total annualized return of 7.9% over the 200-year period. Similarly, research from the London Business School examined global returns from 1900 to 2005. The study found that across 17 countries, the average real return was approximately 5%, with an average dividend yield of 4.5% during that timeframe. These findings reinforce the appeal of long-term investment strategies focused on value and income generation.
The Russell Index’s gains this year have been largely driven by a small group of mega-cap stocks, particularly the tech-heavy “Magnificent Seven.” These companies account for over 25% of the index and were responsible for nearly 40% of its 21% total return in the first three quarters of 2024. However, in recent months, market leadership has shifted, with value-oriented stocks gaining momentum. In the third quarter, the Russell Value Index climbed 9.4%, significantly outpacing the 3.2% gain of the Russell Growth Index, as reported by BlackRock.
The report further mentioned that several factors may have influenced this shift toward value stocks. Strong job growth, declining inflation, and the Federal Reserve’s decision to begin cutting interest rates have boosted investor confidence, allowing the rally to extend beyond the largest mega-cap stocks. In addition, value-driven sectors that are sensitive to interest rates—such as financials, utilities, and real estate investment trusts (REITs)—tend to benefit from a lower rate environment.
Though value outperformed growth in the third quarter of 2024, recent market trends have overwhelmingly favored growth and technology stocks, leading to a decline in the representation of value stocks within US large-cap indexes. As of September 30, 2024, growth stocks comprised 32% of the Russell index, whereas value stocks accounted for only 8%, resulting in a notable 24% gap. This stands in contrast to the past 25 years, during which the average difference in market weight between growth and value stocks within the index was 7.4%.
This shift has inadvertently left many portfolios lacking diversification and underexposed to value stocks, potentially causing investors to miss out on gains as value stocks recover. To address this imbalance, investors may benefit from deliberately increasing their allocation to value stocks by complementing core US equity index funds with a dedicated value-focused investment strategy.
Dividend stocks have underperformed recently, largely due to the market’s strong focus on AI-related stocks. As a result, their valuations have declined in recent months. When it comes to dividend investing, high yields often create uncertainty among investors, making it challenging to determine whether these stocks are worthwhile investments. Investors often gravitate toward stocks with high dividend yields, assuming that a higher yield automatically translates to better returns. However, a study by Wellington Management challenged this assumption, revealing that while stocks with the highest dividend payouts and yields performed well over time, they did not necessarily outperform those with moderately high, yet not extreme, dividend yields. This finding suggests that excessively high yields do not always lead to the best results, emphasizing the need for a more balanced approach rather than focusing solely on yield size. Analysts generally consider dividend yields in the range of 3% to 6% to be healthy.
That being said, certain stocks with above-average dividend yields not only provide attractive income but also have a strong track record of consistently increasing their payouts over time.
Photo by Artem Beliaikin on Unsplash
Our Methodology
To compile this list, we filtered for dividend stocks with a forward P/E ratio below 15 and dividend yields exceeding 5% as of February 16. From that group, we chose companies with a proven track record of consistently paying dividends to their shareholders. The ranking of these stocks is based on their forward P/E ratios, arranged from the highest to the lowest.
At Insider Monkey, we are obsessed with hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
10. United Parcel Service, Inc. (NYSE:UPS)
Forward P/E Ratio: 14.71
Dividend Yield as of February 16: 5.64%
United Parcel Service, Inc. (NYSE:UPS) is a Georgia-based shipping and supply chain management company that offers various related services to its consumers. In the fourth quarter of 2024, the company reported $25.3 billion in revenue, which saw a 1.54% growth from the same period last year. It has also reached a preliminary agreement with its largest customer to reduce volume by over 50% by the second half of 2026. In addition, starting January 1, 2025, it will take full control of its UPS SurePost product. To adapt to these changes, the company is restructuring its U.S. network and launching multi-year “efficiency reimagined” initiatives, with the goal of saving approximately $1.0 billion through a comprehensive process overhaul.
United Parcel Service, Inc. (NYSE:UPS) is prioritizing the expansion of its healthcare logistics services as part of its strategy to establish itself as a global leader in the sector. In January 2025, the company strengthened its capabilities by acquiring Frigo-Trans and its subsidiary BPL, further enhancing its ability to offer comprehensive temperature-controlled logistics solutions, especially in Europe.
United Parcel Service, Inc. (NYSE:UPS) currently offers a quarterly dividend of $1.64 per share, having raised it by 0.6% in February. This marked the company’s 23rd consecutive year of dividend growth, which makes UPS one of the best dividend stocks on our list. The stock supports a dividend yield of 5.64%, as of February 16. In addition to its dividend growth, the company is a preferred choice for income investors because of its strong cash position. In fiscal year 2024, the company reported $10.1 billion in operating cash flow, while free cash flow amounted to $6.3 billion. It also returned $5.9 billion to shareholders through dividends and share repurchases.
9. VICI Properties Inc. (NYSE:VICI)
Forward P/E Ratio: 11.76
Dividend Yield as of February 16: 5.70%
VICI Properties Inc. (NYSE:VICI) is an American real estate investment trust company that owns casinos and entertainment properties across the US and Canada. The company maintains a solid financial foundation, closing the third quarter of 2024 with $355.7 million in cash and cash equivalents. This strong liquidity has supported the company in consistently increasing its dividend payouts for seven straight years, achieving a compound annual growth rate (CAGR) of 7% since going public. In the latest quarter, VICI distributed around $453 million in dividends. The company pays a quarterly dividend of $0.4325 per share and has a dividend yield of 5.7%, as of February 16.
VICI Properties Inc. (NYSE:VICI) has attracted investor interest with its distinctive business model. While its heavy exposure to the gaming industry might appear risky, casinos have historically shown resilience during economic downturns. The company secures tenants through long-term leases, and stringent gaming regulations make it challenging for operators to relocate, adding stability to its revenue stream. This approach has enabled VICI to maintain full occupancy since its IPO in 2018, even during periods of disruption such as the COVID-19 pandemic, which impacted travel, hospitality, and casino operations. Furthermore, many of its long-term lease agreements are linked to the consumer price index (CPI), allowing rental adjustments to keep pace with inflation.
Insider Monkey’s database of Q3 2024 showed that 35 hedge funds held stakes in VICI Properties Inc. (NYSE:VICI), up from 33 in the previous quarter. These stakes have a consolidated value of more than $787.6 million.
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