If you’re concerned about rising stock market valuations or just want some reliable income for your portfolio, now could be an optimal time to invest in dividend stocks, many of which look incredibly cheap. While growth investors have largely looked past dividend stocks this year, the good news is that if you focus on these types of investments now, you won’t have to look far to find good deals.
Three stocks that pay you more than the S&P500 average return of 1.2% and which are traded at cheap valuations Merck (NYSE:MRK), Verizon Communications (NYSE: VZ)and Albertsons Companies (NYSE:ACI). This is why these can be excellent income-generating investments that you can add to your portfolio today.
Start your morning smarter! Wake up with Breakfast news in your inbox every market day. Register for free »
Merck is a leading drug manufacturer that pays an attractive dividend of 3.2%. The share price is down 7% this year as the company has not generated particularly strong growth figures. Investors may also be concerned about what lies ahead. For the full year 2024, Merck expects sales to total about $64 billion, which is about a 7% increase from the $60 billion it posted last year.
While these results aren’t necessarily bad, investors may be more concerned that with its best-selling drug Keytruda losing patent protection later this decade, Merck’s sales could come under pressure in the coming years and its growth rate could be even smaller could be. However, the company has invested in its growth, with the recently approved Winrevair, a treatment for pulmonary arterial hypertension, potentially generating around $4 billion in revenue for Merck in the future. The country also has Gardasil, a vaccine that protects against the human papillomavirus, which could generate $11 billion in sales by 2030.
Merck has big shoes to fill as Keytruda raked in a whopping $25 billion in 2023. However, with a focus on development and growth, there is still time for the healthcare company to diversify its business and develop more drugs. And because the stock is trading at just ten times next year’s estimated forward earnings (based on analyst estimates), investors are getting a big discount to help offset the risk and uncertainty ahead. Merck’s modest payout ratio of 64% also suggests its dividend is not in immediate danger.
One dividend stock I wouldn’t hesitate to pick up today is Verizon. It yields 6.1% and the company has increased its dividend payments for 18 years in a row.
The company is growing at only low single digits this year, and that hasn’t been enough to get investors excited about the company. Although the telecom stock is up about 17%, its high yield and modest price-to-earnings (P/E) ratio of 9 suggest investors are still cautious and there could be plenty more upside potential left if you buy today. .
The company’s move to acquire Border communication for $20 billion could give investors new hope that the company wants to expand and become a bigger player in the growing fiber optic market. The downside is that it will mean about $10 billion in additional debt for Verizon to help finance the deal, which risk-averse investors generally don’t like, especially as interest rates remain fairly high.
But with Verizon stock trading at modest earnings levels and more rate cuts possibly on the way, this seems like a stock that’s looking pretty safe. Dividend investors shouldn’t hesitate to buy Verizon, as the stock could have much more upside potential given its elevated growth prospects and great track record of dividend growth.
The lowest-yielding stocks on this list are Albertsons, with a yield of about 2.4%. However, this low-volatility stock averages a beta value of around 0.3, which could make it an ideal option for investors who simply want to buy and hold a good and safe income investment. Albertsons is a big name in the grocery industry, which can make it a reliable stock that you can hold on to for years to come.
The company generated steady revenue growth of just over 1% for the period ended September 7, with revenues totaling $18.6 billion. This isn’t a growth machine, but the company is investing in its digital business, where revenue grew 24% last quarter.
Trading at a price-to-earnings ratio of less than 10, Albertsons stock is also a cheap investment to own now. And if the merger with Kroger continues, the stock could prove to be an even better buy because the combined company would be an even bigger player in the grocery industry.
Consider the following before buying shares in Merck:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Merck wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $859,528!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. TheStock Advisoris on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns December 2, 2024
David Jagielski has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Merck. The Motley Fool recommends Kroger and Verizon Communications. The Motley Fool has a disclosure policy.
3 Ultra-Cheap Dividend Stocks to Buy in December was originally published by The Motley Fool
