2 overlooked dividend stocks I’d buy in February

Bilaal Mohamed discovers two overlooked companies boasting yields of 4% or higher.

| 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.

When it comes to building long-term wealth on the stock market, few can argue with the simple tried and tested strategy of dividend investing. Buying and holding solid blue-chip companies that pay steady and reliable dividends twice (or sometimes even four times) a year is not to be sniffed at.

Go one step further

But savvy income-focused investors go one step further. They seek out companies whose shareholder payouts rise year-on-year, and reinvest those proceeds to unleash the full power of compounding – what’s known as the snowball effect.

It’s true that the vast majority of dividend hunters are primarily focused on the perceived safety of the large multi-nationals listed on London’s top tier FTSE 100 index, but I reckon these investors could be missing out on possible bargains among the companies lower down the pecking order of market capitalisation.

While some of the more popular large-cap income stocks can sometimes command a premium valuation, their smaller counterparts are often found to be trading at far more attractive prices. I believe Headlam Group (LSE: HEAD) falls into this category quite nicely. Despite being Europe’s largest distributor of floor coverings, with a market capitalisation of £490m, the Birmingham-based group isn’t large enough to be included in the FTSE 100 or mid-cap FTSE 250 indices, but I believe it could be just a matter of time.

Shrewd acquisition

At the end of 2017 the group announced the acquisition of Domus, the UK’s leading specification consultant and supplier of hard surfaces for premium construction and refurbishment projects, in a deal potentially worth more than £35m. I believe the acquisition will help diversify and broaden Headlam’s overall position in the floor coverings market as it gives it an entry into ceramics and an increased weighting in engineered wood, LVT and laminate, incorporating product lines that continue to achieve ongoing growth in the market.

The acquisition should also significantly increase the group’s presence in the commercial specification market and bring in considerable expertise, providing a platform to pursue further domestic and international growth opportunities. With this in mind I think Headlam’s shares are a steal at just 13 times forward earnings, with a rising dividend that currently yields no less than 4.7%.


Another high-yielding small-cap that looks attractively priced at the moment is Wincanton (LSE: WIN). The Wiltshire-based logistics firm is the UK and Ireland’s leading provider of supply chain solutions, operating from over 200 locations right across the British Isles.

The group’s share price breached 300p last summer, reflecting stellar growth over the last few years, but a sharp pull-back in recent months seems to have presented a buying opportunity for income-focused investors with one eye on capital growth.

Since being reinstated back in 2016, Wincanton’s dividend payouts have risen sharply, with analysts forecasting further increases this year and next, leaving the shares offering a solid yield of 4.6%. Furthermore, a bargain basement valuation of just seven times earnings for the current year to the end of March makes the shares even more irresistible.

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 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

Investing Articles

Here’s why I think the Vodafone share price should be 110% higher

Reflecting on speculation, our writer believes there’s a case to be made for the Vodafone share price being more than…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Is this dividend star also the best bargain in the FTSE 100?

This FTSE 100 stock pays a whopping 8%+ yield, looks very undervalued against its peers, and is set for stellar…

Read more »

Investing Articles

2 FTSE 100 stocks. One sublime, the other ridiculous

Our writer doesn’t understand the appeal of Ocado. But looking at the grocer’s latest results makes him see the attraction…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Down 18% in a year, what’s next for the Greatland Gold (GGP) share price?

The Greatland Gold share price has disappointed over the past 12 months. Our writer asks whether the company’s latest update…

Read more »

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

With 30% annual returns for a decade, I’m buying this for my Stocks & Shares ISA

Oliver Rodzianko has been looking for a new investment for his Stocks and Shares ISA. Here's one he's decided is…

Read more »

Investing Articles

These were the FTSE 100’s dogs and stars in February

The FTSE 100 limped along last month, but some Footsie shares soared while others slumped. Here are February's winners and…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

This £43bn of passive income is up for grabs today!

As a lover of passive income, I'm always on the lookout for extra cash. The good news is that these…

Read more »

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

Is this my once-in-a-decade chance to buy these 2 beaten-down UK shares before they rocket?

The FTSE 100 has had a bumpy ride but these two UK shares have had it bumpier. Could now be…

Read more »