2 cheap dividend stocks I’d snap up in a heartbeat!

This Fool is on the look out for quality dividend stocks and earmarks these two firms as great options to boost her holdings and wealth.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young black colleagues high-fiving each other at work

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Two dividend stocks I’ve decided I’ll be buying for my holdings as soon as I can are HSBC (LSE: HSBA) and The PRS REIT (LSE: PRSR).

Here’s my investment case!

HSBC

A tough economic backdrop recently has made banking stocks appear out of favour to many, me included. However, as a long-term investor, I reckon HSBC is a potential bargain with a great passive income opportunity.

Over a 12-month period, the shares are up 3% from 620p at this time last year to current levels of 642p.

I find myself drawn to HSBC’s valuation, enticing yield, and crucially, the firm’s growth prospects.

HSBC’s recent strategic moves to focus on high-growth territories, especially Asia, could be shrewd for long-term performance growth. The business has a wide profile and reach. However, it seems to be exiting markets it considers to be unfavourable for long-term growth and sustainability. A prime example of this is it selling its Canadian operations.

I do believe there could be some short-term pain ahead. For example, if a global recession were to occur, performance and payouts could be impacted. In addition to this, economic problems in China could hurt its ambitious growth plans in this region.

However, a forward dividend yield of 8% and the shares trading on a price-to-earnings ratio of just six is appealing to me. I am conscious that dividends are never guaranteed.

Now could be a great time for me to buy some shares with a view to long-term growth and returns.

The PRS REIT

Real estate investment trusts (REITs) are property businesses that must return 90% of profit to shareholders. PRS focuses on the private rental sector, which is a burgeoning market.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

Like banking stocks, property stocks have been hurt by economic turbulence, namely rising interest rates lowering net asset values (NAVs).

PRS shares are down 14% over a 12-month period, from 89p at this time last year to current levels of 76p.

The housing imbalance in the UK, where demand is outstripping supply, coupled with rising interest rates making it harder for home buyers to get on the property ladder, present an opportunity for PRS to grow performance, and hopefully returns. In addition to this, as the UK population continues to grow, demand for its properties should remain pretty robust.

Looking at some fundamentals, the shares actually look undervalued on a price-to-earnings growth (PEG) ratio of just 0.6. A reading of below one usually indicates a stock may be undervalued. Furthermore, a dividend yield of 5.1% is enticing too.

Continued volatility is PRS’ biggest issue moving forward, in my view. A cost-of-living crisis, and the fact we’re now in a recession with an uncertain outlook ahead, could impact rental collection, as well as growth aspirations. Performance and returns could be hurt, at least in the short to medium-term, in my eyes.

Overall I reckon the rewards outweigh the risks here by some distance. I’d be willing to ride out some volatility for future returns and growth with PRS shares.

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.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings. 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.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

Lloyds share price hanging on to 50p ahead of Wednesday’s Q1 earnings report. Where to now?

Down in April and with low earnings expected this week, Mark David Hartley investigates where the Lloyds share price might…

Read more »

artificial intelligence investing algorithms
Investing Articles

Everyone’s talking about AI! Here’s 1 FTSE stock to consider buying for exposure

A hot topic right now is artificial intelligence (AI). This Fool explains how this FTSE stock could offer investors an…

Read more »

British Pennies on a Pound Note
Investing Articles

1 penny stock I’d buy today while it is 99p

Ben McPoland highlights Windward (AIM:WNWD), a fast-growing penny stock that could benefit from the artificial intelligence revolution.

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

This forgotten FTSE 100 gem could be the best bargain on the stock market

The FTSE 100 is full to the brim of high-quality businesses. But this Fool has his eye on this 'forgotten'…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Here’s a FTSE 250 stock I’d put 100% of my money into

If this Fool could buy just one stock from the FTSE 250, Games Workshop would be his choice. Here, he…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

2 reasons Warren Buffett might love this stock, and 1 reason he might avoid it like the plague

Warren Buffett's one of the best stock pickers of all time. But would he approve of Barclays shares? This Fool…

Read more »

Union Jack flag triangular bunting hanging in a street
Investing Articles

Down 28% in a week! What’s going on with the share price of this FTSE 250 British icon?

There’s one stock in the FTSE 250 that took a bit of a battering last week. But I’m not surprised,…

Read more »

Two white male workmen working on site at an oil rig
Investing Articles

At around £28.50, Shell’s share price looks cheap to me

Shell’s share price still looks undervalued against its fossil-fuel-focused rivals to me, despite it pushing back its carbon reduction targets.

Read more »