Dividend stocks can be a reliable source of yield in a volatile market.
A quarterly dividend payment from a high-quality stock may be as close to a sure thing as an investor can find on Wall Street. Rising interest rates and elevated inflation dragged down the stock prices of many dividend stocks in 2022, but the lower a stock’s price falls the higher its dividend yield becomes. Unfortunately, companies often cut their dividend payments as the first line of defense when times get tough, and a large number of dividend stocks priced under $10 may not be safe investments. So, with that warning in mind, here are six of the best dividend stocks to buy under $10, according to Morningstar. All dividends are calculated on a trailing-12-month basis.
Lloyds Banking Group PLC (ticker: LYG)
Lloyds Banking Group is a diversified bank and insurance provider based in the U.K. Analyst Niklas Kammer says tail winds from higher interest rates are offsetting a potential slowdown in U.K. loan growth. Lloyds’ 17% drop in profits in the third quarter was largely due to higher loan-loss provisions. Kammer says Lloyds’ disappointing headline numbers masked solid underlying fundamentals, including a 13% rise in income generation. He says Lloyds should disproportionately benefit from rising interest rates, and the stock pays a 4.6% dividend yield. Morningstar has a “buy” rating and $3.80 price target for LYG stock, which closed at $2.25 on Dec. 9.
Dividend yield: 4.6%
Barclays PLC (BCS)
Barclays is one of the largest U.K. financial services groups. Kammer says Barclays’ corporate and investment banking business has slowed in recent quarters, but its cards and payment businesses have helped offset that weakness. Deteriorating consumer confidence is a concern, but Kammer says Barclays’ credit metrics remain impressive. He says Barclays has a strong retail franchise and is the U.K. market leader in credit cards. He is bullish on the bank’s product portfolio and geographically diversified business. The stock also pays a 4% dividend yield. Morningstar has a “buy” rating and $10.10 fair value estimate for BCS stock, which closed at $7.93 on Dec. 9.
Dividend yield: 4%
Orange SA (ORAN)
Orange SA is a diversified French telecommunications company. Orange shares are down just 1.3% year to date through Dec. 9, making it the best performer on this list. Analyst Javier Correonero says Orange is fully hedged against rising energy prices through the end of 2022 and is 90% hedged in 2023. Correonero says the company will continue to prioritize maintaining mobile and fixed-line market share and cutting costs to offset pricing pressures. He says the company’s first-mover advantage in fiber optics will help improve long-term unit economics. Morningstar has a “buy” rating and $14.50 fair value estimate for ORAN stock, which closed at $9.75 on Dec. 9.
Dividend yield: 7.6%
Telefonica SA (TEF)
Telefonica is the largest Spanish telecommunications company. Correonero says Telefonica has navigated an extremely difficult inflationary environment very well in 2022. The company has grown revenue 4.1% through the first nine months of the year, including 3.8% growth in the third quarter. Telefonica has 60% of energy-related costs hedged through 2023. Correonero says the German market continues to be a strong performer. In fact, Telefonica generated 6% organic revenue growth in Germany in the third quarter. Telefonica also pays a 4.3% dividend. Morningstar has a “buy” rating and $4.90 fair value estimate for TEF stock, which closed at $3.57 on Dec. 9.
Dividend yield: 4.3%
Hanesbrands Inc. (HBI)
Hanesbrands is one of the world’s largest producers of intimate apparel and other leisure wear. Hanesbrands shares are down 59.7% in 2022, making it the worst performer on this list. However, there’s a silver lining to underperformance for dividend stocks. Hanesbrands’ falling stock price has pushed its dividend yield up to 9.5%, the highest on this list. Analyst David Swartz says Hanesbrands’ pricing power and leadership in replenishment apparel categories will help it outperform competitors. The company is also investing to expand its Champion brand. Morningstar has a “buy” rating and $22 fair value estimate for HBI stock, which closed at $6.35 on Dec. 9.
Dividend yield: 9.5%
Equitrans Midstream Corp. (ETRN)
Equitrans Midstream is a natural gas gathering, storage and transmission company focused on the Appalachian Basin. Analyst Stephen Ellis says Equitrans faces legal and regulatory uncertainty surrounding its Mountain Valley Pipeline, or MVP, project. However, Equitrans shares trade under $8 per share, and Ellis says the company’s core operations are worth at least $10 even if the MVP project is completely canceled. Equitrans generates more than $1 billion in earnings before interest, taxes, depreciation and amortization, or EBITDA, annually and plenty of cash flow to support its 8.4% dividend. Morningstar has a “buy” rating and $14 fair value estimate for ETRN, which closed at $7.08 on Dec. 9.
Dividend yield: 8.4%
6 of the best cheap dividend stocks under $10:
— Lloyds Banking Group PLC (LYG)
— Barclays PLC (BCS)
— Orange SA (ORAN)
— Telefonica SA (TEF)
— Hanesbrands Inc. (HBI)
— Equitrans Midstream Corp. (ETRN)
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6 Best Cheap Dividend Stocks to Buy Under $10 originally appeared on usnews.com
Update 12/12/22: This story was published at an earlier date and has been updated with new information.
