There is no right or wrong way to approach investing. Some investors look at the market as a way to supplement their income with dividend stocks. Others look at the market as a way to grow their portfolio through value investing in stocks they believe to be undervalued.
Either approach is fine for long-term investing, and I like to combine the two approaches by investing in stocks I believe to be trading at or below fair value that offer big dividends. Dividends are very powerful, especially when reinvested over time, but the benefits of a big dividend can quickly be erased if the underlying security loses too much of its value, which is why you have to make sure you are looking at stocks that are reasonably priced.
When looking at dividends, I prefer to go with dividend stocks with a minimum 2% yield. Using a dividend reinvestment program these stocks can really grow in value over the long term and lead to big gains down the road. As for valuation, I like stocks that are trading around 15 times earnings or less. A P/E between 15 and 20 is generally considered to be reasonably priced, so the lower you can get in that range the better the value.
Here are a few stocks that offer big dividends at a low price at this time to consider.
Tobacco companies have always offered attractive dividend programs, and Altria (MO) is no exception with its current 6.4% yield. With smoking rates on the decline, tobacco is a slow growth sector, but Altria has managed to keep investors interested with earnings growth of 10.5% over the last five years, and analysts expect profits to rise at an annual rate of 7.2% over the next five years. Despite the decent earnings growth and high dividend yield, the stock trades at just 14 times trailing earnings and 10.7 times future earnings. Tobacco companies face big challenges as smoking rates continue to fall, but Altria is looking beyond tobacco for the future and has invested $1.8 billion in marijuana grower Cronos (CRON). The market for medical and recreational marijuana continues to expand, and Altria sees big opportunities in the future as more states pass legislation to legalize marijuana use. For investors that do not have ethical objections against tobacco stocks Altria offers the perfect combination of a high yield and very low valuation. MO trades at $48.06 with an average price target of $60.60.
General Dynamics (GD)
Aerospace and defense contractor General Dynamics (GD) has trended higher through 2019, fueled in part by a string of much better than expected quarterly reports, the most recent coming on July 24 with big beats on both the top and bottom line. The stock offers a nice 2.2% dividend yield, and shares are trading at just 14 times future earnings. General Dynamics has done a good job growing earnings in recent years with profits up 8.4% per annum over the last five years and analysts forecast annual earnings growth of 8.8% for the next five years. Defense spending is strong across the globe and defense contractors should continue seeing strong demand internationally for their products. GD is currently trading at $188.98 with an average price target of $203.83.
Insurance provider Allstate (ALL) has been a strong performer in 2019 and the stock is currently trading just shy of its all-time high set in late 2017. Earnings growth has been solid in recent years with profits up 13% per annum over the last five years and analysts expect more of the same moving forward with forecast average annual profit growth of 9.5% for the next five years. Despite trading near its all-time high the stock remains an attractive value with a forward P/E of just 10.2. In addition to the low valuation, the stock also offers a nice dividend yield of 2.0% for current shareholders. The company has a good earnings track record and will report its next set of quarterly numbers after the market close July 30. Analysts expect earnings of $1.89 versus $1.90 during the same period last year. A positive earnings surprise should push the stock to a new all-time high. ALL trades at $102.16 with an average price target of $108.55.
Mega-retailer Target (TGT) has roared to life over the last two years as the company's efforts to boost in-store and online sales have started to improve the bottom line. Analysts expect the company to grow earnings at an annual rate of 8.4% over the next five years, and the stock is currently trading at just 13.7 times future earnings. Target has an attractive dividend program with shares currently yielding 3.0% for shareholders. Target has posted better than expected top and bottom line numbers the last two quarters and will next report on August 21 with analysts expecting earnings of $1.61 per share, up from $1.47 during the same period last year. With earnings on the rise, a low valuation, and a 3% dividend, Target looks like a solid buy at the current level. TGT is trading at $86.47 with an average price target of $90.88.