2 dirt-cheap dividend shares I’d buy for long-term passive income

In today’s uncertain economy, having a reliable passive income can be a real game changer. I’ve found two dividend stocks that might just be the answer.

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Given today’s high cost of living, finding passive income through undervalued dividend stocks can be a savvy strategy for investors seeking a steady source of extra cash. I’ve found two of these which may be trading at a significant discount to their intrinsic value. So could they be a reliable source of passive income going forward? Let’s take a closer look.

Record

Record (LSE:REC), a UK-based firm specialising in currency and derivative management services, is a company that not many will know. With a market cap of £128.6m, it’s a smaller player in the financial sector, but for me its financials tell a compelling story.

discounted cash flow calculation suggests the firm is about 16% undervalued. Although this isn’t a guarantee, with this much potential, taking a closer look at the balance sheet feels well worth doing.

The financials are equally impressive. The company has a flawless balance sheet, with zero debt—a rarity in the financial sector. This strong financial health suggests that the business is well-positioned to maintain its generous dividends even in economic downturns. Moreover, annual earnings are forecast to grow by 9.38% over the next five years.

But the main attraction is the stellar dividend yield of 7.88%, significantly higher than many of its peers. This high yield isn’t just a flash in the pan either; the business has been increasing dividends steadily over the last decade, with more growth expected over the coming years.

However, it’s not all smooth sailing. Record’s share price has underperformed both its industry and the broader UK market over the past year.

Additionally, there has been significant insider selling in the past three months, which could be a red flag.

Nevertheless, given its dirt-cheap valuation, high dividend yield, and solid financials, I think the firm remains an enticing option for investors focused on passive income.

Keller

Keller (LSE:KLR) is a leader in geotechnical services. With operations spanning North America, Europe, Asia-Pacific, the Middle East, and Africa, the business has built a strong reputation in ground improvement, deep foundations, and earth retention services.

Another discounted cashflow calculation estimates that it’s trading at a substantial 25.5% below its fair value, offering a significant margin of safety. While its dividend yield of 3.51% isn’t quite as high as Record’s, it’s still attractive in today’s low-yield environment.

Recent performance has been nothing short of impressive. Over the past year, its share price has skyrocketed by 91.1%. This surge isn’t just market hype—it’s backed by strong financials. Earnings grew by a staggering 94.3% over the past year, reflecting some serious operational efficiency.

Looking ahead, the prospects remain bright. Analysts forecast earnings growth of 9.07% per year, suggesting that recent success isn’t a one-off event but part of a longer-term trend.

However, potential investors should be aware that the share price has been volatile over the past three months. This volatility, while not uncommon in the construction sector, may be unsettling for some investors. But with such a steep rally over the last year, a retreat is not a huge surprise.

Overall

In conclusion, both Record and Keller offer compelling cases. Despite some risks, I think their current potential undervaluation makes them attractive options for those willing to play the waiting game. I’ll be buying shares at the next opportunity.

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.

Gordon Best 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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