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Today I’m looking at two turnaround stocks with forecast dividend yields of around 8%. Both companies are under pressure, but have ambitious plans to return to growth and maintain their dividends.

An extreme turnaround?

Newspaper group Trinity Mirror (LSE: TNI) owns the Daily Mirror and a raft of regional papers. But the group is struggling to deal with the shift from print publishing to online.

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Because of its uncertain future, the shares currently trade on a forecast P/E of just 2.1, with a prospective yield of 7.9%. Is this a true bargain, or a short cut to investing disaster?

No surprises today

A trading update on Friday suggests that the company is holding its own, at least for now. Full-year profits are expected to be in line with expectations. This seems to confirm analysts’ forecasts for earnings of 34.3p per share.

However, the shift away from print shows no sign of slowing. Trinity confirmed that like-for-like group revenue is expected to fall by 9% during the fourth quarter. Print advertising sales are expected to be down by 21%, while circulation revenue is expected to fall 7%.

Although Trinity Mirror’s net debt has fallen to a level that no longer concerns me, the group’s £406m pension deficit is a risk. The company has now agreed to pay £44m per year into its pension scheme for the next 10 years, up from £36m previously.

A two-part plan

Chief executive Simon Fox has cut costs relentlessly and continues to do so. Online growth is also strong, with revenue from online advertising expected to rise by 20% during the final quarter.

The second part of Mr Fox’s plan is more ambitious. He is in talks to acquire publishing rival Northern & Shell, whose titles include the Daily Express, Daily Star, and OK! Magazine.

By combining the two groups’ operations, Mr Fox would hope to cut out a big chunk of costs. Together with online growth, this could create a viable long-term business.

Risk and potential reward both seem high to me here. I’m still undecided about whether to invest.

A simpler choice

One turnaround stock which looks more straightforward is Bovis Homes Group (LSE: BVS). New chief executive Greg Fitzgerald appears to be doing a good job of rebuilding profits after a difficult period where sales — and build quality — fell below expectations.

Mr Fitzgerald now expects the group to end 2017 with net cash of at least £100m and to deliver “a significant improvement in profits for FY 2018”.

City analysts’ consensus forecasts suggest that this will result in earnings of 91.9p per share in 2018, putting the stock on a forecast P/E of 12.3. However, what’s more interesting is that analysts seem to expect Bovis to start returning surplus cash to shareholders next year.

Forecasts I’ve seen suggest a total dividend payout of 98.4p per share in 2018, giving a forecast yield of 8.7%. Based on the group’s recent cash generation, this looks affordable to me.

Although the outlook for the housing market is unclear, new house sales appear to remain strong. Mr Fitzgerald also has the opportunity to increase profit margins to industry-average levels, which could boost profits even if sales are flat.

In my view, Bovis Homes could be an attractive buy at current levels.

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Roland Head has no position in any of the 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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