This year’s stock market crash has left a number of cheap dividend stocks sporting very generous yields. Today I’m looking at three strong FTSE 350 firms, currently trading at knockdown prices and offering yields of up to 8.6%.
Sure, market volatility could continue in the short term. But if you have a long-term horizon, and intend to compound your returns by reinvesting dividends, I reckon these three stocks could help you get rich and retire early.
Cheap dividend stocks pay!
I’ll come shortly to two FTSE 100 firms, but let me start with FTSE 250-listed payment services provider PayPoint (LSE: PAY). This mid-cap company was founded in 1996, and has grown to have a market value of £440m.
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I see plenty of scope for further growth, albeit not this year. It reported a 6.6% fall in net revenue for the three months to 30 June. Meanwhile, City analysts are forecasting a hit to earnings of 20% or so for the full year.
At a share price of 640p (a 41% discount to its 2020 pre-pandemic high), PayPoint trades at around 12 times forecast earnings. The board targets a dividend covered 1.2 to 1.5 times by earnings. This implies a prospective yield of between 5.4% and 6.8%.
The company is highly cash-generative, and maintains a strong balance sheet. It’s a cheap dividend stock I’d be happy to buy for the long term.
Another market crash bargain
I’m also keen on FTSE 100 insurer Legal & General (LSE: LGEN). It’s the UK market leader in both individual life insurance products and corporate pension schemes. Nevertheless, analysts are forecasting an 8% hit to earnings this year.
Back in the spring, insurers came under some pressure over dividends from the Prudential Regulation Authority. Many cancelled their previously-declared 2019 final payouts. Legal & General resisted the pressure. It said its solvency was robust, and that dividends were important to its shareholders.
At 204p, L&G’s shares are at a 36% discount to their pre-pandemic level. They’re valued at less than eight times forecast 2020 earnings. Meanwhile, having recently maintained its interim dividend, I’m expecting a full-year payout at least at the same level as last year.
With a prospective bumper yield of 8.6%, I reckon the shares are a great long-term buy for investors aiming to get rich and retire early.
Cheap dividend stocks #3
I think the market is far too gloomy about the prospects of FTSE 100 tobacco giant British American Tobacco (LSE: BATS). Everyone knows there’s an ongoing decline in the number of smokers. However, I reckon BATS has a credible strategy to offset this with its non-combustibles portfolio.
The company is targeting 50m non-combustible consumers by 2030 from a current 11.6m. This would more than compensate for the declining number of smokers. Meanwhile, management appears confident about its plans to deleverage the balance sheet, while distributing 65% of earnings to shareholders in dividends.
It expects 1%-3% revenue growth this year, and mid-single-digit percentage earnings growth. At 2,580p, the shares are at a 26% discount to their pre-pandemic level. Like L&G, it trades at a sub-eight forward earnings multiple with a prospective dividend yield of 8.6%.
I think this is another cheap dividend stock, and I’d be happy to buy it for the long term.
