When it comes to penny stocks, the words “speculative” and “risky” are likely what first come to mind. Most stocks trading at single-digit prices, whether growth stocks or value stocks, have a high-risk, high-potential-return vibe. Yet, while these types of plays make up the bulk of this category, there are a few cheap dividend stocks under $5 per share.
Depending on your investment objectives, these may make for better additions to your portfolio than your standard “moonshot” penny stock. Why? Their high yields could help these investments deliver steady returns.
Additionally, they may have less downside risk than non-dividend-paying penny stocks. Consistent dividends are a sign of consistent profitability. And a stable underlying business could mean their stocks are subject to fewer wild price swings.
That’s the case here with each stock listed. These five cheap dividend stocks under $5 per share offer worthwhile dividend payouts and could experience gradual price appreciation, either due to a market re-rating or from catalysts playing out. Consider each one a potential buy at current price levels.
|MFG||Mizuho Financial Group||$2.37|
Ambev SA (ABEV)
Ambev SA (NYSE:ABEV) is a Brazil-based brewer that operates in Latin America and Canada. It is majority owned by Anheuser-Busch InBev (NYSE:BUD), which owns approximately 62% of the company’s stock. You may be wondering why this publicly traded subsidiary is a better buy than its parent, especially as both names trade at similar forward earnings multiples (around 17x).
Both are also trying to turn themselves around after experiencing sluggish growth and pandemic headwinds. Yet, with its much higher dividend yield (3.9% for ABEV versus BUD’s 1% yield), ABEV stock may be the better buy. Investors can get paid while they wait for a turnaround.
That’s not all. While shares are down less than the broader market in the past year, they are down substantially over the past five years. Therefore, it’s not outside the realm of possibility that Anheuser-Busch Inbev eventually buys out minority shareholders at a premium to the current trading price.
Kinross Gold (KGC)
Canada-based Kinross Gold (NYSE:KGC) operates gold mines around the world. This has been a tough year for shares, which are down around 40%.
The big jump in gold prices earlier this year due to Russia’s invasion of Ukraine only gave the stock a brief boost, as the miner was forced to sell its Russian assets due to sanctions. Furthermore, as the U.S. Federal Reserve’s rate hikes strengthened the U.S. dollar, gold has pulled back.
So, with these troubles, why buy Kinross?
It currently sports a solid 3.6% forward yield. Shares also trade at a heavily discounted valuation with a forward multiple of just 10x. The stock could make a big recovery if gold prices bounce back on a possible course reversal by the Fed, which may move to cut interest rates next year.
Mizuho Financial Group (MFG)
Mizuho Financial Group (NYSE:MFG) is another deep value stock trading at penny stock levels. At current prices, the Japan-based bank holding company trades for less than 7x forward earnings. It also sports a forward dividend yield of 5.9%.
With this, it may seem like there’s a catch. MFG stock must be cheap for a reason, and not a good one, right?
Sure, its mixed operating performance in recent years has resulted in shares delivering lackluster total returns. Given that Japan’s central bank isn’t raising interest rates, it’s questionable whether this bank will see its net interest income move higher.
Still, these concerns may be more than accounted for in the stock’s valuation. Plus, as InvestorPlace’s Stavros Georgiadis discussed in May, Mizuho is looking to expand its U.S. business. Moving further into capital markets whose central banks are raising rates could help drive earnings growth.
Pitney Bowes (PBI)
Recently, I argued that Pitney Bowes (NYSE:PBI) is one of the penny stocks to buy before the bull market returns. The office equipment provider’s high forward dividend yield of 6.2% was a big reason for this. It’s also why I consider PBI stock one of the best cheap dividend stocks under $5 per share.
At first glance, it may seem like the risk of a dividend cut is high. An economic downturn could certainly hurt demand for Pitney Bowes’ offerings. Yet, despite its reputation as an old-school maker of equipment like postage meters, that doesn’t mean the company is doomed to go the way of the dodo.
Pitney Bowes’ move into digital shipping and e-commerce offerings complements its legacy business. It may also help the company deliver stronger results when today’s external headwinds pass. This, in turn, could help support its current payout and potentially fuel a comeback in PBI shares.
Telefonica SA (TEF)
Like many European-based telecom firms, Telefonica SA (NYSE:TEF) isn’t just limited to its home market of Spain. It owns telecom assets across Europe and Latin America and has been shifting its focus toward expanding its European presence in recent years.
Like several other foreign telecom stocks, its U.S.-listed shares offer a high yield. TEF stock sports a forward yield of 9.1%. Such a yield could look juicy to some, but others may wonder if it’s a red flag signaling a possible yield trap.
Upon closer look, I do not believe investors are taking on the high risk of lackluster returns tomorrow in the pursuit of high yield today with TEF stock. Earnings are expected to stay steady in the coming year. Therefore, its current payout is likely secure.
In time, market sentiment about Telefonica’s dividend security could improve, enabling shares to make a permanent move out of penny stock territory.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.