The Motley Fool

3 embarrassingly cheap dividend stocks I’d buy

Image source: Getty Images.

Dividends offer more than just income. If they’re reinvested, research shows they make up more than 50% of the market’s long-term return. With that in mind, today I’m looking at three dividend stocks with market-beating dividend yields that I believe are embarrassingly cheap. 

Secure income 

My first pick is financial services group Secure Trust Bank (LSE: STB). At the time of writing, shares in this enterprise are trading at a forward P/E of just 8 and support a dividend yield of 6.6%

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Usually, when a bank’s valuation falls to this level, it’s a sign the market believes something is going wrong under the bonnet. However in this case, I can’t see anything to be concerned about. Secure Trust has a Tier 1 equity capital ratio of 13.6%… and its earnings are exploding. 

During the first half of 2018, the bank’s earnings per share (EPS) jumped 36.6% and analysts are forecasting growth of 45% for the full year, which should leave the dividend covered 1.9 times by EPS.

It looks to me as if the market has oversold this bank, and the stock could be an excellent buy for value-seeking investors after sliding nearly 40% over the past 12 months. 

Slow and steady 

My next embarrassingly cheap income play is Investec (LSE: INVP). Investec tends to fly under the radar of most investors because the company is, well, boring. Indeed, with EPS growth averaging 9% over the past nine years, Investec isn’t going to win any awards any time soon. 

Still, what Investec lacks in growth it more than makes up for in reliability. As mentioned above, the company has churned out consistent earnings growth of 9% per annum for the past six years, but despite this, the share price has hardly budged. Even though EPS have expanded from 30p in 2013 to 50p for 2018, the shares are around 10% lower today than they were at the same time in 2013 (~500p). The group’s dividend has also increased 44% over this period, and today the stock yields 5.4%. 

At the time of writing, shares in Investec trade at a forward P/E of just 8.5, which is, quite frankly, an embarrassingly low multiple for a business that has seen EPS expand 67% over since 2013. It could be worth buying the shares today before the rest of the market catches on to Investec’s untapped potential. 

Steel stock 

My last cheap income stock is Evraz (LSE: EVR). As a cyclical steel business, it comes with more risk than both Secure Trust and Investec. However, right now shares in this business are so cheap, there’s a wide margin of safety for investors if anything goes wrong.

Evraz is trading at a forward P/E of 7.3 and a discount of around 20% to the rest of the metals and mining sector on an EV/EBITDA basis. These figures are already based on the City’s expectation that EPS will slide 34% in 2019 to $1.11 from 2018’s blow-out number of $1.68.

Considering that shares in Evraz are trading at a discount of 20% to the rest of its sector, earnings could fall a further 20% before it started to look fairly valued.

On top of this margin of safety, shares in the steel producer support a dividend yield of 9.1% (based on the City’s target for 2019). The payout is covered 1.5 times by EPS, so it looks reasonably secure for the time being. 

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.