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Two Cheap Dividend Stocks for Any Market

Want to know the best way to combat a volatile market? Cheap dividend stocks. And these two dividend stalwarts are particularly cheap at the moment.

What Are Dividend Aristocrats?

What a crazy market. Huge moves in the indexes are a daily occurrence. The S&P 500 is still down 13% from its September high, after being down nearly 20% at the bottom. Have we already seen the worst of it? I’m not sure, no one is, but I think there is a good chance we haven’t. And that means it’s a good time to have a couple cheap dividend stocks in your portfolio. More on those in a bit.

It’s almost impossible to predict the short-term gyrations of the market. People try, but the market somehow has a way of confounding even the most well-thought-out predictions in the near term. Sure, the market could take off from here. I do think the selloff was overdone—the market seems to be pricing in a recession that is still nowhere in sight.

I personally believe that the market will rally in the first half of the year. While investors and traders have been running for the exits like frightened school girls, the economy is still kicking butt and taking names. Eventually, the market will sober up. It always does. It will wake up with a nasty hangover and realize, wait a minute, the economy is still solid and earnings are still strong. And now, the market is actually cheap.
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But investors are still scared. It won’t take much to send them stampeding for the exits again. One snippet of sour news or any flimsy reason to seemingly justify pessimism will quickly embolden sellers and we’ll be headed down the rabbit hole again. We’re not out of the woods yet, and we probably won’t be for a while.

What can you do in the meantime? You can say, “I’m a long-term investor” and step in and buy stellar companies at cheap prices here. And that will work out well for you over time. But you might get roughed up in the next few months.

Let’s face it: We have a market that could easily move 10% either way in the next few weeks and months. Is there any good place besides the sidelines right now? Is there anything you can confidently buy amidst this tumult?

Actually, there is. I’ve found two cheap dividend stocks that are worth buying right now, even while uncertainty still reigns supreme.

Two Cheap Dividend Stocks

Cheap Dividend Stock #1: Altria (MO)

Cigarette maker Altria is the second-largest tobacco company in the world and the largest in the U.S. Its Marlboro brand is by far the most dominant cigarette on the market, with a whopping 40% market share. Nobody else is even close.

What if things go badly and the market turns south? Altria has a relatively unblemished record of solid stock performance in good markets and bad. In a bad market and economy people still drink and smoke, if not more so. This is one of the few companies that continues to thrive in bad times and bad markets. And there is reason to believe the stock will be even more resilient this time around.

After an uncharacteristic bad year, down almost 30% in 2018, the stock currently sells near a five-year low at 49 per share, and pays a massive 6.57% yield. Bear in mind this is a stock, even after the recent downturn, that has provided an average annual total return (including dividends) of 19% per year for the last 10 years. 2018 was a rare moment of weakness.

MO is down for two reasons: cigarette volumes have slipped more than usual and regulators have been more aggressive than they’ve been in a decade. Volume decreases are nothing new—the number of U.S. smokers decreases about 3% to 4% every year and has for some time. But Altria has been able to counter the volume slippage by raising prices on its dominant brand and ancillary businesses.

Consider this: Cigarette smoking in this country has nearly halved since 2009. But in that time period Altria has grown earnings by an average of 9%, and $10,000 invested in the stock 10 years ago would be worth about $56,000 today!

Volume has decreased slightly more than usual of late primarily because of competition from E-cigarettes. In addition, regulators have proposed restrictions on selling these new non-tobacco products to minors and threatened to outlaw menthol cigarettes, which account for about 20% of Altria’s profits. Altria is affected because it has also been in the E-cigarette business. But these things will likely take years in court to resolve and by then Altria will adjust. In fact, it already is adjusting.

The company just spent $14.6 billion on a 45% stake in cannabis (marijuana) company Cronos (CRON) and a 35% share in E-cigarette powerhouse Juul. Cronos is one of the largest cannabis companies in the world and that market is expected to grow 35% per year through 2025 and could grow even more as legalization becomes increasingly popular. Juul has a 75% share of the E-cigarette market in this country, and a growing presence overseas. The Juul industry is expected to grow from about $14 billion in sales in 2017 to $44 billion by 2023.

Altria has added strong growth to its already winning formula, and should thrive when the market recovers because there is now a reason to be excited about the stock. The current market doesn’t get excited about anything. Up or down, sideways or backwards—Altria should be a winning investment that currently pays you 6.57% just to hold it.

Cheap Dividend Stock #2: Lockheed Martin (LMT)

It’s a dangerous world out there. The need to defend the country from foreign threats never goes away. At the same time, the changing nature of warfare and technology creates an urgent and desperate need to acquire the world’s most sophisticated weapons systems.

Lockheed is the largest defense contractor in the world. Headquartered in Bethesda, Maryland, Lockheed is an American global aerospace, defense, security, and advanced technologies company with a global footprint.

Lockheed is at the cutting edge of technological innovation at a time when technological advantage is the most important thing. Innovations include anti-ballistic missile defense systems, space technology, mini nuclear power generators, and supersonic business jets.

The biggest revenue generator by far is the F-35, the latest generation of American fighter aircraft. That single plane is the most expensive weapons system in history. This highly-sophisticated aircraft was first delivered in 2006 and has contracts for deliveries until 2037. It already accounts for one-third of the company’s revenues, and that number should grow. In fact, it is estimated that there will be $1 trillion in future revenues from the plane.

The company’s leadership position in high-tech areas like combat aircraft as well as missiles and helicopters, paired with its decades of experience dealing with federal government dysfunction, make switching costs extremely high. The government is locked into Lockheed for a long time.

Lockheed is America’s defense spending king. It is by far the biggest beneficiary of this country’s need to defend itself. But there is a caveat: LMT is only a good investment as long as humankind continues to distrust each other. Unfortunately, I’m going to go out on a limb and take that bet.

LMT stock has suffered a rare blip of late and is more than 25% off its 52-week high, but with a solid 3.4% yield. It’s a stock that has averaged about a 15% total return for the past five, 10 and 15 years. Regardless of what happens in the economy or the market, Lockheed will continue to ring the register.

Now, if you want to know what other cheap dividend stocks are catching my eye these days, you can subscribe to my Cabot Dividend Investor advisory, where I’ve recently taken the reins as chief analyst from its former overseer, Chloe Lutts Jensen. A little about me: prior to joining the Cabot Wealth team, I spent the last decade-plus creating and managing investment accounts for private investors, corporate clients, pension plans and 401(k)s. I’ve also written for online investment publications such as the Motley Fool, StreetAuthority, NewsMax and more.

I am thrilled to be your new guide to building wealth through high-income investments with growing principal.

To learn more about Cabot Dividend Investor, click here.


Tom Hutchinson is the Chief Analyst of Cabot Dividend Investor, Cabot Income Advisor and Cabot Retirement Club. He is a Wall Street veteran with extensive experience in multiple areas of investing and finance.