2 dirt-cheap dividend shares I’d buy today

Royston Wild looks at two bargain-basement income shares that could make you a fortune.

| 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.

Investor appetite for Avation (LSE: AVAP) has failed to recover from the waves of selling that set in across stock bourses in mid-January. I see this as an opportunity for savvy dip buyers to pick up a bargain.

Avation, which leases commercial aircraft to some of the world’s biggest airlines including easyJet and Air France, is thriving in an environment of improving lease yields. As a result, it reported record revenues and pre-tax profits last year, the latter up 18% year-on-year in the 12 months to June 2017 to $21.4m.

And the Singapore-based firm is spending a fortune on building its fleet to capitalise on these favourable metrics. It now has around 40 aeroplanes on its books and, critically, it’s mixing up the types of aircraft it leases out maximise business opportunities. The acquisition of a number of large twin-aisle aircraft more recently marks the latest step in this journey.

Stunning dividend growth

With Avation also enjoying booming operating cash flows, up 20% last year, the business has also continued to light a fire under dividends. For example, the leasing giant hiked the dividend by an astonishing 85% last year to 6 US cents per share.

Even though City analysts expect earnings to slip 21% in the year ending June 2018, the flying ace’s solid long-term profits outlook should still keep dividends shooting skywards. An 8.4-cent payout is forecast by the number crunchers, resulting in a chunky 2.7% yield.

The good news doesn’t stop here either. Supported by a predicted 22% earnings rebound in fiscal 2019, the dividend is expected to rise to 11.2 cents. Thus the yield for next year jumps to 3.5%.

What’s more, the stratospheric dividend growth being predicted doesn’t come at the expense of solid protection either. Added to Avation’s brilliant cash flows, investors can also sleep soundly in the knowledge that predicted dividends are covered between 3.2 times and 3.4 times by estimated earnings through to the close of next year. That’s some distance inside the accepted safety watermark of 2 times or above.

All told, I reckon Avation is a brilliant, bargain growth and income share with the firm dealing on a forward P/E ratio of just 11 times.

The 6%+ yielder

Jupiter Fund Management (LSE: JUP) is another white-hot dividend share worthy of a seriously close look today.

The company’s brilliant growth record has also enabled it to lift shareholder rewards at a brisk pace in recent years. And with profits anticipated to keep on swelling — rises of 8% and 9% are forecasted for 2018 and 2019, respectively — dividends are expected to also trek higher.

So the anticipated 30.2p per share payment for 2017 is expected to rise to 32.5p in the present year and to increase to 35.6p in 2019. Consequently, the fund giant carries monster yields of 6% and 6.6% for this year and next.

Like Avation, Jupiter has also fallen out of favour with share pickers since hitting record tops in early  January, even though it has since announced business has continued to boom. A £5.5bn improvement in net inflows in 2017 drove total assets under management 24% higher year-on-year, to £50.2bn.

Given its terrific trading momentum, I reckon Jupiter’s forward P/E ratio of 14.4 times makes it a steal right now.

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 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.

More on Investing Articles

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Dividend Shares

How I’d try to ironclad my second income before interest rates fall

Jon Smith explains a couple of tactics he's looking to implement in his dividend portfolio to try and protect his…

Read more »

Investing Articles

The FTSE 100 still looks cheap to me. But don’t just take my word for it!

The FTSE 100 (INDEXFTSE:UKX) has increased 7.5% since the start of 2024. But I think there’s evidence to suggest that…

Read more »

Investing Articles

What should the Vodafone share price be? Here are 3 possible answers

Our writer uses a number of popular financial measures to come up with an estimate of a fair value for…

Read more »

Investing Articles

Here’s how much I’d have if I’d bought 1,000 shares in this FTSE 100 defence stock 5 years ago

I could have made a pretty penny investing in this leading FTSE 100 defence stock. Now I’m looking at a…

Read more »

Investing Articles

1 potential millionaire-maker UK stock I’d like to buy for the long haul

For long-term investors, here’s 1 UK stock to consider buying right now with the potential to help power a growth…

Read more »

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

These cheap UK shares look way too good to ignore right now

With the UK stock market reaching new highs recently, this Fool plans to grab these two remaining cheap shares before…

Read more »

Young Woman Drives Car With Dog in Back Seat
Investing Articles

This unloved UK stock could rise 120%, according to a City broker

Some City analysts reckon a once-popular UK stock can recover from its massive recent decline and go on to more…

Read more »

Investing Articles

These FTSE dividend shares all offer 6%+ yields!

Paul Summers highlights three FTSE dividend shares that offer big yields. But is the passive income stream sufficient to offset…

Read more »