Dividend stocks are proving increasingly popular as even the most committed growth-focused investors look for ways to diversify their portfolios and make money in uncertain times.
Thankfully, there’s no shortage of potential bargains out there.
Stock market bargain
Investec (LSE:INVP) is one example of a dividend stock that looks seriously cheap right now. The international banking, investment, and wealth management company trades on less than seven times earnings.
Why the low price tag? Well, the wobble we saw in the banking sector last month is arguably the main reason. As usual, it doesn’t take much for multiple babies to be chucked out with the bathwater.
This was a shame as the Investec share price had been seeing some great positive momentum. Back in September 2022 (and not long after that disastrous mini-budget), the stock hit a 52-week low of 336p. By mid-February this year, it had climbed 65%
Assuming we don’t see further headwinds, there might be an opportunity for some capital gains here. This is especially as Investec stands to benefit from the recent changes to pension rules.
Big income stream
All that said, it’s the dividend stream that stands out the most for me.
Analysts have the company down to return 31.6p per share to holders in FY24 (which began at the start of April).
Putting that payout into my calculator and dividing it by the share price gives a dividend yield of 7.1%. That’s not enough to keep up with inflation, but it takes the sting out.
As well as being far more than the market average, this cash return is also likely to be easily covered by profit. In other words, it’s unlikely (although certainly not impossible) that a cut is on the way.
Full-year numbers are due mid-May but I’d say income investors should consider taking a position now.
Another income opportunity
A second cheap dividend stock that’s grabbing my attention is Redde Northgate (LSE: REDD). This is a business that provides “integrated mobility solutions to businesses and personal customers“. In plain language, that means things like vehicle rental, repair and disposal services.
Not one to hog the headlines, the company’s last statement on trading came in December.
Revenue growth hit 14%, thanks in part to “strong traffic and accident management volumes” and “pricing increases“. At the time, the company believed full-year profit would come in modestly above market projections. That all sounds pretty good to me.
The investment case grows when, once again, the dividend stream is considered.
(Probably) safe and secure
Analysts think the company could return 23.7p per share in the next financial year (which begins in May). Using the same calculation as that mentioned earlier, it gives a lovely yield of 6.7%
Naturally, nothing can be guaranteed and dividends can be shelved by a company when times get tough. However, I’m not too worried here. The payout looks safe and likely to be covered twice by expected profit.
This won’t ever be a company that quickens the pulse and I suspect that’s one reason why the valuation is so modest (a forecast P/E ratio of just seven).
But as a cheap and fairly stable way of generating cash from the market, I think it’s worthy of attention from retail investors.