Cheap Dividend Stocks to Watch in April
To generate higher returns than average, you would have to own several companies that can sustain their dividend. In this article, the focus is going to be only on cheap dividend stocks that are priced under $5.00.
Most dividend investors tend to look at blue-chip, large-cap dividend stocks when considering an investment. This is wise, given that these are established companies that have predictable recurring revenue. The only problem is that since most investors focus on these blue-chip companies, the returns be the same as with other investors.
Also, with blue-chip companies, the stock price tends to be high, meaning a lot more work is required for it to double. On the other hand, a stock price of $5.00 or under has a greater probability of seeing its price double, since a lower starting number means less of a price gain required.
How to Find Cheap Stocks
First, locate stocks that are priced at $5.00 or less and that pay a dividend. Then, research and understand the business model of the potential investment; it should be easy to understand, even to non-investors.
Then the fun part begins. Determine if the dividend is sustainable. The company must be paying its dividend using earnings; if not, whether by issuing more shares to the market or using debt, keep your distance.
Also consider the history and patterns of the dividend payment, specifically if there have been any reductions, or if the payment is steady and growing alongside revenue. After all, the past could be reflected in the future, though keep in mind that a stock’s history does not guarantee anything.
The company’s financial statements should also be given more than a quick glance. The present assets and liabilities are particularly important, as are the revenue and gross income over the past few years. You should see a positive upward trend.
If there was a year in which revenue or gross income was down, it doesn’t necessarily mean to pass on the stock. Simply investigate more; it could have been a one-time charge due to an acquisition or reinvestment for the purposes of growth.
It is important for investors to know the future growth prospects of a business in their portfolio, because that growth will affect future income. As long as there is growth to look forward to, the stock price should be impacted positively; otherwise, it could remain flat or drop.
One bullish indicator to keep in mind is what members of senior management do with their own personal money. If they are purchasing shares in their personal accounts for the companies they lead, this is known as insider buying. And there is only one reason they would do this: a belief that the shares will come to trade higher.
There are some aspects outside of the company to consider as well, such as other companies in the same sector and their market share. The ease of entry to the sector is another; if is quite simple, then it means there could be a lot of change occurring in the market share, which is seen as a negative. In contrast, a sector that is hard to start a business in is great for investors, since it should protect profits and market share.
If you’re wondering which stocks under $5.00 would best fit the above criteria, here is a list of the best cheap dividend stocks to watch in April.
Cheap Dividend Stocks to Watch Now
| Company Name | Stock Symbol | Price | Dividend Yield |
| Valhi, Inc. | VHI | $3.29 | 2.43% |
| Cia Energetica de Minas Gerais CEMIG-ADR | CIG | $3.20 | 5.32% |
| CPI Card Group Inc | PMTS | $4.24 | 4.24% |
| United Microelectronics Corp (ADR) | UMC | $1.94 | 4.65% |
| Och-Ziff Capital Management Group LLC | OZM | $2.22 | 0.46% |
1. Valhi, Inc.
Valhi, Inc. (NYSE:VHI) is a company that operators four segments: Chemicals, Component Products, Waste Management, and Real Estate Management and Development. Chemicals is the largest division with the greatest contribution to the bottom line, accounting for approximately 88% of total net sales. (Source: “Valhi Reports Fourth Quarter 2016 Results,” Valhi, Inc., March 10, 2017.)
The possibility of further diversification exists via growing the Component Products, Waste Management, and Real Estate Management and Development divisions. The first two are growing at a steady rate, while Real Estate Management and Development is the fastest-growing business with 50% growth over the prior year. (Source: Ibid.)
Each division is different and unique. For instance, Chemicals is a global division, producing titanium dioxide pigments for paints, plastics, paper, fibers, and ceramics. A big advantage to having a global presence is if one country is seeing negative growth, another can offset the negative affect. Also, sales are generated in different currencies, so Valhi can benefit from various exchange rates.
Some of Valhi’s products are considered recession-proof, such as paint, paper, and fibers. These products should continue to see sales being generated no matter the economic environment.
VHI stock is trading at $3.29 and the current dividend yield is 2.43%. The dividend is paid on a quarterly (and steady) basis.
2. Cia Energetica de Minas Gerais CEMIG-ADR
Cia Energetica de Minas Gerais CEMIG-ADR (NYSE:CIG) is a company engaged in the generation, transmission, and distribution of electricity in South America. Though many would label CIG stock as being a “boring” investment, that doesn’t change the fact that it spits out cash flow. That’s because electricity is used every day, and no matter what, there will always be a need for it.
In addition, Companhia Energetica’s revenue and earnings are protected from inflation. When the operating cost of the business increases, the end result is that the customer end up paying for it. This keeps the margins of the business steady and healthy.
The stock’s valuation and price are cheap and it boasts a high dividend yield. The cheap valuation is based on CIG stock’s price-to-earnings (P/E) ratio of 13.9 times, which is much lower than the industry average of 32.7 times.
A more in-depth look at the company’s financials reveals they are in line with those of its industry peers. I believe investors are flocking to the companies with larger market caps; others in the industry have a market cap that is seven times of that of Companhia Energetica.
CIG stock’s price is currently $3.20, with a yield of 5.32%.
3. CPI Card Group Inc
CPI Card Group Inc (NASDAQ:PMTS) is a company operating in North America and the U.K. that provides financial payment card solutions. This includes services such as prepaid gift cards, creating and maintaining a loyalty and membership program, and mobile payments.
CPI works with large financial institutions and offers services to assist clients with their credit card and debit card needs. This ranges from the design on the cards, PIN numbers, and hardware and software solutions.
The company has been operating for more than 20 years and regularly adapts to changes in payment methods. The most difficult aspect about such a business would be acquiring contracts, but CPI already has these in place. (Source: “Our Company,” CPI Card Group Inc, last accessed March 30, 2017.)
PMTS stock is currently yielding 4.24%, based on the trading price of $4.24. The dividend is paid on a quarterly basis, with five payments over the course of the company’s history. The dividend policy only started recently and shows confidence that earnings are able to generate constant strong cash flow.
Another thing to keep in mind if considering owning PMTS stock would be senior management’s purchasing of shares in the company. This aligns their personal goals with shareholders, and since they believe the shares should trade higher, they will do everything they can to ensure they don’t lose money on their own investment.
4. United Microelectronics Corp (ADR)
United Microelectronics Corp (ADR) (NYSE:UMC) is a global semiconductor company that manufactures products for networking, telecommunications, the Internet, multimedia, and personal computers.
UMC stock is trading at a discount, as evidenced by the price-to-book (P/B) ratio of 0.7 times, below the fair value ratio of 1.0. This ratio takes the market price and divides it by the book value per share, as well as provides the liquidation value of the company.
UMC stock could eventually trade near or higher than its current ratio. If so, it would be due to the upward trend in revenue, which has grown in each of the past five years. The same thing could be said for the company’s assets over the same period.
And if the investment wasn’t appealing enough, the company’s debt-to-capital ration of 29% is much lower than the industry average of 64%. A ratio below 50% means that debt is being used strategically, while at or above 50% means the company is over-leveraged. This means that UMC is more financially discliplined than its industry peers.
The shares are trading at $1.94 and paying out a dividend yield of 4.65%. The dividend is paid once a year on a quarterly basis.
5. Och-Ziff Capital Management Group LLC
Och-Ziff Capital Management Group LLC (NYSE:OZM) is focused on managing money for institutions. The business uses alternative investing such as real estate, credit funds, and collateralized loan obligations. OZM has a presence around the world, with offices in New York, China, and London, just to name a few.
Management has made two guarantees. The first is that their own personal wealth is invested in the funds that the clients are also invested in, which means they will try to preserve the capital within the fund and not blindly pick investments to add to the portfolio. The second is that senior managers of the company own shares of the company in their personal accounts.
The compensation received by managing directors and senior management is also tied to the performance of the company. This gives more incentive for those in charge to work hard to benefit themselves and shareholders alike.
Shares of OZM stock are priced at $2.22 and offering a dividend yield of 0.46%.