Dirt-cheap, 1 of my best stocks to buy also pays an above-average dividend!

This Fool has decided to buy the shares on his best stocks to buy now list with the shares looking cheap and paying a decent dividend.

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I keep and regularly review a list of my best stocks to buy. I noticed that FTSE AIM incumbent Lookers’ (LSE:LOOK) shares look good value for money and would boost my passive income stream through an above-average dividend yield. Could now the perfect time to add the shares to my holdings?

Car dealer

As a quick reminder, Lookers is a car dealership group that operates multiple franchise sites and has agreements with over 30 car manufacturers. The business has roots stretching back to the early 1900’s and has been trading on the London Stock Exchange for nearly 50 years.

So what’s happening with the Lookers share price? Well, as I write, the shares are trading for 76p. At this time last year, the shares were trading for 70p, which is an 8% increase over a 12-month period.

It is worth noting that Lookers shares have fallen since the stock market correction in March. This was caused by macroeconomic headwinds and the tragic events in Ukraine.

The best stocks to buy have risks too

Current well-documented macroeconomic headwinds such as soaring inflation and the rising cost of materials are factors that could hinder sales, performance, and investor returns.

Another macroeconomic factor at play that is having a material impact on the automobile industry is the supply chain crisis. A shortage of semiconductors, which are vital components in newer cars, is causing longer lead times for new cars. This will also affect Lookers. It is worth noting the used car market has offset some of the woes experienced by new car sales figures in recent months.

The bull case and what I’m doing now

So let’s look at the positives. At current levels, Lookers shares look dirt-cheap to me on a price-to-earnings ratio of just 5! Buying the shares now could be a shrewd move as I expect them to continue on an upward trajectory.

What about performance? Although I understand past performance is not a guarantee of the future, I review this for investment viability. Looking back I can see that before the pandemic struck, revenue and profit was increasing for two consecutive years. 2020 results were subdued in comparison but for the period ending 2021, Lookers bounced back. I believe pre-pandemic performance could be on the cards for this fiscal year. Coming up to date, a H1 trading update released today noted supply chain issues and logistical problems. On a positive note, Lookers brands performed in-line with expectations.

My best stocks to buy now boost my passive income stream through dividend payments. Lookers current dividend yield is 3.5%. This is closer to the FTSE 100 average of 3%-4%. I am aware that dividends can be cancelled at any time, however.

Overall, I’ve decided now is the time to add Lookers shares to my holdings. I am buoyed by Lookers’ position in the market. This is despite shorter-term challenges it faces due to factors out of its control. The passive income stream is a nice bonus. I also expect performance to continue on an upward trajectory after a Covid-disrupted past two years.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jabran Khan owns shares in Lookers. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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