Buying dividend shares with high yields is a great way to aim for maximum returns from an investment. But buying undervalued dividend shares with recovery potential is even better – getting in while they’re cheap can deliver both income and capital growth.
Keep in mind, though, that recovery isn’t guaranteed, and neither are dividends. If things get too dire, a company may need to prioritise debt payments and slash dividends.
That’s why it’s important to weigh a company’s long-term potential alongside the current risks. In certain cases, there is little evidence to support a potential recovery. In others, the company’s established nature and future prospects may point to an eventual turnaround.
With that in mind, I’ve found two downtrodden UK dividend shares that could be worth a closer look this August.
The embattled ad giant
Global advertising giant WPP (LSE: WPP) is having a torrid year. Its share price has halved in 2025, and the company’s credibility has taken a hit following securities fraud allegations in the US and the recent departure of its CEO.
But with fresh leadership on the way and a possible strategic reset, this could mark the bottom.
Beneath the headlines, there are signs of resilience. Earnings growth improved by almost 400% over the past year, and the dividend yield now stands at an eye-catching 9.3%. Despite the high yield, the payout ratio is a manageable 78% and the firm has paid a dividend for over two decades without interruption.
Valuation also looks compelling. Its forward price-to-earnings (P/E) ratio is just six, and its price-to-sales (P/S) ratio is a bargain 0.31. That said, debt remains high at £6.35bn, and the legal case could still result in further losses.
It’s a chancy proposition – but for risk-tolerant income investors, there may be long-term value on offer.
The discounted discount retailer
B&M European Value Retail (LSE: BME) has been a reliable player in the discount retail space, but 2025 hasn’t been kind. The shares are down almost 40% year to date after underwhelming trading results in July. Sales rose just 4.5%, raising questions about growth momentum heading into the second half.
Despite this, the dividend remains solid. B&M has a 6.6% yield with a special dividend pushing it up to 13.2%, and the payout is very well covered by both earnings (payout ratio of just 47%) and by cash (2.3 times coverage). That’s encouraging.
Its valuation also looks compelling: a P/E ratio of just 7.1 and a P/S ratio of 0.41. However, one major concern is debt. Its debt-to-equity ratio stands at 3.4 — worryingly high for a retailer. Plus, earnings growth has declined 13% year on year, and with already thin margins, it’s under pressure in a high-interest environment.
A recovery must come soon.
No risk, no reward
Buying embattled dividend shares is never without risk, but it can pay off handsomely when sentiment turns. WPP and B&M both offer high yields, low valuations, and the potential for long-term recovery.
While I wouldn’t go all-in on either, I think both are worthy of consideration this month as part of a diversified, income-focused portfolio.
