2 bargain dividend stocks you can buy today

Double-digit profit growth is leading to rapidly rising dividends for these bargain basement income and growth stocks.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

In the current environment of rock bottom interest rates and rising valuations across major indices, it’s becoming more and more difficult to find suitably attractive income investments that trade at attractive valuations. But this doesn’t mean they can’t be found, and I believe two stocks that fit the bill are mining royalty firm Anglo Pacific (LSE: APF) and cinema chain Cineworld (LSE: CINE).

Unfairly unloved by investors?

Anglo Pacific currently kicks off a 4.3% yield and trades at a relatively sedate 8.9 times consensus forward earnings. Now, interested investors should know up front that the company’s ability to pay dividends is tied to the health of the global commodity sector.

However, as the company has no debt, doesn’t do any mining itself and merely receives royalty income from miners based on production levels at its mines and commodity prices, Anglo Pacific is considerably less risky than investing directly in miners themselves. Indeed, with no debt on the balance sheet and access to $30m-$40m in cash and debt facilities, the company would face no liquidity crunch were commodity prices to fall and is actually well-placed to go out and make further investments.

The combination of this healthy balance sheet and fast rising profits should be music to the ears of Anglo shareholders as the company announced at its interim results that it plans to pay out dividends quarterly and also accelerate the payment schedule of these payouts. In the first half, earnings per share rose to 7.44p from 1.43p the year prior and free cash flow leapt over 300% year-on-year (y/y) to £18.9m. This allowed management to increase interim dividends to 3p and has led analysts to forecast a 7.2p full-year payout that would equate to roughly a 5.1% yield.

While Anglo Pacific is still indirectly reliant on high commodity prices to maintain impressive cash flow and dividends, I reckon the firm represents a less risky way for income investors to gain exposure to the industry on its current upswing.

Benefitting from blockbusters 

With its shares currently yielding 3%, Cineworld offers less income but steadier and greater growth prospects for interested investors. From 2012 to 2016 the cinema operator increased earnings per share from 19.22p to 35.2p and with solid dividend and capital appreciation potential and a valuation of only 16.9 times forward earnings, I reckon it’s well worth taking a closer look.

The chain has been growing nicely by expanding the number of cinemas it operates, periodically refurbishing existing ones to attract bigger audiences, increasing uptake of its food and beverage options and showing a slew of blockbuster films released over the past few years. In H1 2017 total revenue increased 17.8% y/y to £420m due to it adding three new sites and it saw 10% growth in admission numbers and a 22% uplift in retail sales.

This translated into earnings per share growing from 12.7p to 15.4p y/y and allowed interim dividends to rise from 5.2p to 6p. Year-end net debt is expected to be around £265m, which is a very comfortable figure given full-year 2016 EBITDA hit £175.8m and H1 2017 saw EBITDA rise a whopping 19.6% y/y.

With expansion at home and overseas going well, robust margins and cash flow and an attractive valuation, Cineworld could be a great long-term option for both income and growth investors alike.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK owns shares of Anglo Pacific. 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »