Stocks To Buy

3 Under-$10 Dividend Stocks to Buy at a Valuation Gap

Fundamentally strong companies with visibility for cash flow upside will translate into huge dividend gains for investors

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Low-price dividend stocks are among my favorite bets. A small investor can afford to build a portfolio of regular cash income from these stocks. Of course, the beta of these ideas is not as low as blue-chip dividend stocks. However, the focus of this column is on fundamentally strong undervalued dividend stocks under $10. Backed by strong fundamentals and a positive business outlook, I am bullish on healthy total returns from these ideas in the next 24 months.

Oftentimes, dividend stocks under $10 are relatively under-the-radar. That’s a key reason for the valuation gap. Further, expansionary monetary policies will positively impact growth for these companies. This is likely to support stock upside in the coming quarters as revenue growth accelerates.  

Let’s discuss the fundamental reasons to be bullish on these undervalued stocks under $10.

Panasonic Holdings (PCRFF)

With sentiments negative for electric vehicle (EV) stocks, it’s a good time to look at quality names for the long term. Panasonic Holdings (OTCMKTS:PCRFF) looks attractive and trades at a forward P/E of 7. This is a clear indication of undervaluation. And, PCRFF stock offers a healthy dividend yield of 2.7%.

An important reason to like Panasonic is focus on innovation. It’s likely to ensure that the EV battery maker maintains or increases its market share in the coming years. In December 2023, Panasonic partnered with Sila Nanotechnology for the procurement of next-generation silicon anode material for EV batteries. So, this is likely to help Panasonic in achieving a 25% increase in battery energy density by 2030.

Also, the battery maker has aggressive capacity expansion plans. Of course, with the slowdown in the industry, expansion will be deferred. However, there is a strong case for healthy revenue and EBITDA growth in the coming years. To put things into perspective, Panasonic expects to quadruple its battery capacity to 200GWh by 2031.

Kinross Gold (KGC)

Kinross Gold (NYSE:KGC) stock has witnessed a strong rally of 34% year-to-date (YTD). However, the gold miner remains attractive at a forward P/E of 15.3 and offers a dividend yield of 1.48%. In my view, a further rally coupled with strong dividend growth is due in the next 24 months.

Importantly, multiple rate cuts are likely within the next 12 to 18 months. This will be positive for gold, so expect the precious metal to trade above $2,500 an ounce. Kinross Gold will benefit in the form of higher realized price and upside in free cash flows.

Specific to KGC, an investment grade balance sheet is a big positive. As of March, the gold miner reported a liquidity buffer of $2 billion. Further, based on Q1 of 2024 results, the annualized operating cash flow is likely to be more than $1.5 billion.

Therefore, there is ample flexibility for capital investments and potential acquisitions to drive production growth. Finally, current assets provide stable production visibility through 2026.

Borr Drilling (BORR)

Borr Drilling (NYSE:BORR) is an under-the-radar name that’s worth considering. The stock of the offshore drilling rig service provider has remained subdued in the last 12 months. However, a forward P/E of 11.9 is attractive. And, BORR stock offers a dividend yield of 3%.

With the possibility of rate cuts in the second half of the year, I am positive on oil trending higher. This is likely to translate into robust order intake for Borr Drilling.

Also, as of Q1 of 2024, Borr reported an order backlog of $1.66 billion. This provides clear revenue and cash flow visibility. The offshore driller has already guided for EBITDA of $525 million for 2024.

Additionally, a liquidity buffer of $432.7 million adds to the positives. Borr Drilling has ample flexibility for potential fleet expansion. At the same time, as credit metrics improve, BORR stock is likely to trend higher.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

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