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This bargain dividend stock blows BP plc out of the water!

Image: BP. Fair use.

A positive construction market outlook encourages me to think brickmaker Ibstock (LSE: IBST) should remain a pukka pick for those seeking huge dividend yields.

The company announced in March that adjusted revenues rose 5.3% during 2016, to £434.7m, a result that pushed adjusted EBITDA 4.3% higher to £111.6m.

Ibstock has seen business pick up in recent months as customer de-stocking has wound down in the UK and new-build housing has picked up.

And Ibstock believes there is room for further growth in the near term at least. It said that “with continued strength in the new home developer market, normalised demand from the merchant sector in the UK, and a positive economic backdrop in the US, our businesses have traded ahead of the prior year in the early weeks of 2017.”

While we remain mindful of the uncertainties surrounding Brexit we maintain our expectations for another year of progress,” it added.

Looking further down the line, Ibstock is pursuing exciting growth projects like the construction of its 100m-bricks-per-year manufacturing plant in Leicestershire to meet market demand.

Perky projections

Given this positive backcloth, Ibstock is expected to hike the dividend to 8.3p per share in 2017, up from 7.7p last year and yielding an exceptional 4%. The FTSE 100 forward average, by comparison, clocks in at around 3.5%.

But this is not the only good news as the City predicts a 9.2p reward for 2018, nudging the yield to an even-better 4.4%.

And Ibstock can be picked up for a song in growth terms too.

A predicted 2% earnings uptick in 2017 leaves the brickbuilder dealing on a P/E ratio of just 11.3 times, well below the benchmark of 15 times broadly considered attractive value. And the multiple moves to 10.4 times for next year thanks to expectations of a 9% bottom-line uptick.

Dangerous driller

Ibstock’s perky growth outlook certainly makes it a much more tantalising income pick than BP (LSE: BP), in my opinion.

The fossil fuel giant has managed to keep income investors happy thanks to its mammoth programme of cost-cutting and asset sales. So even though payment growth has ground to a halt more recently, at 40 US cents per share, dividends have continued to outperform those of much of the broader market.

And City analysts expect payouts to remain around these levels until the end of next year, resulting in a monster 6.8% yield.

Still, I for one would not be tempted to invest in BP, even though these forecasts are supported by bubbly growth estimates — earnings are expected to leap from 0.61 cents last year to 35.3 cents and 44.4 cents in 2017 and 2018 respectively.

These estimates are based on expectations of oil prices building on the surge of late 2016.

However, global supply looks set to keep outpacing aggregate demand thanks to a resurgent US shale sector, thus keeping inventories locked at record levels and black liquid values hemmed in.

And with BP also battling increasing levels of debt — net debt rose to $35.5bn as of December from $27.2bn a year earlier — I reckon investors can find less-risky long-term dividend picks elsewhere.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended BP. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.