2 cheap dividend shares hiding in plain sight

Paul Summers picks out two under-the-radar dividend shares he’d load up on before the stock market really starts to rally again.

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When looking for dividend shares, it’s no surprise that many (most) retail investors gravitate towards the bluest of blue-chip companies.

That said, there are actually many smaller, less well-known businesses out there that also return healthy amounts of cash.

Here are two examples, either of which I’d be willing to buy so long as my portfolio was already sufficiently diversified.

Market minnow

With a market capitalisation of around £270m, it’s perhaps no surprise that housebuilder MJ Gleeson (LSE: GLE) doesn’t attract as many headlines as its sector heavyweights in the FTSE 100.

However, I reckon the market’s current aversion to any player in this space could offer an opportunity to long-term-focused Foolish investors like me.

As things stand, MJ Gleeson’s stock trades on a price-to-earnings (P/E) ratio of 11. Importantly, this is after taking into account analysts’ projections that earnings will halve in the current financial year.

They may not be wrong. After all, getting a mortgage is a lot more expensive than it was this time last year, and inflation is still at multi-decade highs.

Even so, this month’s half-year report contained some green shoots.

Strong investment case

Yes, pre-tax profit in the second half of 2022 fell to £16.1m, compared to £24.7m in 2021. However, the company said that net reservations were now “starting to recover“. Indeed, they had doubled from the low levels seen before Christmas in the four weeks to results day.

All told, MJ Gleeson now expects to deliver somewhere between 1650 and 1850 homes in the current financial year. New CEO Graham Prothero is also looking to save £4m annually by making the company “more operationally efficient“.

And the cash returns? Right now, MJ Gleeson offers a forecast dividend yield of 3.1%. That’s not massive compared to top-tier peers. However, it does look more secure (covered almost three times by profit).

Investors might also argue that this company’s small-cap status means the recovery in the share price could be more substantial.

Picks and shovels play

If investing in a single housebuilder feels too risky, another option for me would be Brickability (LSE: BRCK). This this business, of course, supplies bricks (and also rain-screen cladding systems, masonry, paving, roof tiles and slates) to the construction industry.

As with MJ Gleeson, Brickability’s shares have been pummeled over the last year. This is despite trading remaining fairly resilient.

Having “continued to deliver a strong performance across all of its business divisions“, the small-cap expects to report adjusted earnings of “at least” £47m for the full year to the end of March. This would beat analysts’ earlier expectations of £44.7m.

Still cheap

Naturally, the market lapped up this news with shares soaring by over 20%. Even so, Brickability shares continue to look dirt cheap on a price-to-earnings (P/E) ratio of just six.

That valuation looks tempting to me, especially as I’m being paid to wait for a recovery in the property sector.

A total dividend of 3.3p per share is expected for FY23, easily covered by profit. At today’s price, that would equate to a yield of 4.9%.

Again, factor in the possibility of a sizeable capital gain on top of this once the housing market recovers, and I think there are a lot worse places to park my cash in 2023.

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.

Paul Summers 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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