I’ve been looking at cheap dividend stocks for my portfolio this week. My target is a dividend yield of at least 5% and good value on offer. After the stock market fell on Friday, there should be some cheaper stocks to choose from now.
So, here are two dividend stocks that I view as good value for my portfolio.
A stock to profit from market volatility
The first company I’m looking at is Plus500 (LSE: PLUS). It operates an online trading platform for customers to trade the financial markets across various asset classes and countries.
High market volatility is good for the business as customer trading activity increases. This leads to increased revenue for the company. For example, in the six months to June 2020 (at the height of Covid), revenue increased to $564m from $148m in the same period in 2019. I think the company could be a great buy for my portfolio when markets are volatile, just like they were last week.
The stock is cheap in my view. On a price-to-earnings (P/E) basis, the share price trades on a forward multiple of only 6. I’d go as far to say this is dirt-cheap.
What’s even better is that the dividend yield is a high 5.7%. The company is capital-light, meaning it doesn’t need to invest much of the cash it generates in the business. The cash is paid out to shareholders instead, so the dividend yield is generally high.
I have to keep in mind that the sector is always at risk of further regulation due to the leveraged trading strategies it offers its clients. It’s also anti-cyclical, so when markets are calmer, profits usually fall.
Taking everything into account, I think this is a dirt-cheap dividend stock for my portfolio.
Another sky-high dividend stock
The next company I’m looking at is Rio Tinto (LSE: RIO). It’s a FTSE 100 business, currently valued at almost £74bn, making it one of the largest companies listed in London.
Rio Tinto came to my attention due to the sky-high dividend yield on offer. In fact, the forecast for the dividend yield this year is a huge 17%! However, I don’t expect this high yield to maintained. Rio Tinto is a global mining company that has benefited from the surge in commodity prices this year. The company’s profits have surged, which has meant it’s been able to pay ‘special’ dividends, or a dividend above what was already committed.
Nevertheless, the average dividend yield of Rio Tinto over the past five years has still been an impressive 6.1%. The stock is also very cheap, being valued on a P/E ratio of 4.5.
I have to bear in mind that Rio Tinto’s business is heavily dependent on commodity demand. If economic growth in countries such as China slows, Rio Tinto’s profits will decline.
On balance though, I’m looking to add Rio Tinto shares to my portfolio.
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Dan Appleby owns shares of Rio Tinto. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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