3 Cheap Dividend Stocks That Are Passive Income Machines

Jhe COVID-19 pandemic has dramatically changed the way many people work. Today, it’s easier than ever to have a side hustle, multiple freelance gigs, and even different sources of income, all while working from home.

Even with the dawn of the gig economy, one of the most proven methods of generating passive income is through dividend-paying stocks. Dividend-paying stocks can be especially important during times of economic turmoil and market volatility because they provide income without the need to sell stocks. In this vein, an investor does not have to worry so much about short-term stock prices.

Starbucks (NASDAQ:SBUX), JPMorgan Chase (NYSE: JPM)and The reception deposit (NYSE:HD) are three excellent dividend-paying stocks that also happen to be inexpensive. Here’s what makes each company a great buy now.

Image source: Getty Images.

1. Uncertainty pushes Starbucks stock price to 52-week low

Starbucks stock is down 35% from its all-time high for several reasons, many of them valid. Investors don’t like uncertainty, and Starbucks has plenty of that. Howard Schultz is back as interim CEO, but we don’t know for how long. Starbucks has scaled back its stock buyback program and we don’t know the company’s plans for the dividend. Starbucks has implemented several price increases, which will be tested as inflation continues to rise. And finally, the issue of unionization at Starbucks escalates.

However, none of these issues take away from Starbucks’ long-term investment thesis. The company posted record revenue in 2021 and the second-highest net profit in its history after 2018. Starbucks remains one of the world’s most powerful food and beverage brands and the world’s largest coffee chain. more recognizable in the world.

The good news is that investors are being compensated for all the Starbucks uncertainty. The stock currently trades at a price-to-earnings (P/E) ratio of just 21.8, well below its five-year median P/E ratio of 29.8.

It’s also worth mentioning that while Starbucks has reduced its buyback program, it has yet to mention any changes to its dividend program. Starbucks has paid and increased its dividend every year since 2011. Given Starbucks’ large dividend and large free cash flow, it stands to reason that the company will simply eliminate stock buybacks to free up capital. to grow the business – but still pay and increase the dividend. Starbucks has a 2.5% dividend yield.

2. Major bank stocks are just too cheap to ignore

With a market capitalization of $386 billion, JPMorgan Chase is the most valuable bank in the United States and the third most valuable financial services company behind Berkshire Hathaway and Visa.

JPMorgan stock currently has a P/E ratio of just 8.6. Other than the brief pandemic-induced stock market crash in the spring of 2020, JPMorgan shares have never traded at a P/E ratio below 10 in the past eight years.

JPM PE Ratio Chart

JPM PE Ratio data by YCharts.

The stock may look cheap, but comments in CEO Jamie Dimon’s annual letter to shareholders on April 4 indicate that there are plenty of headwinds facing both the U.S. economy and the banks. JPMorgan could face slowing growth – and potentially a prolonged period of low return on equity (ROE).

However, JPMorgan has proven through multiple economic downturns that it has power. Given the cheap valuation and a 3.1% dividend yield, JPMorgan now looks like a great long-term buy.

3. Home Depot can be a fundamental stock in a diversified portfolio

Home Depot shares are hovering around a 52-week low, down more than 25% from its all-time high. Still, zoom out and Home Depot stock is still up sharply from pre-pandemic levels.

Home Depot has benefited from an increase in DIY projects during the pandemic as well as a scorching housing market. However, rising interest rates lead to higher mortgage interest rates, which is not a good sign for the housing market going forward. The problem now is that house prices and mortgage rates are high, whereas in 2020 and 2021 house prices were high, but debt was so cheap that people could afford new homes anyway.

Couple rising interest rates with inflation, and Home Depot will face tough competition in 2022. Despite near-term challenges, Home Depot remains a strong brand and an excellent dividend-paying stock. Home Depot has never cut its dividend since it paid it in 1987. That would be a dividend aristocrat – which is a S&P500 component that has paid and increased its dividend for at least 25 consecutive years, but Home Depot suspended dividend increases during the financial crisis. Home Depot stock has a dividend yield of 2.5% and a P/E ratio of 19.8 compared to a five-year median P/E ratio of 23.3.

Sit back and collect passive income from this diverse trio

Investing equally in Starbucks, JPMorgan and Home Depot gives an investor an average dividend yield of 2.7% and exposure to the food and beverage industry, the financial sector and the home improvement industry. Additionally, an investor can have peace of mind knowing that no matter what the market throws at them, these three companies are likely to remain relevant and likely become much bigger in the decades to come.

10 stocks we like better than Starbucks
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Daniel Foelber has the following options: January 2024 Long Calls $120 on JPMorgan Chase, January 2024 Long Calls $70 on Starbucks, January 2024 Long Calls $80 on Starbucks, January 2024 Long Calls $90 on Starbucks, short January 2024 $100 calls on Starbucks and short May 2022 $85 puts on Starbucks. The Motley Fool owns and recommends Berkshire Hathaway (B shares), Home Depot, Starbucks and Visa. The Motley Fool recommends the following options: $200 long calls in January 2023 on Berkshire Hathaway (B shares), $100 short calls in April 2022 on Starbucks, $200 short calls in January 2023 on Berkshire Hathaway (shares B) and $265 short calls in January 2023 on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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