3 Very Cheap Dividend Stocks to Consider Buying in July

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

Here I will highlight three dividend stocks that are very cheap Right now. I think they deserve 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 is around 4.1% at the moment. This is not the highest in the market, but the dividend coverage (the ratio of earnings to dividends) is very solid. This means that the payout is very likely secure and there is room for dividend increases in the future.

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

Today, Shell faces a few challenges, including the global shift to clean energy and investors’ abandonment of non-ESG stocks. But with a P/E ratio of 8.5, much of this is likely already priced into the stock. Assuming oil prices don’t fall, I think this stock can do well in the years ahead.

High yields

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

The dividend yield looks very attractive at present. Excluding this year’s special dividend (which was paid recently), it is 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. As rates fall, there is less opportunity to generate profits on loans. And rates are not the only risk here. Investors should also consider economic conditions in China – a country to which HSBC has significant exposure.

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

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Attractive overall returns

Finally, check out the FTSE 250 engineering company Keller Group (LSE:KLR). Its price-to-earnings ratio is currently around 8.1.

The dividend yield is currently around 3.8%. Again, this is not very high. But I don’t see this 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” compared to 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 for this stock is an economic slowdown. This would most likely have a negative impact on construction companies. However, with the US government currently pumping billions into infrastructure, I like the look of Keller.

The article 3 Very Cheap Dividend Stocks to Consider Buying in July appeared first on The Motley Fool UK.

Further reading

Ed Sheldon has no position in any of the stocks mentioned. The Motley Fool UK recommended HSBC Holdings. HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. The opinions expressed about companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a broad range of ideas makes us better investors.

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