I reckon the second half of 2024 is likely to be a good period for dividend stocks. With interest rates set to fall, dividends should come back into focus.
Here, I’m going to highlight three dividend stocks that are dirt cheap right now. I think they’re worth a closer look as we start the second half of the year.
Rising dividends
First up is oil giant Shell (LSE: SHEL). It currently trades on a price-to-earnings (P/E) ratio of just 8.5 versus the market average of 13.6.
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The yield here is about 4.1% right now. That’s not the highest out there, but dividend coverage (the ratio of earnings to dividends) is very strong. This means that the payout is most likely secure and that there’s scope for dividend increases going forward.
It’s worth noting that analysts expect a 5.5% increase in the payout next year. That would take the yield to about 4.3%, which may be higher than savings account interest rates they come down a few percentage points.
Now, Shell does have to navigate a few challenges including the global shift to clean energy and the move away from non-ESG stocks by investors. But at a P/E ratio of 8.5, a lot of this stuff is probably already baked into the share price. Assuming oil prices don’t tank, I think this stock can do well in the years ahead.
High yields
Next, we have banking giant HSBC (LSE: HSBA). Its P/E ratio’s currently just seven.
The dividend yield here looks very attractive right now. If we exclude the special dividend for this year (which was paid out recently), it’s about 7%. In a world of falling interest rates, that stands out to me. Dividend coverage is very healthy, meaning the chance of a cut is low.
I’ll point out that falling rates are not ideal for banks. As rates drop, there’s less scope to generate profits from loans. And rates aren’t the only risk here. Investors also need to consider economic conditions in China – a country HSBC has significant exposure to.
I believe the risks are worth taking on however, given the 7% dividend. To be able to get that kind of a yield from a well-established, blue-chip company like HSBC is fantastic, in my view.
Attractive total returns
Finally, check out FTSE 250 engineering company Keller Group (LSE: KLR). It currently trades on a P/E ratio of about 8.1.
The dividend yield here’s about 3.8% currently. Again, that’s not super high. But I don’t see that as a deal breaker.
Keller specialises in preparing ground to build on. And right now, it’s having a lot of success in the US. Recently, it said its full-year results were likely to be “materially ahead” of its previous expectations. This led to a number of brokers raising their price targets (the consensus price target is 1,512p, 23% above the current share price). So I think there’s potential for strong total returns (gains plus dividends) in the years ahead.
The main risk with this stock is an economic slowdown. This would most likely have a negative impact on construction companies. With the US government currently pumping billions into infrastructure however, I like the look of Keller.
