These dirt-cheap income stocks could help you retire early

Bilaal Mohamed discovers two generous dividend payers available at bargain prices.

| 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.

I think it would be safe to say that shareholders of integrated support services group Carillion (LSE: CLLN) have been pretty underwhelmed by the performance of the company’s shares over the past few years. Despite a turnaround in fortunes, shares in the FTSE 250-listed firm are now hovering around eight-year lows, and only worth half what they were a decade ago. So what’s going on?


Since 2013 the Wolverhampton-based facilities management and construction services group has delivered year-on-year increases in revenues, together with rising levels of pre-tax profits. Revenues have grown by almost 32% to £4.4bn, with pre-tax profits rising 33% to £146.7m over the same period, and yet the share price has sunk from 383p in 2014 to today’s levels of around 210p. The problem? Earnings growth has come to a standstill.

Prior to 2011, the group had delivered more than a decade of strong earnings growth, and it was almost inevitable that this would come to a halt sooner or later. That happened in 2012 when Carillion recorded its first drop in earnings in nine years, with further declines reported in 2013 and 2014. The company stemmed the falls the following year, but is now showing signs of stagnation, with forecasts suggesting broadly flat earnings for the foreseeable future.

Strong pipeline

Nevertheless, the group still has a strong pipeline of contract opportunities, with a high-quality order book plus probable orders worth £16bn, and revenue visibility for 2017 running at 74%. There have also been good contract wins here in the UK as well as overseas, the firm most recently being selected preferred bidder by the University of Manchester for a £75m student residences project.

Growth may be hard to come by from an earnings standpoint, but revenues and pre-tax profits are on the rise, and should continue to do so as new contracts are awarded. The bargain basement P/E rating of just 6.3 may look cheap, but I’d be more inclined to look at Carillion as an attractive income play. The depressed share price means a massive 8.3% yield is on offer at current levels, with payouts covered almost two times by forecast earnings.

Chunky dividend

Meanwhile, fellow mid-cap construction play Berkeley Group (LSE: BKG) has enjoyed a nice rebound since the Brexit vote, with the share price now back up to pre-referendum levels. Investors who took my advice last August will be sitting on healthy gains of around 30%. So what next? Is it time to take profits and move on?

Perhaps. But I think there are still attractions for shareholders who prefer to hold on for long-term gains, not to mention that juicy dividend. The Surrey-based residential housebuilder remains on target to meet its ambition to deliver at least £3bn of pre-tax profit over the five years ending 30 April 2021, with forward sales in excess of £2.6bn.

Despite the post-referendum rebound, the shares till look good value at just seven times forward earnings, supported by a chunky 6% dividend yield covered more than twice by profits.

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.

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Berkeley Group Holdings. 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

Jumbo jet preparing to take off on a runway at sunset
Investing Articles

Down 70%+ since 2020, is IAG’s share price an unmissable bargain?

IAG’s share price is still down around 73% from its pre-Covid level, but with the business performing well last year,…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

£17,000 of shares in the FTSE 100 dividend giant can make me £18,874 every year in passive income!

This FTSE 100 dividend superstar has an 8.8% yield with dividends projected to rise. It looks very undervalued to me…

Read more »

Investing Articles

2 top UK growth stocks I’m buying for my Stocks and Shares ISA in July

Looking for UK-listed growth firms to add to a Stocks and Shares ISA? Our writer highlights two he's planning to…

Read more »

artificial intelligence investing algorithms
Investing Articles

This overvalued growth stock makes Nvidia look cheap!

ARM Holdings is a growth stock that’s benefitted from the AI rally. Muhammad Cheema takes a look at whether this…

Read more »

Investing Articles

1 penny stock I’d buy today while it’s 63p

This penny stock's down 70% since last March, yet could be set for a big comeback as the firm rebuilds…

Read more »

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Buying 8,617 Legal & General shares would give me a stunning income of £1,840 a year

Legal & General shares offer one of the highest dividend yields on the entire FTSE 100. Harvey Jones wants to…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

£25k to invest? Here’s how I’d try to turn that into a second income of £12,578 a year!

If Harvey Jones had a lump sum to invest today he'd go flat out buying top FTSE 100 second income…

Read more »

Union Jack flag in a castle shaped sandcastle on a beautiful beach in brilliant sunshine
Investing Articles

2 lesser-known dividend stocks to consider this summer

Summer is here and global markets could be heading for a period of subdued trading. But our writer thinks there…

Read more »