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3 Incredibly Cheap Dividend Stocks

There's no shortage of reasons for investors might want to tilt their portfolio toward dividend stocks. The best choices within this investment category do well at combining long-term capital appreciation with immediate and consistent cash payouts that grow with each passing year. Automatic reinvestment of these payments also amplifies your returns.

These factors only become more attractive when you find an income payer that's valued at a discount to peers or the wider market. With that in mind, let's look at why Constellation Brands (NYSE: STZ), The TJX Companies (NYSE: TJX), and PepsiCo (NASDAQ: PEP) seem like steals right now.

Image source: Getty Images.

1. Constellation Brands

Constellation is a relatively new entrant into the dividend club, having started a regular payout in 2015. But the company easily makes up for that short track record with market-thumping growth and earnings metrics.

Source: STZ operating margin (TTM) data by YCharts. TTM = trailing 12 months.

The alcoholic beverage giant has some of the highest profit margins in the business, in part thanks to its focus on premium imported beer brands like Corona, Pacifico, and Modelo. Its growth rate trounces most peers, too, due to success of these brands in restaurants, bars, and supermarket chains. Yet the stock has trailed the market by a wide margin so far in 2021.

That's due to Wall Street's worry about slowing growth in the hard seltzer niche, along with concerns about the timing of Constellation's wine and spirits turnaround. But patient investors can look past those temporary challenges and own a company that's ideally positioned to outpace the attractive high-end alcoholic beverage space.

2. The TJX Companies

The once-in-a-century pandemic dashed TJX's hopes of becoming a Dividend Aristocrat by 2022. That short-term financial hiccup is a big reason the off-price retailer's stock is roughly flat so far this year compared to a 20% surge in the wider market. That gap shouldn't persist for long.

TJX was an attractive business before COVID-19 scrambled its industry, and the pandemic did no permanent damage to the outlook. Customers are still flocking to its stores to look for bargains, and the company is having no trouble finding enough inventory to keep its shelves full.

The holiday season is always a risky time for retailers, and this upcoming fourth quarter promises to be unusually volatile due to supply chain bottlenecks and swinging consumer demand. But I'd expect TJX to use its popular home furnishings categories to outperform most peers, which should free up even more cash for hikes in its reinstated dividend.

3. PepsiCo

Investors might be scratching their heads wondering why, with its strong sales growth and improving finances, PepsiCo has been left out of 2021's stock market rally. Rather than try to make sense of that contradiction, you could simply capitalize on it by buying this discounted stock.

Pepsi gained millions of new customers in its food division during the pandemic. Its beverage division hardly shrunk, thanks to booming sales at supermarket chains. As a result, its entire portfolio is healthy heading into the back half of 2021.

Yes, CEO Ramon Laguarta and his team are spending more money right now to upgrade the supply chain and manufacturing network. That's a plus for the stock, though, not a minus since the short-term earnings hit will be dwarfed by the long-term benefits of rising margins and a faster growth base. And, while they wait, income investors can collect a 2.7% annual yield, compared to roughly 1.3% for the wider market overall.

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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Constellation Brands. The Motley Fool recommends The TJX Companies. The Motley Fool has a disclosure policy.


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