We recently compiled a list of the 10 Best Dividend-Paying Stocks Under $15. In this article, we are going to take a look at where Star Group, L.P. (NYSE:SGU) stands against the other dividend-paying stocks under $15.

During the bull market driven by the “Magnificent Seven” stocks, dividend stocks lagged in performance. Since the beginning of 2024, the Dividend Aristocrats Index has increased by only 5.50%, while the Nasdaq has risen by 13.6%. That said, the performance of tech stocks becomes less significant when considering the long-term returns of dividend stocks. Dividend-paying stocks with strong balance sheets and stable yields can offer investors consistent income, protection against market declines, and steady growth for their investments.

When investing in dividend stocks, it might seem logical to invest in stocks with the highest yields. However, according to analysts, concentrating solely on yield may not be the most effective investment approach. Not all dividend yields are equally secure, as companies under financial strain may suspend or cut their dividend payments. Therefore, investors are encouraged to prioritize the sustainability of dividends and, if possible, seek out companies with a track record of dividend growth. To know more about strong dividend payers, have a look at Best Dividend Stocks of All Time. 

Historically, companies that consistently grow their dividends have outperformed those that do not pay dividends, while also exhibiting less volatility. Although dividends are not guaranteed and can fluctuate, just like in today’s time, they have played a major role in equity total returns over the decades. From 1930 to 2023, dividends and their reinvestment accounted for 40% of the annualized total return of the broader market, with the remaining return coming from capital appreciation.

Companies globally are distributing record dividends to shareholders, largely due to their robust balance sheets. With companies holding near-record levels of cash and liquid assets, they are increasingly returning this cash to investors through dividends. Global dividends grew from $1.23 trillion in 2020 to $1.66 trillion in 2023, according to a report by Janus Henderson. The firm forecasts total dividends to reach $1.72 trillion for 2024, up 3.9% on a headline basis.

A company’s dividend payout ratio is an important measure of how flexible its dividend policy is. Firms that only earn enough to cover their dividends or pay out most of their earnings as dividends might face risks from competitive pressures, as their cash flow may not be adequate to sustain operations. Moreover, companies with high dividend yields or, more critically, high payout ratios might be at risk of limited future growth, which could impact both share price appreciation and the potential for increasing dividends. According to data collected by Nuveen, stocks with the highest payout ratios have not been the strongest long-term performers. Over the past 20 years, companies with medium and medium-high payout ratios that paid dividends have generally delivered better performance.

Consistently growing dividends is a challenging target, as it requires companies to be financially very stable. For companies that are still in the growth phase and have lower share prices, evaluating dividend sustainability becomes a straightforward metric to consider. In this article, we will take a look at some of the best dividend stocks under $15.

Our Methodology:

For this list, we used a Finviz stock screener to find dividend stocks trading below $15 as of the close of July 31. From the initial list, we narrowed down the selection to companies that pay regular dividends to shareholders and possess strong dividend policies, ensuring consistent future dividends. From the resultant list, we picked 10 stocks with the highest number of hedge fund investors, using Insider Monkey’s Q1 2024 database of 920 hedge funds and their holdings. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

Star Group, L.P. (NYSE:SGU)

Number of Hedge Fund Holders: 8

Share Price as of the Close of July 31: $11.06

Star Group, L.P. (NYSE:SGU) is an American company that specializes in providing residential and commercial heating oil, propane, and related services. In fiscal Q3 2024, the company reported strong results, benefitting from both increased volumes and improved per-gallon gross margins compared to the last year. In addition, the company also entered into a definitive agreement to acquire a high-quality fuel oil dealer for approximately $35 million, excluding working capital adjustments. This business, expected to provide nineteen million gallons of heating oil annually, is situated within the company’s existing operational area, with the transaction anticipated to close in the fourth quarter. During the quarter, it reported a 25.3% YoY growth in the volume of home heating oil and propane to 37.7 gallons.

Star Group, L.P. (NYSE:SGU)’s net attrition for the quarter remained stable and decreased slightly year-over-year, reflecting its ongoing commitment to excellent customer service and strategies to enhance retention rates. With investments in operations and personnel, the company looks forward to the arrival of winter in the coming months.

Star Group, L.P. (NYSE:SGU) has solid business fundamentals. However, investors should carefully assess the dividend situation. In the latest quarter, the company reported an operating cash flow of $77.5 million, down from $116.5 million in the same period last year. This doesn’t matter much when we consider its trailing twelve months (ttm) levered free cash flow of $65.8 million, notably better than Spire Inc.’s negative free cash flow of $254.5 million. Additionally, the company has increased its dividend payouts for 11 consecutive years. This indicates that it has maintained strong business performance even during challenging times, such as the pandemic, when many companies reduced their dividends due to business difficulties. On July 19, it declared a quarterly dividend of $0.1725 per share, which was in line with its previous dividend. With a dividend yield of 6.43% as of August 1, SGU is one of the best dividend stocks on our list.

At the end of Q1 2024, 8 hedge funds tracked by Insider Monkey reported having stakes in Star Group, L.P. (NYSE:SGU), the same as in the previous quarter. These stakes have a total value of over $47.5 million. With over 3.4 million shares, Bandera Partners was the company’s leading stakeholder in Q1.

Overall SGU ranks 10th on our list of the best dividend-paying stocks to buy under $15. You can visit 10 Best Dividend-Paying Stocks Under $15 to see the other dividend-paying stocks that are on hedge funds’ radar. While we acknowledge the potential of SGU as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than SGU but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.

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Disclosure: None. This article is originally published at Insider Monkey.