3 Very Cheap Dividend Stocks to Buy in July

I think the second half of 2024 will probably be a good period for dividend stocks. With interest rates falling, dividends should come back to the forefront.

Here I will highlight three dividend stocks that are very cheap right away. I think they’re worth a closer look as we enter the second half of the year.

Rising dividends

The first is the oil giant Shell (LSE:SHEL). It currently trades on a price-to-earnings (P/E) ratio of just 8.5, compared to the market average of 13.6.

The yield here is currently around 4.1%. This is not the highest on the market, but the dividend coverage (the ratio of earnings to dividends) is very solid. This means that the payout is most likely secure and there is room to increase dividends in the future.

It’s worth noting that analysts are expecting a 5.5% increase in deposits next year. That would bring the yield to about 4.3%, which could be higher than savings account interest rates if they fall by a few percentage points.

Shell now faces a few challenges, including the global shift to clean energy and investors’ shift away from non-ESG stocks. But with a price-to-earnings ratio of 8.5, much of this is likely already priced into the stock. Assuming oil prices don’t collapse, I think this stock can do well in the years ahead.

High yields

Next we have the banking giant HSBC (LSE:HSBA). Its P/E ratio is currently just seven.

The dividend yield looks very attractive at the moment. Excluding this year’s special dividend (which was paid recently), it’s around 7%. In a world of falling interest rates, this seems remarkable to me. Dividend coverage is very healthy, meaning the risk of a decline is low.

I want to stress that falling rates are not ideal for banks. When rates fall, the opportunities to generate profits from lending diminish. And rates are not the only risk. Investors should also consider the economic situation in China, a country to which HSBC has significant exposure.

I think the risks are worth taking, given the 7% dividend. To be able to get that kind of yield from a blue chip company like HSBC, which is well established, is fantastic, in my opinion.

Attractive total returns

Finally, discover the FTSE 250 engineering company Keller Group (LSE:KLR). It currently trades on a P/E ratio of around 8.1.

The dividend yield is currently around 3.8%. Again, that’s not very high. But I don’t see that as a deal breaker.

Keller specializes in preparing land for construction. And right now, he’s having a lot of success in the United States. He recently said his annual results should be “materially ahead» from its previous expectations. This has led a number of brokers to raise their price targets (the consensus price target is 1,512p, or 23% above the current share price). So I think there is potential for high total returns (earnings plus dividends) in the years ahead.

The main risk associated with this action is an economic slowdown. This would most likely have a negative impact on construction companies. However, with the US government currently pouring billions into infrastructure, I like Keller’s image.