30 Cheap Stocks That Pay Investors

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( MagicDiligence) -- Dividend stocks are a portfolio anchor in turbulent investing times, as 2011 has surely been. These stocks provide steady income returns, many at rates much higher than Treasury bonds, with the added bonuses of capital appreciation potential and the ability to raise their dividend payments over the years.

Joel Greenblatt's Magic Formula Investing strategy can be used to target attractive dividend stocks. It simply ranks the entire stock universe by two simple metrics: earnings yield to find companies selling at low multiples to their profits, and return on capital to find companies that earn those profits efficiently. The resulting list of stocks are high quality and selling cheaply in the market. Who can argue against buying those characteristics?

In this article, I want to take it a step farther and throw out firms that do not pay a regular dividend. Doing this, we automatically get rid of highly volatile and unpredictable companies, leaving the steady income generators that pay their shareholders in cash. Their cheap stock prices allow us the potential for capital appreciation on top of dividend payments, and also can lock us in at dividend yields that may be higher than usual. And, since these are all highly capital efficient companies, the cash they generate can often be put to use in raising the dividend in the future.

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The table below lists the top 30 dividend-paying stocks over $50 million market cap, ranked in the Magic Formula fashion (using MagicDiligence's screener). There are, of course, some rather unstable dividend payers in this list. For example, PDL BioPharma ( PDLI) and Great Northern ( GNI) are essentially annuity companies, with a set point in the near future where they will go out of business by design. By and large, though, most of these companies have proven to be stable dividend payers well worth a look by income-focused investors:

At the time of publication, the author was long FCX, NOC, MSFT and DV.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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