2 Dirt Cheap Stocks to Buy With $1,000 Right Now

Dividend yields are more than just an indication of how much income a stock will generate for investors. High yields are often a sign that a stock is trading hands at an attractive price point. When dividends get high enough, a good business can start to look dirt cheap.

That's the situation right now with United Parcel Service (NYSE: UPS) and Pfizer (NYSE: PFE), which have gigantic yields of 6.8% and 7%, respectively. Here's a quick look at each of these high-yield stocks as they look to get their businesses back on track.

United Parcel Service is focused on profitability

United Parcel Service is in turnaround mode. When the demand spike for package delivery during the coronavirus pandemic ended, and demand reverted back to the mean, management decided it couldn't go back to business as usual. A massive business overhaul is taking place at this point, with the end goal of being a smaller company that operates more efficiently as it focuses on its most profitable customers.

The problem here is that delivering packages is a capital-intensive business with a huge amount of logistical complexity involved. Rightsizing the business has required capital investments in new technology, cutting staff, closing and selling off logistics assets, shedding business lines, and even cutting back the work done for some of UPS' largest customers. Step back from that list and think about the big picture. Over the short term, the company's costs are going up and its revenue is falling.

Needless to say, Wall Street is worried, and the lofty 6.8% dividend yield is an indication of that. The stock has fallen a massive 55% from its pandemic peak and actually trades for less than it did prior to the pandemic. A $1,000 investment will get you around 10 shares of the stock today.

Image source: Getty Images.

The truth is, the dividend could get cut, noting that the dividend payout ratio is over 100%. But if you are looking for a dirt-cheap stock with turnaround appeal, UPS could be right up your alley. If the company succeeds, which seems highly likely, it will be a better business after all of the heavy lifting is over. And if the dividend survives that process, well, that's just the cherry on top.

Pfizer just hit another roadblock

Pfizer is one of the oldest pharmaceutical companies around, and it is highly respected as a business. It also has to deal with the normal ebb and flow of the drug sector. One of the biggest issues right now is patent cliffs, which is when new drugs lose their exclusivity. Normally, revenue falls off dramatically as generic competition enters the market. Pfizer has some key drugs losing patent protections, and its drug pipeline is a little lacking right now.

That's not good news, and Wall Street is clearly adopting a show-me attitude. That's a big part of the reason why the stock has fallen roughly 60% from its 2021 highs, pushing the dividend yield up to roughly 7%. That suggests that Pfizer's stock is dirt cheap right now. A $1,000 investment will net you roughly 40 shares of the stock. Of course, the 90% dividend payout ratio suggests there's a risk of a dividend cut, but the lofty yield still hints that Wall Street has tossed this drug industry survivor on the discount rack.

From a big-picture perspective, Pfizer knows what it needs to do because it has done it many times before. The big move recently was to ink a deal to acquire a smaller drugmaker with a promising drug pipeline. The problem is that the deal now seems like it might be up in the air, as another competitor has agreed to pay more. Pfizer is suing, and what was good news now looks like it could turn into a drawn-out story with an unpredictable outcome.

Long-term investors looking at this turnaround story should probably pay more attention to what Pfizer is capable of doing than get too caught up in this specific acquisition complication. All in, Pfizer has proven through the years that it knows what has to be done to survive and thrive in the competitive drug sector. If you think in decades and not days, and don't mind a complex turnaround story, you should consider adding it to your portfolio.

On sale, with some warts

No investment is perfect, so you always have to accept some trade-offs. And if you are looking at stocks that are dirt cheap, the trade-offs are often higher. But when you consider the strong businesses backing UPS and Pfizer, the near-term concerns leading to deep price pullbacks (and high yields) aren't nearly as troubling as they may seem. UPS is going to be a better business when it's done with its overhaul. Pfizer will find a way to deal with its patent issues, just like it has before. And that suggests that both could be great options for investors who like turnaround stocks.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer and United Parcel Service. The Motley Fool has a disclosure policy.