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3 stocks under $5 with dividends over 6%

For investors looking for dividend yields and for companies with share prices in a lower range for possibly more trading volume, these three stocks are all under $5 a share and currently offer a dividend over 6%. When considering dividends, you want to see how consistent they are annually, as well as the earnings stability that back them up.

Ardent Leisure (ASX: AAD), operator of theme parks like Dreamworld and WhiteWater World, has a dividend yield of 6.17% based on its $1.94 share price.

Currently the “Theme Park Capital of Australia” TV ad campaign launched jointly by the Queensland government, Ardent Leisure and Village Roadshow (ASX: VRL) aims to beef up tourist visits for the holiday season and beyond. Ardent Leisure usually has a high payout ratio for dividends, with the last four years being over 90%, and in 2013 it paid out total dividend of 12 cents a share.

Aviation Alliance Services (ASX: AQZ) provides flight service to the mining industry for fly in, fly out (FIFO) workers. It has only been a listed company since December 2011, but in 2013 its NPAT was up 19.1% from $19.6 to $23.3 million. Its dividend yield is 6.62% with a $1.57 share price. In November, it signed a contract that will have it fly out workers for Serco Australia between Brisbane and Miles, QLD. This is its first contract in the coal seam gas sector, and opens up its exposure to further growth in FIFO demand in the region.

Electronic products and software designer and producer Codan (ASX: CDA) has a dividend yield currently at 8.72% and a share price of $1.49. It develops radio communications, metal detection devices and mining technology, and achieved a $45.4 million NPAT in 2013, up from $23.5 million in the previous year. The company has a high net profit margin of 18% and its return on equity is 33.9%- over 30% for the last three years.

Foolish takeaway

Dividends are derived from earnings, so although a dividend yield may be high, it is the earnings growth and stability that are number one. If payout ratios are not too high and net profits are growing at a healthy pace, then greater dividends will flow from it.

Dividend yield may be high sometimes because the company’s share price has recently fallen, so you want to investigate why that drop occurred, if it is a temporary, one-off incident, or the beginning of a slide in business and earnings.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.