Did you know that around 85% of the companies on the S&P 500 now pay a dividend?
Talk about shooting fish in the proverbial barrel if you’re looking for dividend stocks.
Most companies now figure they should offer some sort of incentive in return for investors buying into their businesses.
However, while finding dividends is relatively easy, the hunt for reliable, stable dividends can be trickier.
And it only increases when you’re hunting for dividend stocks under $10.
But it’s absolutely possible.
So let’s start the hunt…
Don’t Snub the Little Guys
In my experience, there’s a split opinion when single-digit stocks get mentioned.
On one hand, investors without much investment capital love these often hidden gems, as they’re vital for smaller portfolios.
But some investors steer clear of these stocks, either because they think something must be wrong with the companies or they’re spooked by the negative stigma of “penny stocks.”
Well, as with most things in life, you can enjoy success if you’re prepared and know what you’re doing.
Our first candidate certainly knows its way around a consistently growing business…
AU Optronics Corp. (Nasdaq: AUO): Since the calendar just flipped to November, this is my favorite time of year to look for seasonal plays, as the holidays approach.
But I’m not just talking about buying any old retail stock. That’s a cop-out.
Rather, I’m talking about a company that supplies critical parts for a host of products that will be sitting under millions of Christmas trees in just seven weeks.
Taiwanese firm AU Optronics designs, manufactures, and sells the LCD, OLED, and flat-panel displays on smartphones, tablets, televisions, laptops, and PC monitors.
With over 80% of its sales coming from these items, consider the company one of the silent partners of the upcoming holiday season.
And in designing curved displays and bezel-less displays, it’s tapping into growing consumer demands within the industry.
AU Optronics’ displays also appear on car dashboards, point-of-sale terminals in stores, and ATM screens.
The company is diversified beyond that, too. It’s involved in renewable energy, with its Solar division manufacturing modules and wafers, as well as supplying engineering and maintenance support to solar providers and real estate developers.
The strategy is paying off, too.
Last week, the company reported third-quarter revenue of $2.9 billion – up 4.7% year-over-year and beating estimates by $110 million.
That resulted in an 81% jump in net profit and EPS of $0.30, which beat guidance by a penny. Operating profit bounced 69% higher.
The results showed that its all-important Display segment notched an EBITDA margin of 22% and a 12% operating profit margin.
Assessing the critical fourth quarter, AU Optronics said shipment activity was robust and expects strong demand.
Turning to the overall financials, both net profit margin and operating profit margin sit comfortably at 10% and 11%, respectively. What’s more, analysts project earnings to grow at a 65% CAGR over the next five years. With a forward P/E of 11.5, PEG of 0.06, and similarly low price-to-sales and price-to-book ratios, AU Optronics is practically a steal at just over $4 per share.
As for the dividend, the company pays $0.18 per share annually – a 4.4% yield. And with a payout ratio of just 15%, management isn’t over-extending itself.
AU Optronics is a prime example that when people call sub-$10 stocks “cheap,” it doesn’t automatically mean “bad.” It’s the valuation that matters – and in this case, it just means it’s a bargain.
Hit the Piste for Profits
What does winter mean to you? While many folks hate the frigid temperatures and snow, outdoorsy types use it as a chance to hit the slopes for skiing, snowboarding, and other winter activities.
And for people in the Northeast and Midwest, there’s a decent chance they’ll trek to one of this company’s locations…
Peak Resorts, Inc. (Nasdaq: SKIS): Peak Resorts owns 14 skiing and lodging locations in New York, New Hampshire, Vermont, Pennsylvania, Ohio, Indiana, and in Peak Resorts’ home state of Missouri. That turns millions of city-dwellers into adventure-seekers each season.
In fact, the company just reported that sales of its 2017/2018 “Peak Pass” are up 9% over last year. The passes give customers seasonal access (with five different options) to seven locations in the Northeast.
But Peak Resorts isn’t just a winter company. In the summer months, its locations offer mountain biking, zip-lining, and tubing, among other warm-weather pursuits.
In fiscal 2017, total revenue hit $123.2 million – up 28.7% over 2016. And net income rocketed 138.4% higher to $1.25 million.
While Peak Resorts’ price-to-sales and price-to-book ratios offer excellent value and the operating margin is a healthy 10%, I’d prefer to see a little less debt on the books.
But keep in mind that the company is about to enter its busy season. And if history is any guide, take a look at what shares did this time last year. From a close of $4.55 on November 2, 2016, the stock climbed to a high of $6.10 on March 8, 2017. The stock is right around that $4.50 level again now. History repeating? I believe so.
In addition, we’ve got a very powerful indicator in our favor here, too. Insiders own almost one-third of the stock, which indicates strong confidence in the company’s prospects.
As for the dividend, you’ll get an annual $0.28 per share – a 5.5% yield.
As I explained here a few weeks ago, not all dividends are created equal.
Not all stocks are created equal, either. But you shouldn’t let that put you off from looking at the little guys. And in this case, these two stocks offer value, seasonal growth, capital appreciation, and income from dividends – all for under $10 a share. Not a bad deal, I’d say.