Two stellar growth dividend stocks that are looking far too cheap

These sanely-valued dividend growth stocks may be the cure for value investors worried about sky-high market valuations.

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The last few years have by and large been rough for value investors who have seen buoyant equity markets and high valuations leave them with what seems like fewer and fewer potential investment ideas.

That said, although the FTSE 250 is very near its all-time high, there are a handful of mid-cap stocks that I believe will keep value investors happy with their sane valuations, high and rising dividend payouts, and impressive growth prospects.

Growing scale on both sides of the Atlantic 

First up is food manufacturer Greencore (LSE: GNC), whose shares trade at 12 times forward earnings and kick off a 3.1% dividend yield. The company’s valuation has come unstuck over the last few months as investors have turned negative towards its ability to bounce back from poor trading at its old US factory network.

However, I think these fears are overblown. Yes, the group’s old US factory network is plagued by low usage but management is reacting to this by wisely shuttering under-utilised factories and transitioning towards higher-margin, higher-growth work making branded food products for big names like Kraft Heinz.

This is a market the company now has access to thanks to its acquisition of Peacock Foods in late 2016 that has given it a giant, country-wide factory footprint and industry links into the lucrative American grocery market. And it’s this former Peacock business that offers enormous growth potential that could more than make up for poor trading at Greencore’s legacy US network.

Indeed, in the first nine months of this financial year Greencore US has posted 7.5% like-for-like growth thanks to a 19.4% rise in sales from the newly-acquired business. This was bested by the group’s market-leading position in UK convenience foods that led to an 8.4% sales uptick for this part of the business.

Looking ahead, I think Greencore is well-placed to come out of its recent troubles in good shape. Its core businesses in the UK and US are posting fantastic growth rates and margins should resume trending upwards as low-margin US and UK business lines are shut down. Plus, with net debt down to 2.5 times EBITDA at the end of March, its balance sheet is already improving following the Peacock purchase.

In my eyes, this means Greencore is an attractively-priced growth and dividend option for long-term investors.

Engineering higher returns 

I’m similarly minded towards engineering group Morgan Advanced Materials (LSE: MGAM). The company’s shares currently yield just north of 3% annually and trade at an attractive 14 times forward earnings.

The company, which is a leading designer and manufacturer of advanced carbon and ceramic products for end use in healthcare, energy and industrial markets among others, has spent the past few years investing heavily in ginning up increased growth by investing more in advanced R&D projects, exiting non-core business lines and slashing excess costs.

This strategy is starting to bear fruit with H1 organic sales up 7.8% in constant currency terms and underlying operating profits up 12.4%. With management making the right decisions to get the group on track for long-term results, I see good potential for the company to continue growing strongly as its industrial customers see an uptick in their own trading of late.

Add in a healthy balance sheet that allows for bolt-on acquisitions and I reckon Morgan is an interesting option for long-term, value-focused investors.

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.

Ian Pierce owns shares of Greencore. The Motley Fool UK owns shares of and has recommended Greencore. The Motley Fool UK has recommended Morgan Advanced Materials. 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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