2 dirt cheap dividend stocks I’d buy right now

These two shares may not remain cheap for that much longer.

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At the present time, there are a number of dividend stocks which offer excellent value for money. However, this may not remain so for all that much longer, since income stocks could see their prices rise as investors become keener to buy higher-yielding shares. Rising inflation is likely to be the primary cause of this, which could make now the right time to buy dividend stocks. With that in mind, here are two companies which could offer upside potential right now.

Strong outlook

Friday saw electricals and telecoms retailer Dixons Carphone (LSE: DC) release news of asset disposals. The company has sold all of its interest in The Phone House Spain, Connected World Services and Smarthouse to Global Dominion Access, which is a provider of technological services and solutions. Completion of the sale is due to take place by the end of the second quarter of the year, with the company receiving €55m, less working capital adjustments. It will be payable in two non-contingent tranches at completion and in January 2018.

It plans to reinvest the proceeds from the asset sales back into the business. This could be a shrewd move, since there appears to be a strong growth opportunity within its chosen markets. In fact, in the last four years the company has been able to increase its earnings at a double-digit rate in each year. This shows its strategy is working well, and that its end markets may be ripe for future growth.

In terms of income appeal, Dixons Carphone currently has a dividend yield of 4.4% from a payout which is covered three times by profit. This suggests there is scope for dividends to rise at a faster pace than profit. With the company trading on a price-to-earnings (P/E) ratio of just 7.7, now could be the right time to buy it.

Growth potential

Also offering a sound income outlook is automotive retailer Lookers (LSE: LOOK). The company may face a relatively challenging period as demand for new cars continues to decline. However, the company is expected to return to bottom-line growth next year, with net profit forecast to rise by 5%. This puts the company on a price-to-earnings growth (PEG) ratio of just 1.5, which suggests it could offer upside potential.

The company also has an attractive income outlook. At the present time it yields 3.5%, but with dividends covered four times by profit there could be a rapid dividend growth outlook ahead.

Certainly, the company may wish to retain cash while the automotive sector is experiencing a challenging period, but over the long run it would be unsurprising for Lookers to raise dividends at a faster pace than profit. From a financial standpoint, this is unlikely to hurt the sustainability of the business, which could make today the perfect time to buy it for the long run.

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.

Peter Stephens 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.

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