If passive income is the equivalent of sushi, then cheap dividend stocks – if you’re not careful – is the equivalent of sushi bought at a gas station. Here’s what I mean.
Many folks may be squeamish about the idea of eating raw fish. So, when eating sushi, it pays to eat from professionals who know what they’re doing. In the same manner, many people put serious money into passive-income providers because they tend to be blue-chip stalwarts. You can trust these folks.
On the other hand, a convenience store is a convenience store: who knows what’s going on behind the counter? So, cheap dividend stocks carry a certain amount of risk. At the same time, they may offer a robust blend of income and capital gains potential that you won’t find betting on a consumer goods giant.
It’s a wild way to live. But if you’re feeling bold, below are cheap dividend stocks to roll the dice with.
Starwood Property Trust (STWD)
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As an investment management firm focused on global real estate, Starwood Property Trust (NYSE:STWD) offers a distinct approach to the market. In particular, with many folks priced out of the housing market, they have little choice but to rent. It’s a terribly cynical argument yet STWD could be one of the cheap dividend stocks to buy. Thanks to its large portfolio of multifamily apartments in the U.S., Starwood is positioned for growth.
What I appreciate here is that it also offers tremendous rewards in terms of passive income. Currently, the company carries a forward dividend yield of 9.65%. That’s well above the financial sector’s average yield of 3.18%. However, one metric to keep an eye on is the payout ratio of 94.77%. It’s a real estate investment trust (REIT) so it naturally features a high payout ratio. Still, it’s something to monitor.
Lastly, analysts are willing to give STWD a chance, rating shares a consensus moderate buy. Further, the average price target lands at $21.80. For the risk taker, it’s a name to put on your watch list.
AngloGold Ashanti (AU)
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A gold-mining enterprise, AngloGold Ashanti (NYSE:AU) makes an intriguing case for cheap dividend stocks to buy. Operationally, the company commands multiple mining projects across Africa, the Americas, and Australia. Fundamentally, the rise of advanced industries such as electric vehicles will likely accelerate gold demand for its conductivity and other properties. On a monetary level, gold represents an inflation hedge.
While much talk has been made of the Federal Reserve and its effort to curb soaring consumer prices, they may sticky. Further, a robust jobs market could make inflation even stickier. Therefore, the narrative of gold seems cynically appealing. Subsequently, AU stock could enjoy residual benefits.
In the meantime, investors can latch onto its passive income. Currently, the company offers a forward yield of 2.08%. That’s not particularly generous. However, the payout ratio sits at 17.93%, meaning yield sustainability shouldn’t be an issue.
To be fair, analysts rate shares a hold. However, the average price target of $22 implies fairly robust growth potential.
Tronox (TROX)
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Based in Stamford, Connecticut, Tronox (NYSE:TROX) specializes in the mining and processing of titanium ore, zircon, rare earths and other materials. It also manufactures titanium dioxide pigment, in addition to specialty-grade titanium dioxide products and high-purity titanium chemicals. Per its website, Tronox’s products add brightness and durability to paints, coatings, inks, plastics, paper and other everyday items.
One of the key benefits to acquiring TROX is that it’s one of the cheap dividend stocks. For under $20, you can acquire a critically important chemical specialist. Further, TROX is trading hands at a sales multiple of 0.83X, which is low for the sector. Now, the issue is that the company is undergoing a recovery trek.
However, if you want to bank on the eventual recovery, analysts anticipate good things on the horizon. They rate shares a strong buy along with assigning an average $17.17 price target.
In the meantime, you can receive a forward dividend yield of 3.38%, which is notably above the materials sector’s average yield of 2.82%.
Farmland Partners (FPI)
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In many ways, Farmland Partners (NYSE:FPI) sells itself, especially for speculators of cheap dividend stocks. First, it’s only a bit below the $11 level. Second and more importantly, the underlying business is permanently relevant. Per Farmland’s website, the company invests in agriculture’s future through a diverse, proven portfolio of farmland.
Operationally, management partners with its tenants to improve the land they farm. In this manner, the leadership team hopes to spark a win-win scenario: help farmers boost their profitability, which in turn boosts Farmland’s bottom line. To be fair, the company’s financials could use a lot of work. However, it’s consistently profitable, which is crucial regarding the passive income angle.
On that front, Farmland offers a forward dividend yield of 2.19%. While it’s not the greatest yield, the company offers investors diversification. No matter how advanced we become as a society, we got to eat. And that’s not going to happen without a thriving agricultural ecosystem.
Ranger Energy Services (RNGR)
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Headquartered in Houston, Texas, Ranger Energy Services (NYSE:RNGR) provides high-specification mobile rig well services for the hydrocarbon industry. Per its website, Ranger’s advanced solutions help operators meet the technical and operational challenges of modern extended-reach horizontal wells. Despite the broader political and ideological pivot toward electrification of everything, here’s the reality: the world still runs on oil.
As such, oilfield services firms – particularly advanced specialists like Ranger – should thrive. However, the market doesn’t really think so, yielding a very modest performance this year. No matter, the soft price action has resulted in RNGR trading at a tangible book value of only 0.93X. That’s below the sector median value of 1.28X.
Regarding passive income, Ranger provides a forward dividend yield of 1.91%. Granted, that’s not much. However, the payout ratio sits at less than 12%, which provides confidence regarding sustainability. Further, the average analyst price target calls for shares to reach $12, which represents a decent return. Prior analyst highs called for $19, which could happen if society fully normalizes.
Park Hotels & Resorts (PK)
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Structured as a REIT, Park Hotels & Resorts (NYSE:PK) focuses on hotel properties, particularly the higher-end lodging experiences. Understandably, the business model clashes with broader concerns about the consumer economy. While PK should cater to a wealthier clientele, the destruction in the electric vehicle space confirms that even the well-off are feeling the hit to their pocketbooks.
Still, investors seeking cheap dividend stocks might want to put Park Hotels on their watch list. First, with a price tag below $20, PK is psychologically appealing. More importantly, revenge travel sentiments – the phenomenon of cooped-up consumers ready to get out and explore once society normalized – may be an integral catalyst in 2024. If so, PK stock could rise as a downwind beneficiary.
Adding to the tempting picture, Park Hotels offers a forward dividend yield of 3.59%. For a REIT, its payout ratio of 71.95% — high in most other context – is not bad. Lastly, analysts peg shares a consensus moderate buy with an $18.63 average price target.
A10 Networks (ATEN)
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Headquartered in San Jose, California, A10 Networks (NYSE:ATEN) specializes in the manufacturing of application delivery controllers (ADCs). According to TechTarget.com, an ADC is a “network component that manages and optimizes how client machines connect to web and enterprise application servers. In general, a controller is a hardware device or a software program that manages or directs the flow of data between two entities.”
Why are ADCs important? Essentially, they perform load balancing. Also, they execute common tasks, thus freeing bandwidth for web servers. With their ability to accelerate applications, ADCs represent an underappreciated but vital cog in the broader tech ecosystem. Further, with A10 specializing in this advanced field, ATEN stock could conceivably rise higher.
It’s also one of the cheap dividend stocks, trading hands at a bit above $13. Granted, the forward yield isn’t all that much at 1.82%. However, the payout ratio sits at only 27.17%, facilitating yield sustainability. Also, analysts see robust capital gains potential, with the average price target landing at $16 or 21% up.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.
