These 3 Dividend Stocks Are Ridiculously Cheap

By Dan Caplinger Markets Fool.com

Dividend stocks have been extremely popular lately, and that has pushed valuations on many dividend payers into the stratosphere. But if you look carefully, you can still find bargains in the dividend space. In particular, shares of General Motors (NYSE: GM), Pitney Bowes (NYSE: PBI), and Greenbrier Companies (NYSE: GBX) sport healthy payouts and attractive earnings multiples, and that could be just the recipe you need to drive outperformance in your dividend stock portfolio going forward.

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GM drives forward

The auto industry has done extremely well lately, and that has come at a good time for General Motors. The auto giant has taken full advantage of a recovering economy to get a running start following its emergence from bankruptcy and its initial public offering in 2010, and it only took a few more years for General Motors to start paying a dividend again. Since 2014, the company has boosted its dividend twice and now sports a strong yield of 4.5%.

Image source: Getty Images.

Yet in part because of the cyclical nature of the auto industry, investors appear skeptical about GM's future. The stock currently carries a valuation of just six times trailing earnings, and that comes even though investors expect profits to stay steady in 2017 and 2018 from 2016 levels. Even if the auto industry pulls back, the margin of safety for General Motors at current valuations is far wider than you'll see with most stocks, and that presents an opportunity for dividend investors looking for a high-yield blue-chip stock.

Pitney Bowes reinvents itself

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For decades, Pitney Bowes was the giant of the mailing and shipping industry, providing postage meters and other shipping-related equipment for corporate America. However, the technology revolution has led to a huge downturn in mail usage, and that spelled big difficulties for Pitney Bowes' core business. To adapt, the company has sought to become a leader in providing a broader set of business services ranging from customer engagement and information management to global e-commerce and data analytics.

Investors haven't been certain about Pitney Bowes' prospects, and that has led to declines in its stock price. That has helped boost Pitney Bowes' yield to 5.75%, yet based on profit expectations for the coming year, the stock trades at a forward multiple of just seven. Although the company has gotten itself into a highly competitive business and faces plenty of challenges ahead, the price of Pitney Bowes stock makes it a calculated risk that some investors should be comfortable taking.

Greenbrier rides the rails

Finally, Greenbrier has a place in a key niche for the railroad industry, manufacturing and selling railcars to major transportation companies. Like the auto industry, railroads encounter a great deal of cyclicality in their financial performance, and that trickles down to Greenbrier's results as well. After considerable growth in past years, Greenbrier has faced a tough environment, and production volume has suffered recently.

With a yield of 2%, Greenbrier isn't the most generous of these stocks with its payouts, and a valuation of 11 times trailing earnings doesn't make it the cheapest of the three either. However, a new uptick in earnings results from Greenbrier's key railroad clients has started to appear, and that could spur growth that would actually make earnings increase from current levels. If that happens, then Greenbrier's inexpensive valuation could spur share-price gains well into the future.

Be smart about cheap dividend stocks

Cheap stocks are usually cheap for a reason, and it's essential to understand the thinking behind investors' opinions about a stock. But while there's risk involved in any investment, these three dividend stocks involve known risks that smart investors can plan for and take into consideration. These stocks aren't perfect for everyone, but they'll make a good fit for some dividend investors' portfolios.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends The Greenbrier Companies. The Motley Fool has a disclosure policy.