Investing in dividend stocks that offer an attractive yield allows you to begin a steady stream of passive income at a low cost. However, investors should avoid buying dividend stocks solely on the basis of their high yields. Instead, you need to ensure that the dividend payout is sustainable across market cycles.
Here are two under-$10 dividend stocks I’d buy right now.
Decisive Dividend stock
Valued at a market cap of $138 million, Decisive Dividend (TSXV: DE) is an acquisition-oriented company focused on opportunities in manufacturing. It aims to be the primary choice for legacy owners who are looking to sell their businesses. Basically, Decisive Dividend identifies profitable, high-quality manufacturing companies that enjoy a sustainable competitive advantage, allowing them to derive stable cash flows and organic growth.
Decisive Dividend is at the cusp of exponential growth, given that 76% of business owners plan to exit their businesses within the next 10 years. This means roughly $2 trillion worth of assets could change hands in the upcoming decade.
In the last nine years, Decisive Dividend has completed 13 acquisitions, allowing it to grow revenue by 29% annually between 2015 and 2023. Despite its small size, Decisive Dividend has paid close to $30 million in dividends since 2015. It currently offers shareholders an annual dividend of $0.54 per share, translating to a forward yield of 7.5%. Its payout ratio in the last 12 months is around 66%, providing it with the flexibility to target accretive acquisitions, which should drive future cash flows higher.
In the last five years, Decisive Dividend stock has returned 74%. However, if we adjust for dividend reinvestments, cumulative returns are much higher, at 135%. Since its initial public offering in 2015, the dividend stock has been up close to 1,300%, easily outpacing the broader markets.
In addition to capital gains, Decisive Dividend has also raised its dividends from $0.48 per share to $0.54 per share in the last 12 months.
Analysts expect the company to increase sales from $135 million in 2023 to $157 million in 2025. Priced at less than 20 times forward earnings, the dividend stock trades at a 40% discount to consensus price target estimates.
Algonquin Power & Utilities stock
Valued at $6.2 billion by market cap, Algonquin Power & Utilities (TSX: AQN) offers shareholders a forward yield of 6.6%, despite slashing its payout significantly in early 2023. Similar to other debt-heavy companies, Algonquin Power & Utilities is struggling with interest rate hikes and inflation which has impacted earnings and cash flow, leading to the dividend cut.
With more than $16 billion in total assets, AQN is a diversified generation, transmission, and distribution utility. According to estimates, AQN is forecast to end 2024 with a payout ratio of 84%, which is not too steep for utility companies. Due to the recession-resistant nature of its business, AQN benefits from steady consumer demand, resulting in predictable revenue and cash flows.
Analysts tracking the TSX dividend stock forecast adjusted earnings at $0.68 per share in 2024, indicating a forward multiple of 13.8 times, which is reasonable. Bay Street expects AQN stock to surge over 12% in the next 12 months due to its attractive valuation.
