I expect the second half of 2024 to be a good time for dividend stocks. With interest rates falling, dividends are likely to come back into focus.
Here I will highlight three dividend stocks that dirt cheap at the moment. I think they are worth a closer look at the beginning of the second half of the year.
Rising dividends
The oil giant is first Sleeve (LSE: SHEL). The price-earnings ratio (P/E) is currently only 8.5 compared to a market average of 13.6.
The yield here is currently around 4.1%. While that’s not the highest, the dividend cover (the ratio of earnings to dividends) is very strong. This means that the payout is most likely safe and there is room for future dividend increases.
It’s worth noting that analysts expect the payout to increase by 5.5% next year, which would put the yield at around 4.3%, which could be higher than savings account rates if they fall by a few percentage points.
Shell now faces some challenges, including the global shift to clean energy and investors moving away from non-ESG stocks. But at a P/E ratio of 8.5, much of that is probably already priced into the share price. Assuming oil prices don’t fall, I think this stock can do well in the coming years.
High yields
Next we have the banking giant HSBC (LSE: HSBA). The P/E ratio is currently only seven.
The dividend yield looks very attractive right now. If we exclude the special dividend for this year (which was recently paid), it is around 7%. In a world of falling interest rates, that stands out to me. Dividend coverage is very healthy, meaning the likelihood of a cut is low.
I would point out that falling interest rates are not ideal for banks. When interest rates fall, there is less scope to make a profit on loans. And interest rates are not the only risk here. Investors also need to consider economic conditions in China – a country in which HSBC has significant exposure.
However, given the 7% dividend, I think the risk is worth it. To get that kind of return from an established blue-chip company like HSBC is fantastic in my opinion.
Attractive total return
Finally, look at the FTSE 250 engineering company Keller Group (LSE: KLR). The P/E ratio is currently around 8.1.
The dividend yield here is currently around 3.8%. That’s not particularly high either. But I don’t see that as an exclusion criterion.
Keller specializes in preparing building ground. And the company is currently very successful in the USA. Recently it was said that the annual results would probably be “materially ahead” of its previous expectations. This led to a number of brokers raising their price targets (the consensus price target is 1,512p, 23% above the current share price). So I think there is potential for strong total returns (earnings plus dividends) in the coming years.
The main risk to this stock is an economic slowdown. This would most likely have a negative impact on construction companies. However, with the US government currently pumping billions into infrastructure, I like Keller.
The post 3 dirt-cheap dividend stocks to consider buying in July first appeared on The Motley Fool UK.
Further reading
Ed Sheldon does not own any of the stocks mentioned. The Motley Fool UK has recommended HSBC Holdings. HSBC Holdings is a promotional partner of The Ascent, a Motley Fool company. The views expressed in this article about the companies mentioned in this article are those of the author and as such 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.
Motley Fool UK 2024
