5 Cheap Dividend Stocks for Prudent Investors

Value investors buy stocks of companies that appear to be priced below their intrinsic values based on financial metrics such as price-to-earnings ratios, price-to-book ratios, or dividend yields. A value investment strategy has proven to produce greater risk-adjusted returns than alternatives. Prudent value investors can attempt to achieve higher returns by uncovering undervalued companies that boast an appreciation potential and dividend payouts that provide current income.

Nuveen Dividend Value A (MUTF:FFEIX), ranked by Barron’s as one of the top dividend funds, consists of 89 stocks of high-quality, dividend-paying companies with above average current income or dividend growth, and a value bias. While the fund’s largest holdings include mega caps such as Pfizer Inc. (NYSE:PFE), Verizon Communications Inc. (NYSE:VZ), and Chevron Corporation (NYSE:CVX), they also include some less-known dividend plays that represent attractive value and income investments. Here is a closer look at the fund’s five value dividend stocks with yields exceeding the average yield on the S&P 500 index.

Maxim Integrated Products Inc. (NASDAQ:MXIM) is an $8.6-billion producer of linear and mixed-signal integrated circuits. It is a dividend achiever that has raised dividends uninterruptedly since 2003. The chipmaker pays a dividend yield of 3.2% on a payout ratio of 76% of trailing earnings and 59% of free cash flow. Over the past five years, its dividend grew, on average, by 6% annually. This year, the company hiked its dividend by a larger-than-average 9.1%. The company’s dividend growth is likely to be sustained as its EPS CAGR is forecast to accelerate to 13.5% for the next five years, double the rate over the past five years. Maxim’s business is driven by the fast-growing smartphone market. In fact, the company is a leading supplier for Samsung’s Galaxy S III, which has seen explosive growth. Maxim is a major producer of mixed signal and analog integrated circuits, which are expected to grow faster than other chip segments. The company has no long-term debt. With a forward P/E of 16.4x, Maxim’s stock is discounted relative to its respective industry (forward P/E of 16.8x). Billionaire fund managers Jim Simons and Ken Griffin are bullish about this stock.

Westar Energy Inc (NYSE:WR), with a market capitalization of $3.7 billion, is the largest electric utility in Kansas. Currently, its dividend yields a high 4.5% on a payout ratio of 67%. The utility has raised dividends for seven consecutive years. Its dividend grew, on average, by 4.1% per year over the past five years. Westar Energy’s EPS CAGR is forecast to accelerate to 6.6% for the next five years from a mere 0.7% per year achieved over the past five years. The utility’s forward P/E of 13.9x is below its respective industry’s average ratio of 15.4x. Its dividend is higher than the average for its industry. The company is growing through diversification of energy supply sources and building of transmission capacity. Westar Energy is popular with RenTech’s Jim Simons.