In this article, we discuss 10 best cheap DRIP stocks to buy now. You can skip our detailed analysis of DRIP investment and the performance of DRIP stocks in the past, and go directly to read 5 Best Cheap DRIP Stocks to Buy Now.
A dividend reinvestment plan, or DRIP, is a well-known investment strategy to generate stable income. Companies that offer DRIPs automatically purchase more shares of the company through investors’ dividend payments. This is one of the most convenient strategies to generate compound returns. According to a report by Hartford Funds, reinvested dividends and compounding returns represented nearly 84% of the total return of the S&P 500 from 1960 to 2021. Another report by Schroders mentioned that from 1993 to 2018, average annual growth across eight markets stood at 4.3% without dividend reinvestments and grew to 7.1% when reinvested dividends were included.
Given the current inflationary environment, investors are advised to consider dividend stocks as they have historically produced stable returns. Companies with strong dividend growth histories are much sought after as they promise regular streams of income. The S&P 500 Dividend Aristocrats — stocks with over 25 years of consistent dividend growth — delivered average annual returns of 12.13% from 1990 to 2018. In comparison, the S&P 500 delivered a 9.9% return during the same period, as reported by an American investment banking company, Merrill Lynch. Among the most popular dividend stocks that investors are paying attention to are The Coca-Cola Company (NYSE:KO), PepsiCo, Inc. (NASDAQ:PEP), and Johnson & Johnson (NYSE:JNJ) because these companies maintain decades-long dividend growth streaks.
Analysts are also recommending the DRIP strategy to stay afloat in this current market situation. Daniel Milan, a managing partner of Cornerstone Financial Services, discussed dividend reinvestments in his CNBC Select interview earlier this year. He said that investors should focus on compound returns and reinvesting dividends is one of the main ways to achieve it. He further said that the DRIP strategy offers great growth potential through different market cycles. In view of this, we will discuss the best cheap DRIP stocks to buy now.
Photo by Nathan Dumlao on Unsplash
Our Methodology:
For this article, we selected dividend companies that offer dividend reinvestment plans (DRIPs) to shareholders and have share prices below $60, as of the close of September 18. We also analyzed these companies through hedge fund sentiment, using Insider Monkey’s Q2 2022 data. The stocks are ranked according to their share prices.
Best Cheap DRIP Stocks to Buy Now
10. Farmers National Banc Corp. (NASDAQ:FMNB)
Share Price as of September 19: $14.12
Dividend Yield as of September 19: 4.52%
Farmers National Banc Corp. (NASDAQ:FMNB) is an Ohio-based bank holding company that provides services in mortgage loans and other business products. The company reported strong earnings in Q2 2022, posting revenue of $41.19 million, which showed a 13.3% year-over-year growth. Its operating cash flow for the quarter stood at $27 million, up from $13 million in the previous quarter. The company’s free cash flow also jumped to $25.5 million in Q2, from $12.8 million in the preceding quarter.
On August 23, Farmers National Banc Corp. (NASDAQ:FMNB) declared a quarterly dividend of $0.23 per share, in line with its previous dividend. The company has been raising its dividends consistently for the past seven years, with a CAGR of 27%. As of September 19, this cheap DRIP stock’s dividend yield came in at 4.52%.
As of the close of Q2 2022, 10 hedge funds tracked by Insider Monkey owned stakes in Farmers National Banc Corp. (NASDAQ:FMNB), compared with 11 in the previous quarter. These stakes hold a collective value of over $13.6 million. With roughly $4.5 million worth of shares, Renaissance Technologies was the company’s leading stakeholder in Q2.
In addition to popular dividend stocks like The Coca-Cola Company (NYSE:KO), PepsiCo, Inc. (NASDAQ:PEP), and Johnson & Johnson (NYSE:JNJ), Farmers National Banc Corp. (NASDAQ:FMNB) is another prominent dividend stock for stable income.
9. Marathon Oil Corporation (NYSE:MRO)
Share Price as of September 19: $26.01
Dividend Yield as of September 19: 1.23%
Marathon Oil Corporation (NYSE:MRO) is a Texas-based energy company that specializes in the exploration of hydrocarbons and also runs international gas operations. In July, Piper Sandler lifted its price target on the stock to $41 with an Overweight rating on the shares, presenting a positive outlook on the exploration and production sector post-pandemic.
In Q2 2022, Marathon Oil Corporation (NYSE:MRO) reported revenue of $2.3 billion, which showed a 101.8% growth from the same period last year. The company returned $816 million of capital to shareholders, $56 million of which accounted for dividend payments. The shareholder return represented 51% of the company’s second-quarter adjusted CFO. In Q2, the company generated $1.2 billion in free cash flow.
On April 28, Marathon Oil Corporation (NYSE:MRO) declared a 14% hike in its quarterly dividend to $0.08 per share, which marked the company’s fifth consecutive dividend increase. The stock’s dividend yield came in at 1.23%, as of September 19.
At the end of Q2 2022, 41 hedge funds tracked by Insider Monkey reported owning stakes in Marathon Oil Corporation (NYSE:MRO), down from 43 in the previous quarter. These stakes have a collective value of over $1.26 billion.
Carillon Tower Advisers mentioned Marathon Oil Corporation (NYSE:MRO) in its Q1 2022 investor letter. Here is what the firm has to say:
“Stock selection contributed the most while sector allocation was also positive. An underweight to communication services and an overweight to energy helped performance, while an underweight to consumer staples and an overweight to materials detracted. Stock selection was strong within healthcare and materials but was weak within information technology and industrials. Marathon Oil (NYSE:MRO) increased its quarterly dividend and executed an impressive share buyback that blew by the target it originally announced.”
8. Bank of America Corporation (NYSE:BAC)
Share Price as of September 19: $34.49
Dividend Yield as of September 19: 2.55%
Another prominent DRIP stock to buy now on our list is Bank of America Corporation (NYSE:BAC), which is an American multinational investment bank and financial services holding company. The company was a part of 99 hedge fund portfolios in Q2 2022, the same as in the previous quarter, according to Insider Monkey’s data. The stakes owned by these hedge funds hold a combined value of roughly $36 billion.
In Q2 2022, Bank of America Corporation (NYSE:BAC) reported revenue of $22.7 billion, up 5.7% from the same period last year. The company’s net interest income also grew by 22% to $12.4 billion. In addition to this, its average loans and balances stood at $1 trillion, presenting a 12% growth from the prior-year quarter.
Bank of America Corporation (NYSE:BAC) last raised its quarterly dividend in July by 5% to $0.22 per share. This was the company’s ninth consecutive year of dividend growth. The stock’s dividend yield was recorded at 2.55% on September 19.
Deutsche Bank mentioned Bank of America Corporation (NYSE:BAC) in its investors’ note and maintained its Buy rating on the stock, as the firm sees upside in the banking sector after underperforming for weeks.
Miller Value Partners mentioned Bank of America Corporation (NYSE:BAC) in its Q1 2022 investor letter. Here is what the firm had to say:
“There are many times when volatility and beta give false signals. Banks outperformed in the post-tech bubble bear market of the early 2000s. At the market peak prior to the financial crisis (when risk was the highest in those names!), Bank of America (NYSE:BAC) had a 0.9x beta (based on the trailing 5 years) suggesting its “risk” was below the market’s. Wrong! It massively underperformed in the financial crisis. Realized beta over the 5 years from the pre-crisis’ 2006 peak measured 2.3x.
A much better indicator of actual risk, both before and after the financial crisis, was the quality of the balance sheet and risk-taking appetite. Beta is backwards looking and non-stationary. Relying on it underestimated risk going into the financial crisis and overestimated coming out of it (its beta has continued to fall over the past decade).
We care greatly about risk. We spend a significant amount of time thinking about the risks to our investments. We measure risk as permanent impairment of capital, which means the prices and values don’t bounce back. Business fundamentals determine risk.”
7. Foot Locker, Inc. (NYSE:FL)
Share Price as of September 19: $39.1
Dividend Yield as of September 19: 4.09%
Foot Locker, Inc. (NYSE:FL) is an American sportswear and footwear retailer that operates over 3,000 stores worldwide. Though the company does not hold any dividend growth track records, it has raised its payouts at a CAGR of 3.65% in the past five years. It currently pays a quarterly dividend of $0.40 per share and has a yield of 4.09%, as recorded on September 19.
At the end of July 2022, Foot Locker, Inc. (NYSE:FL)’s merchandise inventories stood at $1.64 billion, up 52% from the same period last year. The company purchased 1.4 million of its stock for $40 million and paid $38 million in dividends during Q2. Its cash position was also stable as it reported $386 million in cash and cash equivalents.
In August, Baird raised its price target on Foot Locker, Inc. (NYSE:FL) to $40 and maintained a Neutral rating on the shares. The firm appreciated the company’s Q2 earnings and better margin performance.
The number of hedge funds tracked by Insider Monkey owning stakes in Foot Locker, Inc. (NYSE:FL) stood at 28 in Q2 2022, growing from 21 in the previous quarter. The stakes owned by these hedge funds have a consolidated value of nearly $230 million. Ken Griffin, Cliff Asness, and Israel Englander were some of the company’s major stakeholders in Q2.
Miller Value Partners mentioned Foot Locker, Inc. (NYSE:FL) in its Q1 2022 investor letter. Here is what the firm has to say:
“Finally, Foot Locker (NYSE:FL) came under significant pressure during the quarter, with the stock down more than 50% from its highs and valuation not far from early 2020 lows. Nike continues to place a greater focus on their Direct-to-Consumer business, which will decrease their contribution to Foot Locker’s total sales, retreating to historical averages of 50% by 2023. While a near-term headwind to sales, management plans to offset the lost business by expanding distribution to other leading brands, rolling out larger neighborhood free-standing stores, and expanding two new growth banners (WSS & Atmos). WSS stores will provide an off-mall presence and focus on the rapidly growing and underserved Hispanic market. Atmos will provide Foot Locker with the ability to expand into Japan and Asia sneaker market with their digitally led business model. These new growth concepts have a combined potential to add more than $1B in sales by 2024. The company’s balance sheet remains very strong with $800M in cash and management is increasing returns to shareholders through raising the dividend by 40% and announcing a $1.2B share buyback (more than 40% of the float at current share prices). With the next 12 to 18 months as a transition period for the company, the share price weakness provides attractive reward/risk investment potential, near 3x Enterprise Value/Earnings Before Income, Taxes, Depreciation, and Amortization (EV/EBITDA) and close to a 30% normalized free cash flow yield.”
6. Hormel Foods Corporation (NYSE:HRL)
Share Price as of September 19: $45.76
Dividend Yield as of September 19: 2.26%
Hormel Foods Corporation (NYSE:HRL) is a Minnesota-based food processing company that sells a wide variety of food products to its consumers. On September 1, the company reported its fiscal Q3 2022 results, delivering its seventh consecutive quarter of record sales. Its revenue stood at $3.03 billion, up 6% from the same period last year. The company’s cash flow from operations also showed a 143% year-over-year growth at $186 million. In addition to this, the company had $850.3 million in cash and cash equivalents, compared with $613.5 million at the end of October 2021.
Hormel Foods Corporation (NYSE:HRL) is a Dividend King, raising its dividends consecutively for the past 56 years. It currently pays a quarterly dividend of $0.26 per share and has a yield of 2.26%, as recorded on September 19. The company can be a good addition to dividend portfolios alongside The Coca-Cola Company (NYSE:KO), PepsiCo, Inc. (NASDAQ:PEP), and Johnson & Johnson (NYSE:JNJ).
In August, Stephens lifted its price target on Hormel Foods Corporation (NYSE:HRL) to $55 with an Equal Weight rating on the shares, highlighting the company’s underlying business growth.
At the end of June 2022, 27 hedge funds tracked by Insider Monkey owned stakes in Hormel Foods Corporation (NYSE:HRL), down from 30 in the previous quarter. These stakes are collectively valued at over $434.5 million.
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Disclosure. None. 10 Best Cheap DRIP Stocks to Buy Now is originally published on Insider Monkey.