I’ve recently been looking for cheap dividend stocks to add to my portfolio. Here are three companies I would buy for my portfolio right now.
Dividend stocks to buy
The first company I would buy is Moneysupermarket.com (LSE: MONY).
The group’s biggest challenge right now is the recently introduced regulation that insurance companies have to charge existing customers the same as new customers. This may reduce the need for customers to shop around, reducing the need for platforms like Moneysupermarket. This could have a significant impact on the group’s growth and income potential.
Usually, high-growth internet stocks don’t offer much in the way of income. That’s not the case with Moneysupermarket. This online platform currently supports a yield of 4.4%.
The company is highly cash generative, which means it can afford to return lots of money to shareholders while investing in its brand. Over the past five years, its dividend has grown at around 5% per annum.
What’s more, the stock looks cheap. It is trading at a forward P/E ratio of 16.6, compared to the IT sector average of 28. That’s why I’d own the business as part of a portfolio of dividend stocks.
The Hipgnosis Songs Fund (LSE: SONG) generates income from music royalties. The company’s goal is to produce a steady, predictable income stream for its shareholders that not influenced by economic trends.
It is targeting a dividend of 5p per share in the long term. If it hits this target, the stock could yield 4.1%. Of course, there’s no guarantee the company will successfully meet this objective.
One of the challenges the group faces is having to acquire enough music royalties. It isn’t the only enterprise chasing these assets. As a result, Hipgnosis has to pay higher and higher prices. This could impact shareholder returns if the business ends up overpaying consistently.
Another threat to the group’s long-term potential is illegal downloads of music. If there’s an increase in illegal downloads, Hipgnosis will struggle to earn a return on its investments.
Despite these risks, I think this is one of the best dividend stocks to buy. That’s why I would acquire the shares today.
Investing for growth
Premier Miton (LSE: PMI) is rapidly becoming one of the UK’s premier asset management businesses. The group has seen its net profit increase from just under £1m in 2016 to £11m in 2019. Analysts are expecting the firm to report a net income of £20m for 2021. It is trading at a forward P/E of 11.2 based on these figures, compared to the financial services sector median of 14.
This growth has funded explosive dividend expansion. For the current financial year, analysts reckon the company can distribute 7.9p, which would give a dividend yield of 5.5%, based on the current share price.
These are just forecasts at this stage and should be treated as such. However, I think they show the company’s potential.
Asset management is all about achieving good results for clients. This is the biggest challenge the corporation faces. If it fails to achieve good results for clients, they could desert the business. This may cause profit margins to fall, and the company may have to cut its dividend as a result.
Still, I would buy this company as part of a portfolio of dividend stocks.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Moneysupermarket.com. 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.