2 Very Cheap Dividend Stocks Are Trading Below Book Value
Dividend stocks can be the foundation of your portfolio and help you build it year after year. Recurring income from these investments can help offset declines elsewhere or allow you to raise cash without having to sell stocks. Buying stocks at a discount can also increase your chances of walking away with a great return years later.
Some incredibly cheap dividend stocks you can buy today include Viatris (TRV -1.84%) and Kraft-Heinz (KHC 0.41%). They trade well below their book values and also offer mouth-watering yields on their dividends. Let’s find out a little more about these two actions.
Viatris specializes in the production of generic drugs. That should make it a fairly stable investment given the need for ongoing healthcare, but investors haven’t been willing to pay much for the company lately. At a price-to-book (P/B) of 0.53, the stock is trading at a steep discount to its reported value.
One of the reasons is probably investor concern over high leverage. At the end of the second quarter (for the period ending June 30), Viatris’ total debt stood at $21.3 billion, which puts it at a leverage ratio (D/E) of 1 ,06. Interest expense of $145.9 million in the second quarter accounted for more than a quarter of its operating profit of $548.7 million. What investors may not recognize is that Viatris is making efforts to reduce its debt and will have the cash to do so with the sale of its biosimilar portfolio to Biocon Biologics for $3.3 billion, a transaction which is expected to close before the end of the calendar year.
The Viatris business showed some resilience, with second quarter sales down only 3% operationally (i.e. excluding currency impact) at a time when the economy was still in the early stages of returning to some level of pandemic normalcy. In the long term, Viatris should do even better as people resume regular doctor visits.
Given the huge discount the stock is trading at today, Viatris has the potential to generate strong returns on top of its attractive dividend, which currently pays 5.4% (about three times the S&P500 average of 1.8%).
2. Kraft Heinz
Kraft Heinz is another stock that does not attract much investor interest. At 0.85, its P/B multiple is higher than Viatris, but it also trades at a noticeable discount to book value. It also has more than $21 billion in debt on its books – but given its size, that’s much more modest, as it puts the food company’s shares at a D/E ratio of just 0.4. .
Interest expense is not insignificant and totaled $234 million last quarter (period ended June 25), or 43% of operating profit of $542 million. However, the company has paid off $660 million in debt this year as Kraft Heinz also works to improve its balance sheet. Another positive is that the company has effectively fought inflation with price increases and is potentially one of the safest stocks for investors to buy in a recessionary economy thanks to the presence of major brands in its portfolio. such as Jell-o, Kool-Aid and Oscar Mayer, to accompany Kraft and Heinz. Sales of $6.6 billion in the most recent period were down just 0.9% year over year. And with the economy still returning to normal, Kraft could also potentially improve those numbers as the year progresses.
Kraft shares pay a 4.7% dividend, which can give investors valuable recurring cash flow at a time when stock market losses mount. Buying the stock at a discount is a decision that could pay off in the long run for investors.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends The Kraft Heinz Company and Viatris Inc. The Motley Fool has a disclosure policy.