NEW YORK (TheStreet) -- Investors bruised by the recent stock market correction have turned to dividend-paying stocks for stability, and several under-$5 names like Chimera Investment (CIM) offer outsized dividend yields to those willing to take the risk.
Dividend stocks are attractive during times of uncertainty because of the consistent cash payout. While share prices can move sharply, as evidenced in the so-called "flash crash" on May 6 when the Dow Jones Industrial Average dropped nearly 1,000 points intraday, dividends typically hold steady. Over the last month, the Dow has fallen roughly 10%, putting the index in correction territory.
"When the markets start correcting, investors normally gravitate toward more defensive stocks," says Paul Nolte, managing director with Dearborn Partners. "Those defensive stocks typically have consistency in earnings and a bulk of them pay dividends and may even increase dividends. Investors can get money while they're waiting for the market to turn around in addition to owning a company that has a pretty good earnings flow."Some companies, like Dow members Verizon (VZ), Pfizer (PFE) and Kraft Foods (KFT), offer steady returns through dividends. But for several stocks trading under $5, the dividend yield -- and risk -- are much greater. For long-term investors, the recent pullback has afforded a lower entry point in several high-yielding dividend stocks under $5, including Chimera, Universal Insurance Holdings (UVE) and Primedia (PRM). Nolte warns that investors looking for dividend-paying stocks that trade below $5 should look at potential candidates closely to see if the dividend will be safe. "What you have to look for more than anything is coverage, meaning is the dividend covered by cash flow and/or earnings," Nolte says. "What you don't want is to buy a company that is paying out 20 cents a share only to have the dividend cut to a nickel or a penny or even eliminated altogether." TheStreet narrowed the vast number of dividend-paying, under-$5 stocks by including only those companies based in the U.S. with a yield above 2%. Continue on to view the top dividend stocks trading below $5, sorted by annual yield. >>Find Ex-Dividend Dates With Our Dividend Calendar
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV