3 Cheap Large-Cap Dividend Stocks That Warrant Growth

Stock markets are regularly hitting record highs these days, and on the face of it, that sounds like a good thing. If you own stocks, after all, "record highs" means the stocks you own are worth more than ever. Sell them, and you'll get more cash than ever -- probably significantly more than you paid for them way back when.

But what if you want to buy stocks?

What if you want to own stocks that pay a dividend, to provide yourself with a steady income stream?

Here, the situation gets a bit more complicated. Assuming a steady dividend of, say $1 a share, a stock that cost $25 and that doubles to $50 will see its dividend yield cut in half, from 4% to 2%. (Which incidentally, is about what the average S&P 500 stock yields today). And while 2% isn't horrible, it's not a whole lot better than the interest rate you can make from keeping your cash in an online bank such as Ally Bank or Capital One -- risk-free.

Can you do better?

We think so. And in fact, by using the Stock Screener tool at TipRanks, we can easily survey the universe of 7,000+ publicly traded stocks to come up with options that pay dividends significantly better than average -- and that cost a whole lot less than your average S&P stock, too. Here are three of them:

Honda Motor Company (HMC) 

No. 7 among world automakers by number of cars shipped (5.2 million in 2019), this maker of popular Civic sedans and CRV SUVs is No. 1 on our list of dividend stocks today by virtue of three main factors: The dividend (of course), and also value, and growth.

With a 3.6% dividend yield, Honda stock pays its shareholders nearly twice what investors in the broader S&P 500 receive. And yet at the same time, Honda stock is priced at a very reasonable 10.2 times trailing earnings. That's less than half the average 24.5 P/E of the S&P.

Honda stock also looks attractive to investors who seek "growth at a reasonable price" -- GARP investors. According to analysts, Honda stock is likely to grow its earnings at about 10.5% annually over the next five years. Divided into the stock's 10.2 P/E, that works out to a PEG ratio (P/E, divided by growth) of less than 1.0, which is a common threshold sought by value investors.

Indeed, one such investor, CLSA's Christopher Richter, recently reiterated his "outperform" rating on CLSA, assigning the stock a $31.05 price target. With Honda stock selling for only $28 and change today, that works out to a profit potential of 10.7% for new buyers, plus a 3.6% dividend yield -- more than 14% in all. (See Honda stock analysis on TipRanks)

Delta Air Lines (DAL)

The No. 2 stock on today's list is another well-known brand: Delta Air Lines -- the No. 2 U.S. airline when measured by passenger traffic. And by some measures, it's an even better bargain than Honda.

On the one hand, yes, Delta's dividend is a bit slimmer than Honda's. But the stock's 2.8% yield is still about 40% richer than the average stock on the S&P 500. What makes Delta stock even more attractive, though, is the price you pay to own that dividend. Delta stock currently costs only 8.3 times trailing earnings of $7.07 per share -- about a third the average P/E of the S&P.

Growth-wise, Yahoo! Finance has Delta pegged for a 12.1% long-term growth rate, faster than Honda's and good enough to give this stock a bargain basement PEG ratio of less than 0.7.

Stifel analyst Joseph DeNardi went so far as to call the case for buying Delta "compelling" in a recent note, and sees a Delta move to break out financial results for its customer loyalty program as "a potential nearish-term positive catalyst" for the stock. Incidentally, whereas the consensus on Wall Street is that Delta stock is worth about $66.50 a share (13% more than it costs today), DeNardi thinks Delta could be worth as much as $90 -- more than a 50% gain from today's prices. (To watch DeNardi's track record, click here)

When looking at Wall Street’s stance, DeNardi is not the only bull, as TipRanks analytics showcase the U.S. airline giant as a Buy. Out of 12 analysts tracked in the last 3 months, 7 rate DAL a "buy," while 5 say "hold." The 12-month average price target stands at $66.64 marking a 13% upside from where the stock is currently trading. (See Delta Air Lines stock analysis on TipRanks)

Citigroup (C)

Last but not least -- although certainly not less well known than the others -- we come to megabank Citigroup.

Boasting a 2.6% dividend yield, Citigroup has the slimmest dividend of the three stocks we're reviewing today -- but is still much more generous than the average S&P stock. At the same time, Citigroup shares sell for a very attractive price of just 10.5 times earnings, and with its 13.3% projected long-term growth rate, Citi is the fastest growing stock on this list. It's also the most popular among analysts, sporting a "strong buy" consensus rating according to TipRanks, and six out of seven ratings in the past month being "buy" or the equivalent.

Indeed, earlier this week, Goldman Sachs analyst Richard Ramsden called Citigroup stock a "conviction" buy. Adding it to his "Americas Conviction List," he argues that Citi's path to growth is even "clearer than the market currently ascribes" to it, which suggests the consensus growth estimate of 13.3% may even be a bit conservative. (To see Ramsden's track record, click here)

Given that even at 13.3%, the stock already sports a cheap 0.8 PEG ratio, any faster rate of growth would only make Citigroup stock an even more convincing "buy." (See Citigroup stock analysis on TipRanks)