In this article, we will take a detailed look at the 15 Best Affordable Dividend Stocks To Invest In Right Now.
When Meta Platforms earlier this year announced its first-ever dividend, it was surprising for many since there’s a common belief that technology companies deploying billions of dollar every year to keep their growth engines running don’t pay dividends. But in an era where more and more large-cap companies are become laser-focused on increasing their shareholder returns, investing for both income as well as stock price appreciation is becoming a new norm. Bloomberg recently talked about an income fund from Asia that invests in AI-focused companies that pay dividends. Jupiter Asian Income Strategy, a $2 billion fund, has beaten a whopping 97% of its peers over the past five years, according to the report. The report quoted the fund’s co-manager Sam Konrad who said that the all of the fund’s holdings pay dividends and he expects them to increase their dividends over the next few years. Some of the fund’s important holdings are Samsung, MediaTek Inc. and Taiwan Semiconductor.
The Bloomberg report also highlighted that companies in Asia have better valuations when compared to US companies, in addition to having higher yields. For example, companies in the Bloomberg Asia Pacific Semiconductors Index are expected to raise their dividends by 30% on average over the next 12 months.
Dividends Vs Stock Appreciation: Lessons from Howard Marks
But does this mean you should start investing in tech companies for dividends? If you do that, is stock price appreciation your primary goal or are you looking for those fat, juicy and hopefully regular dividend checks? This is a never-ending debate and reminds us of a famous memo of legendary value investor Howard Marks in which he wrote:
“I remember having a spirited discussion on this topic with my father in the late 1960s. I came home from the University of Chicago filled with the notion that the value of a share of stock is the present value of its future dividends. “Baloney,” my father said, “no one buys stocks for the dividends; they buy them for appreciation.” “But what makes them appreciate?” I asked. We never have reached agreement on this matter. I think we were both right and both wrong. Certainly in a real-world sense, people don’t buy stocks for dividends. Dividends provided a small portion of the total return on stocks in the 1960s and far less in the 1990s. Yes, most people buy stocks for appreciation. But what causes appreciation? There has to be an underlying process at work. We’re in trouble if all we can say is “we buy stocks in the hope they’ll go up, and they’ll go up if new buyers are willing to pay more than the last price.”
Dividend Stocks: Outlook and Expectations
Despite the latest concerns of the market around the Fed’s plan of rate cuts and expectations that we are headed towards a higher for longer scenario, analysts believe sooner or later the Fed will start cutting rates and when it does, dividend investing will make a comeback. Voya Financial Advisors said in a February 2024 report that dividend stocks can reverse their underperformance trend seen over the past 18 months when rate cuts begin. The report said if dividend stocks regain the same P/E multiple they had at the end of 2022, they could post a potential outperformance of a whopping 2000 basis points relative to the broad U.S. equity market.
Dividend Stock Returns
iShares Core Dividend Growth ETF (NYSEARCA:DGRO) which lets investors have exposure to U.S. equities with a history of consistently growing dividends, is one of the notable ETFs to invest in dividend growth stocks. The ETF posted a total return of about 19% over the past one year. Does it make sense to invest in dividends over longer term? We discussed the historical returns of dividend investing in our article on high-yield dividend stocks.
Don’t Miss: 25 Things Every Dividend Investor Should Know
Photo by Karolina Grabowska from Pexels
Methodology
For this article we first used a stock screener to identify dividend-paying stocks with at least 2% yield, stock price under $20 and PE ratio under 20. From these stocks we picked 15 companies with the highest number of hedge fund investors. Why do we pay attention to hedge fund sentiment? 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).
15. CNH Industrial NV (NYSE:CNHI)
Number of Hedge Fund Investors: 29
Agricultural and construction equipment company CNH Industrial NV (NYSE:CNHI) ranks 15th in our list of the best affordable dividend stocks to buy according to hedge funds. Insider Monkey’s database of 933 hedge funds shows that 29 funds reported having stakes in CNH Industrial NV as of the end of 2023. The biggest stake ($1.95 billion) in CNH Industrial NV is owned by Harris Associates of Natixis Global Asset Management.
Ariel Global Fund stated the following regarding CNH Industrial N.V. in its fourth quarter 2023 investor letter:
“We found an attractive entry point for London based, agriculture machinery manufacturer, CNH Industrial N.V. (NYSE:CNHI), as shares are currently pricing in multi-year declines similar to the slope of the last agricultural downcycle (2014- 2016). Although farm incomes have begun to moderate and will likely translate to lower machinery purchasing in 2024, our analysis of U.S. farm fundamentals suggests the severity and longevity of the next downcycle will likely be shallower and shorter in duration. Additionally, CNHI remains on track to deliver on previously articulated operational efficiency and cost savings targets, which should drive margin improvement and profitability growth over the near to medium term. Looking ahead, we believe the industry will benefit from precision agriculture.”
14. Organon & Co (NYSE:OGN)
Number of Hedge Fund Investors: 30
New Jersey-based pharmaceutical company Organon & Co is one of the best affordable dividend stocks to invest in according to hedge funds.
Of the 933 hedge funds in Insider Monkey’s database, 30 hedge funds reported having stakes in Organon & Co. The biggest stake in Organon & Co is owned by Ken Griffin’s Citadel Investment Group which had a $61 million stake in Organon & Co.
Sound Shore Management made the following regarding Organon & Co. in its fourth quarter 2023 investor letter:
“Value investing often requires patience, and the passing of legendary value investor and Berkshire Hathaway’s Vice Chairman, Charlie Munger, reminded us of one of his more insightful quotes…“It’s waiting that helps you as an investor and a lot of people just can’t stand to wait.” Healthcare holding Organon & Co. (NYSE:OGN) provides a similar scenario today. The stock lagged in the fourth quarter and for 2023 due to concerns about long-term revenue drivers. Non-operational factors (currency, interest rates and separation charges) have masked growth that has exceeded expectations. A spinoff from Merck (MRK), Organon (OGN) has a very steady pharmaceutical business and is investing to grow its women’s health franchise. Trading for just 4 times earnings, the company is growing steadily, investing in its research & development pipeline and generating ample cash flow to repay its debt. Despite near-term weakness, we think Organon is an attractive opportunity for patient, long-term investors like Sound Shore.”
13. Western Union Co (NYSE:WU)
Number of Hedge Fund Investors: 30
With a dividend yield of 7% and 30 hedge fund investors, Western Union Co (NYSE:WU) is one of the notable affordable dividend stocks popular among smart money investors.
Ariel Focus Fund stated the following regarding The Western Union Company 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.”
12. Vipshop Holdings Ltd – ADR (NYSE:VIPS)
Number of Hedge Fund Investors: 32
Chinese ecommerce company Vipshop Holdings Ltd – ADR (NYSE:VIPS) ranks 12th in our list of the best affordable dividend stocks to invest in according to smart money investors.
In February the company posted Q4 results. Adjusted EPADS in the quarter came in at $0.75, surpassing estimates by $0.04. Revenue in the quarter jumped 6.5% year over year to $240 million.
11. Patterson-UTI Energy, Inc. (NASDAQ:PTEN)
Number of Hedge Fund Investors: 32
Texas-based land drilling and pumping services company Patterson-UTI Energy, Inc. (NASDAQ:PTEN) has a dividend yield of about 2.85% as of April 18.
Of the 933 hedge funds in Insider Monkey’s database, 32 hedge funds reported owning stakes in Patterson-UTI Energy, Inc..
Bernzott Capital Advisors US Small Cap Value Fund stated the following regarding Patterson-UTI Energy, Inc. in its fourth quarter 2023 investor letter:
“Patterson-UTI Energy, Inc. (NASDAQ:PTEN): Lower energy prices and depressed rig counts caused the underperformance during the quarter. Recently completed merger with NextTier Oilfield Solutions and the acquisition of Ulterra should drive improved cash flow and cost synergy opportunities.”
10. Energy Transfer LP Unit (NYSE:ET)
Number of Hedge Fund Investors: 34
With an 8% dividend yield and 34 hedge fund investors, Energy Transfer LP Unit (NYSE:ET) is a popular dividend stock among smart money investors.
In February Energy Transfer LP Unit reported fourth quarter results. GAAP EPS in the period came in at $0.37, beating estimates by $0.03.
Silver Beech Capital made the following regarding Energy Transfer LP in its fourth quarter 2023 investor letter:
Energy Transfer LP (NYSE:ET) owns and operates the largest and most balanced collection of energy infrastructure assets in the United States. ET’s assets include 125,000 miles of oil and natural gas pipelines, export facilities on both the Gulf Coast and East Coast, and more than 1 million barrels per day of natural gas liquid fractionation capacity. ET accounts for 20% of worldwide natural gas liquid exports. Further, ET is uniquely connected to every major hydrocarbon basin in the United States.
By assembling energy infrastructure to gather, process, transport, and store hydrocarbons, ET connects exploration and production companies (“E&Ps”) with downstream end users such as gas stations, utilities, and export facilities. As an end-to-end midstream solution, ET enables its customers to focus on their portion of the value chain without the burden of significant but essential midstream logistics. ET’s services thus add tremendous value to all constituents of the energy marketplace.
Though natural gas is a relatively clean source of fuel, restrictive federal and state regulations and other permissions severely restrict the building of natural gas pipelines and other infrastructure in North America that would help facilitate abundant hydrocarbon production. Pipelines are by far the cheapest and greenest method of transporting hydrocarbons; pipelines reduce emissions from truck transport and reduce congestion on highways, rail, and shipping routes…” (Click here to read the full text)
9. Vale SA (NYSE:VALE)
Number of Hedge Fund Investors: 34
Vale SA (NYSE:VALE) stock has a low price tag (trading around $11 as of April 18) and high dividend yield (about 10%). Insider Monkey’s database of 933 funds and their holdings shows that 34 hedge funds had stakes in the Brazilian metals and mining company.
Vale SA stock recently jumped after the company reported a 6% growth in iron ore production in the first quarter of Q1 on a YoY basis.
8. Permian Resources Corp (NYSE:PR)
Number of Hedge Fund Investors: 35
Permian Resources Corp (NYSE:PR) shares have gained about 28% year to date through April 18. As of the end of 2023, 35 hedge funds reported owning stakes in Permian Resources Corp.
Earlier this month, Piper Sandler published its monthly highest-conviction stock list. Permian Resources Corp was part of the list.
7. Petroleo Brasileiro ADR Reptg 2 Ord Shs (NYSE:PBR)
Number of Hedge Fund Investors: 36
Petroleo Brasileiro (PBR) is a high-yield dividend stock with a low dollar price tag and a low PE ratio. As of the end of the fourth quarter of 2023, 36 hedge funds tracked by Insider Monkey reported owning stakes in the company.
Fairlight Capital made the following comment about Petróleo Brasileiro S.A. – Petrobras (NYSE:PBR) in its Q3 2023 investor letter:
“Throughout the year, we have reviewed thousands of companies, including many in the oil sector. While we are generally cautious about commodity-based businesses where the company lacks control over the price of what it produces, the valuations in several cases have reached extremely compelling levels. For example, Petróleo Brasileiro S.A. – Petrobras (NYSE:PBR) and Ecopetrol (EC). Petrobras has distributed dividends of over $2.30 paid this year3 , while Ecopetrol has traded as cheaply as the $9-$10 range (close to our purchase price) and is paying approximately $2.50 in dividends this year.
We factor in the potential cost of FX movements over time, but even under the most pessimistic scenarios the investments should work out well. We initially came across these ideas while looking at South American stocks in general. We saw that many market commentators had expressed concerns that Ecopetrol’s dividends might be halted, especially following the election of Gustavo Petro as president of Colombia in June 2022. Similarly, there have been reservations about the sustainability of Petrobras’s dividend. However, the government owns substantial controlling stakes in these companies and is also a recipient of their dividends. For Ecopetrol, the Colombian government owes money to Ecopetrol due to the Fuel Price Stabilization Fund (FEPC). This fund aims to stabilize fuel prices for Colombian consumers. It bridges the gap between international and national Colombian consumer prices by compensating producers and importers for this price difference. The primary goal is to cushion the impact of global oil price fluctuations on the Colombian market. This is achieved either through cash payment or by forgoing dividend payments due from the government’s stake in these companies. In Ecopetrol’s case, the dividends paid (or those that would be paid to the government) are applied against the outstanding balances…” (Click here to read the full text)
6. Ford Motor Co (NYSE:F)
Number of Hedge Fund Investors: 40
With a dividend yield of about 4.9% and a low PE ratio, Ford is one of the top dividend stocks popular among hedge funds.
5. Kinder Morgan Inc (NYSE:KMI)
Number of Hedge Fund Investors: 42
Kinder Morgan recently announced a 2% hike in its dividend and gave strong guidance. The company said its natural gas business is expected to see growth driven by AI. Here is what the company’s management said during Q1 earnings call.
“The power needed for AI and the massive data centers being built today and plan for the near future, require affordable electricity that is available without interruption 24 hours a day, 365 days a year. This type of need demonstrates that the emphasis on renewables as the only source of power is fatally flawed in terms of meeting the real demands of the market. This is not a knock on renewables. We all know they will play a significant role in the future of electric generation. But it’s a reminder, all of us that natural gas and nuclear still have an extremely important role to play in order to provide the uninterrupted power that AI and the data centers will need.
The primary use of these data centers is big tech and I believe they’re beginning to recognize the role that natural gas and nuclear must play. They like the rest of us, realize that the wind doesn’t blow all the time, the sun doesn’t shine all the time, that the use of batteries to overcome the shortfall is not practically or economically feasible. And finally, that unfortunately, adding significant amounts of new nuclear power to the mix is not going to happen in the foreseeable future. In addition to all these factors, the market is now understanding that building transmission lines to connect distant renewables to the grid, typically takes years to complete and that’s a timeframe inconsistent with the need to place these data centers into service as quickly as possible.”
Read the full earnings call transcript here.
4. KeyCorp (NYSE:KEY)
Number of Hedge Fund Investors: 49
KeyCorp ranks fourth in our list of the affordable dividend stocks to buy according to hedge funds. The company recently posted Q1 results. Adjusted EPS in the period came in at $0.22, missing estimates by $0.01. Revenue fell 10.5% year over year to $1.53 billion, beating estimates by $20 million.
3. First Horizon Corp (NYSE:FHN)
Number of Hedge Fund Investors: 50
Tennessee-based banking company First Horizon shares recently jumped after the company increased its 2024 guidance for noninterest income and posted Q1 results better than estimates.
Carillon Scout Mid Cap Fund stated the following regarding First Horizon Corporation (NYSE:FHN) in its fourth quarter 2023 investor letter:
“First Horizon Corporation (NYSE:FHN) was the third-largest contributor. This bank holding company rose as the industry rallied due to the investor sentiment shift toward a soft economic landing or continued growth. A soft economic landing, should it occur, means that banks are likely to experience fewer loan losses than in a recession and steadier interest rate margins if extreme interest rate volatility is dampened.”
2. Hewlett Packard Enterprise Co (NYSE:HPE)
Number of Hedge Fund Investors: 50
Insider Monkey’s database of 933 funds shows that 50 hedge funds reported having stakes in HPE. The most significant stake in the company is owned by AQR Capital Management of Cliff Asness which had a $248 million stake.
1. AT&T Inc (NYSE:T)
Number of Hedge Fund Investors: 66
Topping our list of the best affordable dividend stocks is AT&T because of its low PE ratio, high hedge fund sentiment and its stock price being under $20. As of the end of 2023, the biggest stakeholder of AT&T was Citadel Investment Group of Ken Griffin which had an $851 million stake in the company.
Miller Value Income Strategy made the following comment about AT&T Inc. in its Q3 2023 investor letter:
“Our third-largest holding at quarter end was AT&T Inc. (NYSE:T), a leading provider of communications and connectivity services in the US. At $15/share, the stock trades at the same price it did almost thirty years ago. The share price is much less interesting to us in relation to where it has traded in the past than in relation to how much cash the company generates and what management is doing with it. At just over 6x earnings, the stock trades near its lowest price-to-earnings (P/E) multiple ever, also representing close to its largest-ever P/E discount to the stock market. The business converts most of its earnings to free cash flow, implying a forward free cash flow yield north of 15%. Just under half of free cash flow is going toward the dividend (7.5% yield), while much of the balance is going to debt paydown. In other words, if the stock does not fall below its lowest-ever valuation, investors clip a rock-solid 7.5% in cash, while owning a growing portion of a very steady business as management reduces debt outstanding. A discounted cash flow model will suggest that intrinsic value for shares begins with a “2,” suggesting the stock is undervalued on an absolute basis. The lack of volatility in the underlying fundamentals also makes it unique when compared to many other things we own, which reduces the probability of permanent capital impairment and argues for a significant weight in the portfolio.
AT&T looks particularly attractive when compared to some of the larger names dominating the S&P 500. Compare the stock to Apple, for instance, whose revenues and profits are likely to shrink this year, even as it trades at 29x this year’s earnings estimate. The ongoing return to rationality and capital accountability, along with extreme valuations in the megacap tech stocks, have us more excited about our portfolio’s prospects than we can remember for quite some time. As always, we remain the largest investors and welcome any questions or comments.”
Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below. You can also look at the Latest Insider Selling in April 2024: 10 Stocks to Watch and the 14 Best Large Cap Dividend Growth Stocks To Buy Now.
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Disclosure. None. 15 Best Affordable Dividend Stocks To Invest In Right Now was initially published on Insider Monkey.
