You can’t afford to ignore these two 6% dividend bargains

High income and low valuations make these two stocks worth a closer look, says Harvey Jones.

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There are no happy returns for Card Factory (LSE: CARD) today, which is down a party pooping 5.49% after reporting a 0.4% drop in Q1 like-for-like sales that it blamed on strong comparatives and a tough retail environment.

Factory prices

The specialist retailer of greetings cards and gifts has had it tough for some time, its shares down 35% over 12 months. Yet there are also positives to be drawn from today’s trading update, with group sales growing 3%, helped by its continued store rollout.

Card Factory opened 10 net new stores in the quarter, putting it on track for its target of around 50 openings for the full year. It is good to see that one high street retailer remains in an expansive mood as others retrench.

Play your CARD right

Today’s report boasted “strong cash generation with a reduction in net debt since the year end,” driven by strong operating margins, limited working capital absorption and relatively low capital expenditure requirements. Website revenues are also growing strongly, helped by a new range of card and non-card products, both personalised and non-personalised, and its growing social media presence. Expectations for the full financial year are unchanged.

The £703m FTSE 250 group’s recent share price slippage has left it trading at a tempting 11.6 times earnings, with a forecast yield of 6.3%, covered 1.3 times. My Foolish colleague Peter Stephens reckons its turnaround could fuel big long-term gains for investors.

Strictly Legal

Insurer Legal & General Group (LSE: LGEN) has long been one of my favourite FTSE 100 high-yielders and it currently offers a forward income of 5.9%, with cover of 1.7%, and juicy operating margins of 27%. Sometimes I think its merits have been overlooked by the stock market, as recent performance has been bumpy, with the stock up a modest 8% over the past 12 months.

Rupert Hargreaves has hailed it as an income champion, but says many consider its primary business of managing retirement savings and investments a little dull. However, I can see nothing dull about a 6% yield, with strong cover, especially with base rates stuck at just 0.5%.

General good

I also find it incredible that the stock trades at just 10.1 times forward earnings, cheap as chips, possibly reflecting a forecast 12% drop in earnings per share this year. A slip of that size does tend to rattle nerves, although EPS are expected to rise 7% in 2019.

Legal & General has been alerting investors to the accelerating momentum across its business, which saw last year’s profits rise almost a third, thanks to growing retirement product sales. It was also able to release £332m from its reserves, liberated by more favourable mortality expectations. Even allowing for this, retirement operating profit rose 13% while profits from its investment management business jumped 9% to £400m. There is nothing dull or boring about those figures.

Chief executive Nigel Wilson is predicting more of the same, making L&G one of the most exciting boring stocks I know at the moment.

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.

harveyj has no position in any of the shares mentioned. The Motley Fool UK owns shares of Card Factory. 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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