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It’s a myth that low-priced stocks have weak fundamentals or are speculative. While there can be purely speculative ideas among low-priced stocks, there are also some high-quality bets. This column focuses on dividend stocks under $10 that are fundamentally strong and look undervalued.
In my view, these dividend stocks are poised for 100% returns within the next 24 months. Additionally, I expect steady dividend growth as revenue and EBITDA increases in the coming years.
It’s worth mentioning here that the S&P 500 index is trading near all-time highs. However, if we look at the broader markets, ideas are trading at attractive valuations. With rate cuts impending, easy money will flow into value stocks. This is likely to support the bull run in the dividend stocks discussed.
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Besides the liquidity and market momentum factor, let’s talk about the fundamental reasons to be bullish on these dividend stocks under $10.
Kinross Gold (KGC)
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Kinross Gold (NYSE:KGC) stock has rallied by 72% in the last 12 months. However, at a forward P/E of 15.7, the 1.33% dividend yield stock remains attractive. In my view, 100% returns are likely from current levels within the next 24 months.
The first catalyst for Kinross is a higher gold price. The precious metal has surged for year-to-date and trades at $2,430 an ounce. Citigroup believes that gold is likely to touch $3,000 an ounce in the next 6 to 18 months. A key reason for this view is expansionary monetary policies.
Specific to Kinross, higher realized gold price in the coming quarters is likely to translate into revenue growth, EBITDA margin expansion, and cash flow upside. Further, as free cash flows swell, there is a strong case for robust growth in dividends.
It’s worth noting that Kinross already has an investment-grade balance sheet. As of Q1 2024, the gold miner reported a liquidity buffer of $2 billion. Also, if gold trades anywhere near $3,000 an ounce, the annual operating cash flow visibility will be more than $2.5 billion. High financial flexibility will also provide flexibility for potential acquisitions.
Borr Drilling (BORR)
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Borr Drilling (NYSE:BORR) is another attractive stock under $10 that’s poised for a big rally. The offshore drilling services provider looks attractively valued at a forward P/E of 12.5. Further, after the recent 100% increase in quarterly dividends, BORR stock has a yield of 5.8%.
From a revenue visibility perspective, it’s important to note that Borr has a contract coverage of 93% for 2024. Further, the contract coverage for the next year is 71%. In Q1 2024, Borr reported an order intake of $318 million. As oil trends higher, I expect the order inflow to remain strong coupled with an increase in day rates.