3 High-Yielding Dividend Stocks Trading at Dirt Cheap Valuations

Want to invest in a stock that's incredibly cheap, that offers a high yield, and whose payout is safe? I've got a list of three such stocks that meet that criteria, and that could make for underrated long-term investments.

Target (NYSE: TGT), Bristol Myers Squibb (NYSE: BMY), and General Mills (NYSE: GIS) are three income stocks that may not only provide you with some excellent recurring income but that can also produce great returns in the future. Here's why you'll want to consider these dividend stocks for your portfolio today.

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Target

Target's stock has been picking up steam this year as it's up 25% since January. But while that rally is impressive, it may be long overdue. In fact, the stock is still down more than 40% when looking at the past five years.

A slowdown in discretionary spending has prompted investors to ditch Target's stock. Rival Walmart trades at nearly 50 times trailing earnings and has a market cap of $1 trillion, as investors have preferred the business for its stronger grocery operations.

However, with Target's stock trading at just 15 times its earnings on both a trailing and forward basis, it remains incredibly cheap by comparison. I don't believe such a significant delta between Target's valuation and Walmart's is justifiable here. Walmart's stock looks due to come down, while Target's price should rise. Unfortunately, with economic conditions less than ideal right now, it may take some time for Target's stock to rally much higher.

The good news is that with an above-average yield of 3.8%, you'll get some decent compensation for simply hanging onto the retail stock and being patient. And with a payout ratio of around 56%, Target's dividend looks to be safe.

Bristol Myers Squibb

You can collect an even higher-yielding stock from Bristol Myers Squibb. The pharmaceutical giant pays its shareholders 4.4% in dividends. That's about four times higher than the S&P 500 average of 1.1%. The company has a terrific track record for paying dividends that goes back nearly a century.

Over the past five years, the stock has declined by 12% as concerns have mounted about its future growth and high debt load. During the first quarter of the year, the company's sales rose by just 1% when excluding foreign exchange, but its growth portfolio was up around 9%. With Bristol Myers investing heavily into diversifying its business over the years, there's renewed hope that it may get back to growth in the future; from 2022 to 2025, its top line rose by just 4%.

Bristol Myers has generated free cash flow totaling $11.9 billion over the trailing 12 months, which is a good sign that it can support its dividend while investing in its business and lowering its debt; over the same stretch, it paid about $5.1 billion in dividends. The pharma stock trades at just nine times its estimated future earnings, based on analyst projections, and could be a bargain buy right now. By comparison, the average S&P 500 stock trades at 22 times its estimated future profits.

General Mills

The highest-yielding dividend on this list belongs to General Mills, which currently pays 7.4%. Its yield has increased significantly as the consumer goods stock has been under significant pressure, falling by 47% over the past five years.

The company's top line has been declining, and management expects a tough year ahead due to challenging economic conditions. For the current fiscal year (which ends this month), it projects its organic net sales to decline between 1.5% and 2%. Its free cash flow has totaled nearly $1.7 billion over the past four quarters, however, leaving sufficient room to cover its dividend payments, which have totaled $1.3 billion over that time frame.

General Mills is facing some challenges and uncertainty ahead, but with some excellent brands in its portfolio and an impressive track record for paying uninterrupted dividends for 127 straight years, the situation may not be as dire as it might appear to be for the stock. It trades at just 10 times its estimated future earnings, and with plenty of pessimism priced in, it could have a lot of room to rise higher if conditions improve. The big question, however, is how long that will take and how much patience it will require from investors. General Mills may be the riskiest dividend stock on this list, but its payout doesn't look to be in any imminent danger.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bristol Myers Squibb, Target, and Walmart. The Motley Fool has a disclosure policy.