Many go price hunting during a bear market. However, I prefer total return hunting. After a sharp market decline, high-yielding stocks could set you up for early retirement.
Nevertheless, it is essential to consider which stocks will maintain their dividend payments. I generally prefer to seek out best-in-class assets and countercyclical companies, as they are more likely to weather the storm in today’s declining economy.
My selection process for this article was quite simple. I’ve looked at the stocks I’ve invested in or have myself invested in and combined my theoretical knowledge to make sense of their total return outlook. I’ve uncovered some gems, so without further ado, here are seven cheap income stocks everyone should own.
Low-income stocks: British American Tobacco (PSTN)
Has a beta coefficient of 0.41, British American Tobacco (NYSE:PSTN) stocks are safe and ideal to hold during a risky market. Additionally, British American Tobacco provides a lavish dividend, yielding 7.6%.
Many believe that BTI stock’s days are numbered due to the negative outlook on the tobacco industry. However, a closer look reveals that the company’s integrated growth remains robust. British American Tobacco’s “new product category” is growing at a CAGR (compound annual growth rate) of 31%, and non-combustible products now account for 14.6% the company’s revenue mix. Additionally, broad-based growth remains intact at a 5-year CAGR of 11.22%which is well above the normalized growth rate of world GDP.
Finally, the company is a shareholder since its 12 years of consecutive dividend distributions signals loyalty. Therefore, BTI stock is a prime income-generating asset.
Devon Energy (DVN)
Devon Energy (NYSE:NDV) needs to be on this list, given its second-quarter earnings triumph and its acquisition of the complementary Williston Basin project.
The company bumped past second-quarter earnings estimates as it reported an EPS (earnings per share) surplus of 22 cents per share and revenue of $880 million. Additionally, company management increased DVN’s dividend payout by 22%, resulting in a forward dividend yield of 10.23%.
As mentioned, Devon Energy recently acquired the complementary Williston Basin project, which is expected to be immediately accretive.
According to the company’s CEO, Rick Muncrief:
This add-on acquisition is highly complementary to our existing position in the Williston Basin and is immediately accretive to our finance-focused strategy. …RimRock’s directly adjacent square footage provides strong operational synergies, adds to our high-quality inventory in the core of the area, and positions us to further increase cash return to shareholders.
DVN stock looks like a sustainable income-based investment. The stock offers nice dividend payouts and looks undervalued, given that its normalized price-to-earnings ratio is at a level 60% delivery.
Cheap Income Stock: Impala Platinum (IMPUY)
Impala Platinum (OTCMKTS:IMPUY), also known as Implats, is a promising PGM (platinum group metals) miner. This mining house operates a lean business that focuses its capital expenditures on high-growth assets. Moreover, Implats’ refining segment means that it is vertically integrated, which ensures profitability, as evidenced by its gross profit margin of 38.59%.
The company is in the process of acquiring the remaining shares of its subsidiary Royal Bafokeng. I believe the merger could bring significant benefits to Implats’ balance sheet, ultimately benefiting its shareholders.
The stock has a forward dividend yield of 6.50%which could easily proliferate given that Implats’ free cash flow is operating at a 1.27x Compound annual growth rate over 3 years.
Simon Real Estate Group (SPG)
Simon Real Estate Group (NYSE:GPS) is a listed real estate investment firm specializing in North American entertainment centers and shopping centers. While I’m not too bullish on consumer discretionary business, I think SPG is an exception at its current price level, especially given its blue chip attributes.
The fund recently released its second quarter financial results, revealing a target for funds from trading operations. 7 cents per share. Subsequently, the company raised its forecast for the full year based on the increase in capacity utilization. In addition, SPG has increased its distribution of dividends to $1.75 per share.
Real estate investing is a solid decision if you are looking for asset exposure that is uncorrelated to the stock market. Furthermore, Simon Property Group will likely continue to outperform the market as long as inflation remains high.
Low-income stocks: Taiwan Semiconductor (TSM)
I include Taiwan semiconductor (NYSE:TSM) stock on this list because I don’t‘I don’t think we‘I will see it again as cheap. TSM is not‘ta pure-play dividends, instead‘it’s a quality total return stock that I think will rebound soon.
Taiwan Semiconductor has a huge advantage in the semiconductor industry due to its comparative advantage. The company’s low labor costs and marginal cost advantages are clearly reflected in the fact that its gross profit and EBIT (earnings before interest and taxes) margins exceed the industry average of 8.48% and 4.8xrespectively.
Additionally, TSM stock is on a strong growth trajectory with a measure of capital expenditures to sales of 47.17% and a 3-year CAGR of 22.98%. The prior indicates that TSM is aggressively investing in growth initiatives, while the latter suggests that its heavy spending is being successfully monetized.
The dividend yield of the TSM share of 2.24% combines with its low price to cash flow ratio (9.71x) to form an asset with enormous total return potential.
Real Estate Agreement (ADC)
Accept real estate (NYSE:CDA) is an effective net leased commercial REIT. I’m a fan of this REIT because it follows a central anchor strategy by taking in high profile tenants to attract smaller tenants at premiums. Some of the REIT’s largest tenants include walmart (NYSE:WMT), Costco (NASDAQ:COST) and Home deposit (NYSE:HD).
This investment vehicle has produced total shareholder returns of 90.3% over the past five years, a compound annual return of 12.7% since its IPO in 1994 and a growing rate of dividends. 5.5% per year over the past decade.
In addition, the REIT’s portfolio is 99.6% leased, of which 67.5% of its investment grade base rent tenants. As such, Agree Realty looks like one of the most durable REITs out there, with a lucrative total return profile.
Low-income stocks: Citigroup (C)
I think Citigroup (NYSE:VS) may be more favorable to long-term investors than it has been in the past. The bank’s pivot to a lower-risk services model means it will be less sensitive to cyclicality while maintaining dominant services revenues. Additionally, the bank will be able to better utilize its dry powder by decentralizing from a risk-weighted asset business to a deal-making machine.
Warren Buffett recently increased his position in Citigroup, and I can see why. The stock offers an attractive dividend yield of 4.8% and is trading at a price-to-book discount of 1.82x, leading me to conclude that we are looking at a potential index-beating asset here.
As of the date of publication, Steve Booyens held indirect long positions in BTI, DVN, IMPUY, WMT and C. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publication guidelines.