Revisiting Dividend Stocks in a Costly Market

Large markets can be quite pricey, especially when you delve into historical indicators. So, let’s shift our focus away from the expensive and often overlooked ETFs and consider something a bit more traditional—low-cost dividend stocks.

Believe it or not, there’s still value to be found in old-school investments. Yes, I’m talking about high-yield dividends—think 5%, 8%, or even 11% returns.

Remember the Spring Market Dip? Seemed quite straightforward, right? The S&P 500 dipped into bear territory in about a month but bounced back just as quickly.

So what’s the situation now? If you’re entering the market, you’re likely paying premium prices.

This uptick means the market is becoming even more expensive. The forward P/E ratio of the S&P 500 sits at 22.1, a level we haven’t seen since the Covid rebound or during the Dot-Com bubble.

That’s okay. Let the vanilla investors take those 22 P/Es. We’ll focus on two metrics where cash is king.

1. Big dividends: These lucrative payouts can drive yields from 4% to 9%.
2. Low prices relative to cash flow: These companies are, well, cheap based on the cash they generate.

Take, for instance, a utility company based in Virginia: AES Corp. (AES, 5.5% yield). It’s been recognized as a low-beta name, meaning it’s more stable compared to typical dividend stocks, which can be more vulnerable to market downturns.

AES also has potential for growth, particularly through its renewable energy segment—a feature many utility stocks lack.

Yet, growth so far hasn’t really materialized.

AES trades at a PEG of 0.6, suggesting it’s cheaper than both its cash flow and growth projections. With yields over 5%, it performs well against the already generous utility sector.

Edison International (EIX, 5.9%) is another utility worth mentioning. It’s the parent company of Southern California Edison, servicing over 15 million customers and generating electricity primarily from renewable sources like solar and wind. It also has a subsidiary, Trio, providing energy advisory services to large-scale organizations.

However, Edison is a bit more dynamic. It has faced years of legal battles over wildfire liabilities, paying settlements in the billions. The stock plummeted over 25% recently, hit hard by current legal issues surrounding the SCE’s role in the Hearst Fire.

Wildfire worries indeed have become cyclical.

If we choose to overlook these concerns, there’s still much to appreciate about Edison. It’s set for decent top-line growth with anticipated profit recovery in the next few years. The drop in stock price has pushed EIX yields to nearly 6%. It currently trades at three times its cash flow estimates, down from a previous near three PEG ratio, indicating some undervaluation.

Yet, we can’t ignore the wildfire liability. That’s why Edison carries a low rating—it poses greater risks than average utilities along with a high-reward gamble.

Then there’s Amcor (AMCR, 5.2% yield). Technically, it’s a periodic stock, but also a defensive one. As a packaging specialist, it supplies everything from meat trays to personal care bottles. Amcor’s applications stretch into numerous sectors, making it quite diversified.

So why is Amcor noteworthy?

1. It’s a dividend aristocrat with over 5% yield, which is relatively rare. Groups that maintain consistent dividend growth typically achieve commendable returns.
2. Amcor stocks generally exhibit less volatility than most.
3. They’re relatively inexpensive, with a current P/CF of about six times. The forward P/E is decent at 12, and while its PEG of 1.3 is cheaper than the market, it still appears a tad high.

Kodiak Gas Services (KGS, 5.2% yield) is an energy services firm focusing on natural gas compression in the Permian Basin. The business model isn’t groundbreaking, but with rising global demand for natural gas and LNG, Kodiak is well-positioned for growth.

Last year, KGS announced plans to acquire CSI Compressco LP, effectively expanding its compression fleet significantly. Plus, Kodiak’s fleet is relatively young, meaning lower maintenance costs.

However, it’s worth noting that Kodiak is still a newcomer, having launched just before the CSI acquisition announcement. They’ve begun issuing dividends and even raised them twice since, including a nearly 10% hike in April 2025.

That’s a solid trajectory for a stock!

Despite high energy volatility this year, KGS remains affordable, trading at around six times its cash flow estimates with a low PEG of 0.13.

Atlas Energy Solutions (AESI, 8.4% yield) is another player in the Permian Basin, providing logistics and storage solutions mainly within the oil sector. Its primary product is frac sand used in hydraulic fracking. I had kept an eye on its previous dividend growth streak, but that came to a halt earlier this year.

Unfortunately, things took a turn when the dividend hikes ceased.

AESI’s stock has nosedived by about 45% this year, affected by slower-than-expected completions in the U.S. and decreasing prices for frac sand. On the bright side, its current PEG is attractive at about 5.7 times cash flow estimates.

Dividends seem safe for now. Looking at financials, they generated $48.9 million in adjusted free cash flow last quarter while paying out $30.9 million in dividends—a positive indicator. However, like many firms in energy services, Atlas must contend with fluctuating product prices.

In the realm of established stocks, United Parcel Service (UPS, 7.5%) could surpass 7%, but it’s unusual to see such a reliable company lose value without a wider economic downturn.

In 2024, declining e-commerce margins and escalating workforce costs hit UPS hard.

Additionally, the company surprised investors with its 2025 forecast, announcing a significant cutback on business ties with Amazon, which contributes around 10%-12% of UPS’s revenue. This news led to an abrupt decline in stock prices.

As a result, UPS has lost nearly half its value in just two years.

A closer look reveals UPS trading at around eight times cash flow estimates—never before has it offered such attractive yields in its 26 years of trading.

Sadly, dividend growth isn’t keeping pace.

Is UPS becoming a dividend trap? Well, maybe. They retracted full-year revenue and profit forecasts in April, and didn’t restore them in a report in late July.

Analysts are projecting adjusted revenue to dip about 15%, reaching $6.61 per share. This figure is crucial, as UPS aims to maintain a dividend payout ratio near 50% of EPS year-over-year. Right now, they’re distributing $6.56 in quarterly dividends, which is 99% of the adjusted earnings! Yet, CEO Carol Tome has reassured investors that UPS is in solid shape and so is its dividend, supported by solid free cash flow.

Western Union (WU, 11.3% yield) is still hanging on somehow. It faces stiff competition from payment apps like PayPal and Venmo. While WU boasts a high yield, it’s because the stock price has tumbled significantly.

Western Union has been on a downward trend for years.

In response, they’ve launched an initiative called “Evolve 2025,” which includes new product offerings and enhanced operational efficiencies. They’re also expanding digital wallet services in places like Mexico and Singapore. Recently, they announced a $500 million acquisition of International Money Express, which serves millions of customers across multiple countries.

But honestly, the outlook isn’t great. The stock trades at 4x cash flow and under 5 P/E—it feels risky at best to me.

For now, you don’t need to go far to find high yields without having to go through Western Union. In fact, there are three incredible dividend payers offering yields up to 10%, and they pay monthly! Click here for more information.