Dividend stocks can be a reliable source of yield in volatile markets.
A quarterly dividend payment from a high-quality stock may be as close to a certainty as an investor can find on Wall Street. Rising interest rates and high inflation have dragged down the stock prices of many dividend stocks in 2022, but the lower the stock price, the higher its dividend yield. Unfortunately, companies often cut their dividend payments as the first line of defense when times get tough, and a large number of dividend stocks priced below $10 may not be safe investments. So, with that caveat in mind, here are six of the best dividend stocks to buy under $10, according to Morningstar. All dividends are calculated on a trailing 12-month basis.
Barclays PLC (BCS)
Barclays is one of the largest UK financial services groups. Comer says Barclays’ corporate and investment banking business has slowed in recent quarters, but its cards and payments businesses have helped offset that weakness. Deteriorating consumer confidence is a concern, but Comer says Barclays’ credit metrics are impressive. He says Barclays has a strong retail franchise and is the UK market leader in credit cards. He is passionate about the bank’s product portfolio and geographically diversified business. The stock also pays a 4% dividend yield. Morningstar has a “buy” rating and a $10.10 fair price estimate for BCS stock, which closed at $7.93 on Dec. 9.
Dividend Yield: 4%
Telefonica SA (TEF)
Telefonica is Spain’s largest telecommunications company. Correonero says that Telefonica has well navigated a very difficult inflationary environment in 2022. The company reported revenue growth of 4.1% in the first nine months of the year, including a 3.8% increase in the third quarter. Telefonica has hedged 60% of its energy-related costs through 2023. Correonero says the German market is still a strong performer. In fact, Telefonica generated 6% organic revenue growth in Germany in the third quarter. Telefonica also pays a 4.3% dividend. Morningstar has a “buy” rating and a $4.90 fair price estimate for TEF stock, which closed at $3.57 on Dec. 9.
Dividend Yield: 4.3%
Lloyds Banking Group PLC (ticker: LYG)
Lloyds Banking Group is a diversified bank and insurance provider based in the UK analyst Niklas Comer said tailwinds from higher interest rates are offsetting a potential slowdown in UK credit growth. The 17% fall in Lloyds profits in the third quarter was mainly due to higher loan-loss provisions. Comer says Lloyds’ disappointing headline numbers masked solid fundamentals, including a 13% rise in earnings generation. He says Lloyds should benefit disproportionately from rising interest rates, and the stock offers a 4.6% dividend yield. Morningstar has “Buy” rating and $3.80 price target on LYG stock, which closed at $2.25 on Dec. 9.
Dividend Yield: 4.6%
Orange SA (ORAN)
Orange SA is a diversified French telecommunications company. Orange shares are down just 1.3% year-to-date through December 9, making it the best performer on the list. Analyst Javier Correonero says Orange is fully hedged against rising energy prices at the end of 2022 and 90% hedged in 2023. Correonero says the company will prioritize maintaining mobile and fixed-line market share and cutting costs to offset pricing pressure. He says the company’s first-mover advantage in fiber optics will help improve long-term unit economics. Morningstar has a “buy” rating and a $14.50 fair price estimate on ORAN stock, which closed at $9.75 on Dec. 9.
Dividend Yield: 7.6%
Equitrans Midstream Corp. (ETRN)
Equitrans Midstream is a natural gas gathering, storage and transmission company focused on the Appalachian Basin. Analyst Stephen Ellis says Equitrans faces legal and regulatory uncertainty surrounding its Mountain Valley Pipeline, or MVP, project. However, Equitrans shares trade under $8 per share, and Ellis says the company’s core operation is worth at least $10 even if the MVP project is canceled entirely. Equitrans generates more than $1 billion in earnings before interest, taxes, depreciation and amortization, or EBITDA, annually and plenty of cash flow to support its 8.4% dividend. Morningstar has a “Buy” rating and a $14 fair price estimate for ETRN, which closed at $7.08 on Dec. 9.
Dividend Yield: 8.4%
Hanesbrands Inc. (HBI)
Hanesbrands is one of the world’s largest manufacturers of intimate apparel and other casual wear. Hanesbrands shares are down 59.7% in 2022, making it the worst performer on the list. However, there is a silver lining to the underperformance for dividend stocks. Hanesbrands’ declining stock price has pushed its dividend yield to 9.5%, the highest on the list. Analyst David Swartz says Hanesbrands’ pricing power and leadership in replenishment apparel categories will help it outperform competitors. The company is also investing in expanding the Champion brand. Morningstar has a “buy” rating and a $22 fair price estimate for HBI stock, which closed at $6.35 on Dec. 9.
Dividend Yield: 9.5%
6 Best Cheap Dividend Stocks Under $10:
- Lloyds Banking Group PLC (LYG)
- Barclays PLC (BCS)
- Orange SA (ORAN)
- Telefonica SA (TEF)
- Hanesbrands Inc. (HBI)
- Equitrans Midstream Corp. (ETRN)