If you're an income investor, you always want to keep an eye on falling dividend stocks. The reason: A drop in share price means that you can collect the same dividend at a lower price, allowing you to lock in a higher yield. As long as the business' fundamentals remain sound, it could be a terrific opportunity to add a good, income-generating stock to your portfolio.
A couple of dividend stocks that currently are down and trading near their 52-week lows includeBaxter International(BAX 1.37%) andCisco Systems (CSCO 0.45%). Investing $5,000 in these two stocks can generate a modest amount of dividend income, and these payouts could grow over time as well.
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1. Baxter International
Baxter provides many crucial products to the healthcare industry. It is a promising option if you're banking on a return to normal in the healthcare industry and hospitals resuming their normal day-to-day operations.
The bulk of Baxter's revenue in 2021 came from renal care products, which generated $3.9 billion, close to one-third of the $12.8 billion the company reported for the full year. Medication delivery products (such as infusion pumps or intravenous therapies) accounted for another 23% of sales, or $2.9 billion. The company also has products used in surgery and acute therapies.
The business got even larger in December with the closing of its $10.5 billion purchase of Hillrom, a medical technology company that makes a wide range of products, including smart beds that continuously monitor heart rates and provide data alerts. Baxter says the transaction will create a "global medtech leader," and that by year three, it will result in annual pre-tax cost synergies of $250 million.
Baxter's business is already strong, with a profit margin of more than 10% last year. By adding Hillrom into the mix, its future looks even brighter and more diverse.
For income investors, that means there could be room for a stronger dividend as well. Today, the stock pays a quarterly dividend of $0.28, which yields 1.5% annually. That's slightly better than the S&P 500average of less than 1.4%. The company raised its dividend by $0.04 last year (an increase of 17%), and with a payout ratio of just over 40%, there could be room for greater rate hikes in the future.
Baxter's stock is trading near its 52-week low although there's no overwhelmingly negative reason for it to be down 15% thus far in 2022 besides just the general bearishness in the markets of late. The S&P 500 has fallen 11% year to date. With a forward price-to-earnings ratio of less than 17, it's right in line with the average holding in the Health Care Select Sector SPDR Fund, where investors are paying 16 times future earnings.
With Baxter getting bigger and better-positioned to benefit from a return to normalcy, it could be an underrated stock to buy right now.
2. Cisco
Cisco is known for its networking and communications products, which are crucial in an era where more companies are moving to the cloud. Year to date, the stock has declined by 19%, which isn't a whole lot worse than how Baxter has performed. And at a forward P/E of less than 15, it's also fairly modest in price when compared to the Technology Select Sector SPDR Fund;the average stock there trades at a forward earnings multiple of 23.
The company is the type of steady income stock that dividend investors can rely on for consistency. No rapidly fluctuating growth here. Instead, the business expects to grow between 5.5% and 6.5% this year. That's in line with the 6% revenue increase it achieved in its most recent quarter, for the period ended Jan. 29, when sales reached $12.7 billion.
Cisco also announced then that it would be raising its dividend by $0.01, to $0.38 each quarter. The company also made $0.01 increases in 2021 and 2020. Its payouts have gradually grown by 31% over the past five years, up from the $0.29 Cisco was paying quarterly back in 2017. Today its yield is around 3%. On a $5,000 investment, that could bring in $150 per year in dividends. And that also could get bigger in the future as the company's payout ratio is just under 53%.
Cisco provides some stability at a time when there is significant volatility and uncertainty in the markets, and that can make the stock an appealing investment option for risk-averse investors looking for some recurring income.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns and recommends Cisco Systems. The Motley Fool has a disclosure policy.
