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. Even during periods of broad market weakness, the lower a stock’s price falls, the higher its dividend yield rises.
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Unfortunately, companies often cut their dividend payments as the first line of defense when times get tough, and many dividend stocks priced under $10 may not be safe investments. Investors buying cheap dividend stocks should always take a close look at the company’s business fundamentals.
Here are seven of the best dividend stocks selling for less than $10, according to Morningstar:
| Stock | Dividend yield | Implied upside over June 1 close |
| Lloyds Banking Group PLC (ticker: LYG) | 5.2% | 71.9% |
| Banco Bradesco SA (BBD) | 5.9% | 16.7% |
| Barclays PLC (BCS) | 4.6% | 32% |
| Sirius XM Holdings Inc. (SIRI) | 2.6% | 102.7% |
| Nomura Holdings Inc. (NMR) | 2% | 26.4% |
| Aegon NV (AEG) | 4.8% | 35.9% |
| Gap Inc. (GPS) | 7.5% | 190.8% |
Lloyds Banking Group PLC (LYG)
Lloyds Banking Group is a diversified bank and insurance provider based in the U.K. Most bank stocks have taken a big hit in recent months following several U.S. regional bank failures and an emergency takeover of Credit Suisse Group AG (CS) by UBS Group AG (UBS). Lloyds is no exception. The stock is down 8.7% in the past three months through June 1. Analyst Niklas Kammer says Lloyds has a complex net-interest-income outlook, but its 19.1% return on tangible equity in the first quarter was impressive. Morningstar has a “buy” rating and $3.80 fair value estimate for LYG stock, which closed at $2.21 on June 1.
Banco Bradesco SA (BBD)
Banco Bradesco is one of Brazil’s largest banks. Analyst Michael Miller says Bradesco’s first-quarter financial performance was a “significant improvement” from its fourth-quarter performance. Recurring net income in the first quarter was down 37.3% from a year ago but up 168% on a quarterly basis. Miller says Bradesco is battling difficult economic conditions in Brazil, but its stock is undervalued. He says the Brazilian central bank appears to be making progress in bringing down high inflation, which should help support Bradesco’s deteriorating credit quality. Morningstar has a “buy” rating and $3.70 fair value estimate for BBD stock, which closed at $3.17 on June 1.
Barclays PLC (BCS)
Barclays is one of the largest U.K. financial services groups. Kammer says Barclays’ 15% return on tangible equity in the first quarter was impressive, and the company’s consumer, cards and payments businesses were particularly strong. In addition, Kammer says the company’s corporate and investment banking businesses put up impressive numbers, and the bank’s guidance for above 3.2% net interest margins is achievable. He says Barclays has a strong U.K. retail banking franchise and has a leading market share in credit cards. Morningstar has a “buy” rating and $10.10 fair value estimate for BCS stock, which closed at $7.65 on June 1.
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Sirius XM Holdings Inc. (SIRI)
Sirius XM Holdings is a leading provider of satellite and internet radio services, largely to the auto industry. Analyst Neil Macker says Pandora advertising revenue trends have been solid, and the platform is still benefiting from podcasting tailwinds. Macker says 37% of new-car buyers who receive a three- to 12-month free trial of SiriusXM convert their trial to a paid subscription, which accounts for the majority of its new subscribers. He projects the satellite service will continue to slowly expand over the next five years. Morningstar has a “buy” rating and $7.50 fair value estimate for SIRI stock, which closed at $3.70 on June 1.
Nomura Holdings Inc. (NMR)
Nomura is Japan’s largest investment bank and brokerage. Analyst Michael Makdad says Nomura has a valuable brand in Japanese asset management. Makdad estimates the bank’s domestic retail and asset management businesses have historically generated returns on equity well above 10%. He says Nomura holds roughly 30% of all client assets held in brokerage accounts in Japan, and the stock is more attractively valued than leading competitor Daiwa Securities. However, Makdad says Nomura needs to invest in digital products and services to secure younger customers. Morningstar has a “buy” rating and $4.50 fair value estimate for NMR stock, which closed at $3.56 on June 1.
Aegon NV (AEG)
Aegon is a Dutch insurance company that offers insurance, savings, pension and investment products and services around the world. The U.S. regional banking crisis has weighed on Aegon shares in 2023. However, analyst Henry Heathfield says the company reported impressive growth numbers in the first quarter. Sales in the U.S. workplace business roughly doubled year over year to $2.55 billion from $1.27 billion. Heathfield says Aegon is focused on improving its balance sheet, increasing its strategic focus and improving its operational efficiency. Morningstar has a “buy” rating and $6.10 fair value estimate for AEG stock, which closed at $4.49 on June 1.
Gap Inc. (GPS)
Gap is a casual apparel and accessories retailer and owner of Old Navy, Gap, Banana Republic and other popular brands. Gap and other mall retailers have faced tremendous competitive pressures from Amazon.com Inc. (AMZN) and other online sellers in recent years, and analyst David Swartz says Gap has reported inconsistent results. However, Swartz says Gap has decent liquidity and the Old Navy brand is a solid business. He says the company’s goal of reaching $10 billion in annual Old Navy revenue is achievable by the end of this decade. Morningstar has a “buy” rating and $23.50 fair value estimate for GPS stock, which closed at $8.08 on June 1.
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7 Best Cheap Dividend Stocks to Buy Under $10 originally appeared on usnews.com
Update 06/02/23: This story was published at an earlier date and has been updated with new information.
