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High Dividend Yield Stocks That are Safe and Cheap
As recession fears continue to grow, companies are becoming more hesitant to distribute dividends, making it difficult to find stocks with high and safe dividend yields. In fact, the overall dividend payment for companies in the S&P 500 decreased by 2.3% in the second quarter, marking the first decline in seven quarters, according to S&P Dow Jones Indices. However, CNBC Pro has done the research and identified stocks that meet certain criteria, including high dividend yield, low dividend payout ratio, consistent dividend growth, low debt to capital ratio, and a cheap valuation.
Stocks with High Dividend Yields
Among the stocks that meet the criteria, two notable ones are Pfizer and Carter's. Pfizer offers a dividend yield of 4.6%, providing investors with a substantial income payout. In addition, the shares are currently trading at a 9% discount to their 5-year average forward price-to-earnings (P/E) ratio. This makes Pfizer an attractive option for investors looking for both income and value. On the other hand, Carter's offers a slightly lower dividend yield of 4%, but it is still considered to be high compared to the market average. Additionally, the company is trading at a 10% discount, making it an appealing choice for investors seeking a balance between income and value.
Safety of Dividend Payments
Ensuring the safety of dividend payments is crucial for investors looking to generate reliable income. Both Pfizer and Carter's have a dividend payout ratio of less than 50%, indicating that they have ample earnings to cover their dividend obligations. This is a positive sign for investors, as it suggests that these companies have enough financial strength to sustain their dividend payments in uncertain market conditions.
A cheap valuation is an important factor to consider when selecting dividend-paying stocks. Both Pfizer and Carter's are trading at a discount to their historical average forward P/E ratios, making them attractive in terms of valuation. Investors can take advantage of these discounts to potentially generate higher returns in the future.
In conclusion, finding stocks with high, safe, and cheap dividend yields can be challenging in the current market environment. However, with careful analysis and consideration of certain criteria, such as dividend yield, dividend payout ratio, dividend growth, debt to capital ratio, and valuation, it is possible to identify stocks that meet these requirements. Pfizer and Carter's are two examples of stocks that offer high dividend yields, have a safe dividend payment history, and are currently trading at a discounted valuation.
Hot Take: Implications for New Businesses
For new businesses, the topic of high dividend yield stocks that are safe and cheap may not have a direct impact. This is because new businesses typically prioritize growth and reinvestment of profits rather than paying out dividends to shareholders. However, understanding the market conditions and investor preferences can provide valuable insights for new businesses seeking external funding or considering an initial public offering (IPO).
In a market environment where recession fears are growing and dividend payments are declining, investors are becoming more cautious. They are increasingly drawn to companies that offer both income potential and value in the form of high dividend yields and attractive valuations. This highlights the importance of demonstrating a clear and sustainable business model with solid financials to attract potential investors and secure funding.
While new businesses may not be in a position to distribute dividends in the early stages, they can focus on showcasing a strong growth trajectory, a solid strategy for profitability, and effective capital allocation plans. This will help build investor confidence and potentially lead to higher valuations when seeking external funding or eventually going public.
Furthermore, new businesses can consider offering alternative incentives to attract investors, such as equity or stock options, which align their interests with those of the company. This gives investors the opportunity to benefit from future success and potential dividends as the business matures.
In conclusion, although the topic of high dividend yield stocks may not have a direct impact on new businesses, understanding investor preferences and market conditions can provide valuable insights for fundraising and strategic decision-making. By focusing on growth, profitability, and aligning investor interests, new businesses can position themselves attractively in the eyes of potential investors.
Article First Published at: https://www.cnbc.com/2023/07/19/these-cheap-stocks-pay-safe-and-high-dividends.html