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2 top dividend stocks trading at bargain valuations

Photo: National Express: Fair use

While the stratospheric home price explosion of recent years appears now behind us, predictions that the housing market remains on course for collapse received a further blow in Tuesday business.

Bovis Homes (LSE: BVS) is the latest housebuilder to confirm the supportive trading outlook for the industry, the company advising today that trading in the year to date is in line with expectations.

The FTSE 250 company noted that “customer interest in our homes remains strong with prospects per active outlet consistently ahead of the prior year level for the past eight weeks.” And Bovis added that “demand for new homes remains robust across all regions and overall we have seen some modest house price inflation in the period.”

Bovis has clocked up 0.48 net private reservations per site per week so far in 2017, it advised, in line with the company’s production target for the full year.

Long-term lovely

But the Longfield-based business is not without its share of troubles, of course.

Bovis has been forced to put the brakes on house production after February’s admission that it had paid customers to move into its homes before they had been completed in order to meet output targets.

The builder now expects production volumes to fall between 10% and 15% in 2017 from last year’s levels, meaning that some 1,500 homes should be built in the first half. Bovis affirmed that it expects building levels to return to normal numbers after the current period, however.

As if this wasn’t problem enough, the construction colossus is also battling against a backcloth of rising costs as both subcontractor fees and materials prices mount. As a consequence, the City expects earnings to drop 17% in 2017, worsening from the 6% fall punched in the prior period.

Still, with mortgage lending rates becoming ever-more favourable, and the number of existing properties entering the market steadily declining, Britain’s supply crunch looks unlikely to remedy itself any time soon. And this bodes well for the likes of Bovis, naturally, underpinning broker predictions of a 13% bottom-line rebound in 2018.

I reckon a forward P/E ratio of 12.5 times is great value given that the long-term industry outlook remains largely supportive. And with the company also sporting a super 4.6% dividend yield, I reckon Bovis is a stellar pick for value investors.

In the fast lane

As trade accelerates sharply in its overseas markets, I believe dividends should keep marching higher at National Express (LSE: NEX).

The coach-and-train operator has been busy on the acquisition front to build its international presence, a shrewd strategy given that trading conditions abroad keep on improving. National Express saw revenues in North America soar 14.3% in 2016 at constant currencies, for example. And the company made eight bolt-on buys last year alone to keep sales soaring Stateside.

Like Bovis, National Express also offers exceptional value at current share prices. The Birmingham firm’s revived growth picture is expected to produce a 7% earnings rise in 2017, creating a P/E multiple of just 12.3 times.

So unsurprisingly the City is also bullish on National Express’s dividend prospects, meaning the business sports a 3.8% dividend yield for 2017 alone. I reckon both stocks should prove fruitful destinations for income chasers in the years to come.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.