2 bargain dividend stocks that should thrive from Brexit

Royston Wild looks at two payout powerhouses that could succeed in Brexit Britain.

| 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.

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.

With inflation steadily eroding the spending power of Britain’s shoppers, I reckon cost-conscious retailers like Shoe Zone (LSE: SHOE) could be about to come into their own.

While the company endured some difficulties during the first half of the fiscal year, it is doubling-down on what it does best by expanding its value ranges (like the expansion of so-called multibuy offers). But the firm is also venturing into new product areas to drive sales and, with demand for non-footwear items surging 26% during the 12 months to October, this appears a sage strategy.

Meanwhile, Shoe Zone is also improving its retail estate, the firm opening 17 stores and re-fitting 41 outlets last year. And the retailer is also improving its multichannel proposition to latch onto the e-commerce phenomenon, and in recent months has begun trading on industry giant Amazon’s sites in Germany, France, Spain and Italy.

City analysts certainly expect earnings at Shoe Zone to keep edging higher despite rising pressure on the wider high street. A 1% increase is predicted for the year to September 2017, with an additional 2% advance forecast for the following 12-month period.

These projections make Shoe Zone terrific value, with subsequent P/E ratios of 10.7 times and 10.5 times falling well below the widely-regarded value benchmark of 15 times.

Great value

And its robust record of earnings growth and strong capital position (it had £15m in cash as of last September and no debt) has enabled it to dish out huge dividend hikes in recent times.

Indeed, the retailer paid a total ordinary dividend of 10.1p in fiscal 2016. And the number crunchers expect this trend to continue, with payouts of 10.3p and 10.4p per share predicted for this year and next, projections that yield 5.6% and 5.7% respectively.

Euro star

FTSE 250 play B&M European Retail (LSE: BME) is another favourite with bargain lovers not just in the UK but on foreign shores. And the number crunchers are similarly sunny on the retailer’s  investment potential.

Earnings rises of 12% are predicted in each of the years to March 2018 and 2019. And while these numbers may create conventionally-high P/E ratios of 20.3 times and 18.1 times respectively, B&M’s PEG readouts of 1.7 for this year and 1.4 for next year actually suggest the retailer is attractively priced relative to its earnings prospects.

Dividend yields may not be anything to get excited about in the medium term — these register at just 2% and 2.2% for 2018 and 2019 respectively. However, the rate at which B&M is hiking dividends should come as huge encouragement to long-term investors.

The company raised the ordinary dividend to 4.8p per share in fiscal 2016 from 3.4p the prior year, and is anticipated to hike a predicted 5.9p reward in 2017 to 6.8p and 7.6p in 2018 and 2019. And B&M’s hot earnings and outlook and exceptional cash generation certainly support these perky forecasts (the retailer saw operating cash flow improve 76% in April-September, to £77.7m).

Like Shoe Zone, B&M is also aggressively expanding to make the most of rising demand for its low-cost goods, and opened its 500th store last year. And not only do I believe the business has what it takes to weather the Brexit storm, B&M’s expansion into Germany should also deliver splendid revenues growth in the coming years.

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.

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.

More on Investing Articles

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

2 reasons why I’m loading up on FTSE 100 shares

This Fool thinks FTSE 100 shares look cheap. With that, he plans to continue snapping them up today. Here's one…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Why wait? I’d buy FTSE 100 shares now before the next stock market rally!

Our writer explains why he'd snap up what he sees as bargain FTSE 100 shares now rather than waiting in…

Read more »

Investing Articles

Is it time for me to change my tune about Rolls-Royce shares?

This Fool has steered clear of buying Rolls-Royce shares. But after its recent performance, he's reconsidering his stance. Here's why.

Read more »

Investing Articles

Aviva share price: 3 reasons to consider buying for 2024

The Aviva share price is still lower then when I bought some nearly a decade ago. Here's why I'm thinking…

Read more »

Front view photo of a woman using digital tablet in London
Investing Articles

These 2 shares could bank me £328 a month in second income

Jon Smith runs through two FTSE stocks that have above-average dividend yields that could pay out a generous second income…

Read more »

Stack of one pound coins falling over
Investing Articles

This passive income plan is simple – but could earn me thousands!

Christopher Ruane explains how putting a fiver a day to work in the stock market might help him earn thousands…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on

After record profits, are Lloyds shares a buy, sell, or hold?

As Lloyds pulls in pre-tax profits of £7.5bn, boosts its dividend, and continues to repurchase shares, are the company’s shares…

Read more »

Investing Articles

NatWest shares: is a once-in-a-lifetime opportunity on the way?

Should investors get ready for a unique opportunity as the UK government plans to sell off its NatWest shares later…

Read more »