The S&P / ASX 200 Index (Index: ^AXJO) has climbed more than 40% since the beginning of June 2012, not a bad return. You'd think that that meant it was difficult to find cheap stocks paying decent dividends and you'd be partly right.
The usual suspects, like the big four banks, Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES) are trading at very high multiples, and their yields have fallen thanks to surging share prices. But there are still some bargains around.
Here are three that appear cheap but are still paying dividend yields above 5%…
Insurance Australia Group Ltd (ASX: IAG)
The big insurer recently hit highs not seen since before the global financial crisis in 2007, but still appears cheap, based on its current earnings. IAG has been growing earnings strongly in recent years, and still trades on a trailing P/E ratio of around 12, and pays a fully franked dividend yield of 5.9%, which grosses up to 8.4% when including those juicy franking credits.
Seven West Media Ltd (ASX: SWM)
The media company that counts broadcaster Network 7, the West Australian newspaper and Pacific Magazines as its primary assets is trading on a P/E ratio of 9.2 and pays a fully franked dividend yield of 6.5%. While the company faces challenges to its traditional media assets, Seven is rapidly expanding its digital assets, including into streaming media services. Earnings and dividends are also forecast to rise in the 2015 financial year.
STW Communications Group Ltd (ASX: SGN)
The advertising, marketing and communications group sports a trailing P/E ratio of 9.8x and a fully franked 7% dividend yield (10% grossed up). After experiencing a tough first six months, STW says it expects a stronger second half, and mid-single digit growth for the full year to December 31, 2014.
