Each of these undervalued high-yield stocks sports a low valuation and a high dividend
When it comes to selecting the best dividend stocks, an approach worth exploring is focusing on undervalued high-yield stocks. It’s easy to conflate a high dividend yield with a low valuation, but this is often not true.
In fact, numerous high-yielding dividend stocks are arguably overvalued, as investors price them based on the size of their payouts, as opposed to relative to their earnings. A good example is PetMed Express (NASDAQ:PETS).
A big reason why PETS stock trades at a high valuation (28.75 times forward earnings) is due to its 8.52% dividend. Overvalued high-yield names like PETS can be profitable investments as long as the dividends keep coming.
However, if companies like this are forced to slash dividends, they can experience sharp declines in price. Hence, it’s best to consider them “dividend traps” to avoid.
On the other hand, with undervalued high-yield stocks, their respective low valuations can provide downside protection in case of a dividend cut and an additional way to generate returns (if they bridge the gap between trading price and underlying value).
Below are seven stocks that offer this strong combination of a low valuation and a high dividend.
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