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Harley-Davidson Inc(HOG-N)

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3 Great Dividend Stocks You Can Buy for Less Than $50

Motley Fool - Tue Jul 18, 5:15AM CDT

When an investor looks to buy a stock, the share price should be one of the last factors in the decision, especially given that many brokerages now make fractional shares available to retail investors. That's because no two companies have equal share counts, so comparing companies on share price alone is impossible.

Instead of share price, investors should focus on the health of a company's financial metrics and its valuation in relation to competitors or its historical averages. So, with that in mind, here are three great dividend-paying stocks that you can coincidentally buy for less than $50.

1. Harley-Davidson

Harley-Davidson(NYSE: HOG) stock has disappointed investors mightily over the past five years with a total return (stock appreciation or depreciation plus dividends) of negative 6%, underperforming the S&P 500 benchmark by roughly 80 percentage points. With that poor performance, many investors may have all but forgotten the motorcycle manufacturer, making it a prime candidate for a bounce.

Today, Harley-Davidson pays a quarterly dividend of $0.17 per share, equating to a dividend yield of 1.8%. Notably, the company has paid a regular quarterly dividend since 1993, but management cut it from $0.38 to $0.02 per share during the height of the pandemic.

Beyond the stock's poor performance, for its first quarter of 2023, the company reported $1.8 billion in revenue and $304 million in net income, representing year-over-year increases of 20% and 37%, respectively. Interestingly, that growth was in spite of a roughly 12% decline in retail motorcycle sales, meaning the company is charging more for its product to make up for the decline in volume.

Harley-Davidson's annual revenue for 2022 of $5.8 billion was lower than its 2014 high-water mark of $6.2 billion. So investors shouldn't view Harley-Davidson as a growth stock, but as a possible bounce-back candidate. That's because, on a valuation basis, Harley-Davidson has never looked cheaper.

Over the past five years, the stock has had a median price-to-earnings (P/E) ratio, a common valuation metric for mature companies, of 11.6. Yet Harley-Davidson stock is trading at a P/E ratio of just 6.4, signifying it is a potential bargain.

HOG Revenue (Annual) Chart

Data source: YCharts

2. Kroger

Kroger(NYSE: KR), a leading operator of grocery stores throughout the U.S., has paid and raised its dividend for 17 consecutive years. A favorite in Warren Buffett's Berkshire Hathaway portfolio, Kroger pays shareholders a quarterly dividend of $0.29 per share, equating to an annual dividend yield of 2.5%.

Including dividends, Kroger has been a market-beating stock over the past five years, with a total return of 84% compared to the S&P 500's 75%. One reason for the outperformance could be management's shareholder-friendly capital allocation strategy. Beyond Kroger's higher-than-average dividend yield, management has repurchased 10% of the company's shares outstanding during the past five years, which makes existing shares more valuable.

Kroger recently paused its share repurchasing program because of its pending merger with Albertsons in a deal valued at $24.6 billion. The new company would produce an estimated $210 billion in revenue with a footprint of nearly 5,000 stores across the U.S. For comparison, during fiscal 2022 ended Jan. 28, 2023, Kroger generated $148 billion in revenue at about 2,800 locations.

The Federal Trade Commission still needs to approve the deal, but management at both companies remain hopeful for an early 2024 completion.

Although the pending deal complicates the stock's long-term outlook, Kroger Chairman and Chief Executive Officer Rodney McMullen will continue serving in those roles for the combined company. That's good news for prospective investors who appreciate McMullen's history of returning capital to shareholders.

No matter whether the deal gets final approval, Kroger is a longtime market leader in the grocery store business and will likely continue that trend, all while paying investors handsomely to own its stock.

3. Rollins

Many homeowners may be familiar with this final company, Rollins (NYSE: ROL), a leader in pest control. The stock, currently trading near an all-time high of about $44.50, and it is up 22% in 2023.

Rollins is a longtime dividend-paying stock, consistently paying a quarterly dividend since 1987. The company recently raised its quarterly dividend by 30% to $0.13 per share, representing an annual dividend yield of roughly 1.2%.

In addition to its dividend, Rollins's revenue and net income are rising substantially with recurring contracts for its residential and commercial customers. For the first quarter of 2023, the pest control company generated $658 million in revenue and $0.18 in diluted earnings per share, year-over-year increases of 11% and 20%, respectively.

But Rollins's secret to success may be its growth-by-acquisition strategy. Since 2020, the company has made more than 100 acquisitions, including six during the first quarter of 2023. As a result, management believes the company can "achieve margin expansion through cost and revenue synergies." In a sign that this plan is working out, Rollins's gross margin -- the percentage of revenue retained after the cost of goods sold -- increased from 49.4% in Q1 2019 to 51.5% in Q1 2023.

ROL Gross Profit Margin (Annual) Chart

Data source: YCharts

Despite management's acquisitive nature, Rollins is the rare public company with no net debt, with $50 million more in cash and cash equivalents than long-term debt. That means management isn't overextending the company's balance sheet regarding these tuck-in acquisitions, leaving Rollins set up for continued growth.

Are these dividend stocks buys?

Dividend stocks offer a level of stability for investors as management knows it is expected to distribute profits to shareholders continually. This consistency can help limit volatility and provide a cushion during market downturns.

These three stocks, costing less than $50 per share, present different propositions to investors, but they all generate steady income for shareholders. That makes all three worthy of any income investor's attention.

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Collin Brantmeyer has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway and Rollins. The Motley Fool has a disclosure policy.

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