“Price is what you pay. Value is what you getâ€
— Warren Buffett
“Price†and “value†are often two very different things. Though a single share cost more than $200,000, Buffett’s Berkshire Hathaway (BRK-A) is considered a value stock by many. Yet Twitter (TWTR), which trades hands for just $35 per share, is often called a bubble stock.
Yet low-priced stocks are a hunting ground for some very smart, very successful investors. Joel Tillinghast, manager of the Fidelity Low-Priced Stock Fund (FLPSX), is one of the most successful fund managers of his generation, and he investS almost exclusively in stocks trading for less than $50 per share.
InvestorPlace Editor Hilary Kramer, author of Big Profits from Small Stocks takes it a step further, focusing on stocks trading for less than $10 per share.
As Kramer points out, most “big money†institutional investors are prohibited from buying stocks priced at less than $10. And even if they have the ability, few have the intestinal fortitude. Their own research departments generally won’t cover the stocks, and it’s a career risk to buy a stock that is too far out of the mainstream.
But the rationale for buying a stock with a single-digit price tag is straightforward. Due to the mechanics of the market, it’s generally a lot easier for a $5 stock to go to $10 than for a $50 to go to $100. Yes, the percentages are the same. But lower-priced stocks are often low-capitalization stocks as well. A large investor moving into a small cap stock is going to move the price a lot more that he would in a large, liquid stock with an enormous float. The key is finding these gems before the big boys do.
Today, we’re going to take a look at seven cheap dividend stocks trading for under $10. All have a few bumps and bruises on them; you simply don’t get this kind of pricing otherwise. But all are also solid dividend payers worth a good, hard look.
Banco Santander
With Greece likely to default and send shockwaves through the Eurozone, a European bank might seem like an odd choice of investment. Yet Banco Santander (SAN) is one of biggest, best managed and most globally diversified banks in the world.
Its US-traded ADR also happens to sell for just $7.26 per share.
At current prices and exchange rates, Santander’s €0.40 expected 2015 dividend works out to a yield of about 6.3%.
Santander cut its dividend earlier this year, as incoming Executive Chairman Ana BotÃn make boosting the bank’s capital cushion a top priority. That diluted existing shareholders—which is part of the reason the shares trade at the bargain prices they do today—but it also made Santander a safer, more conservative bank going forward.
