The Motley Fool

These bargain-basement dividend stocks could help you retire early

With the FTSE 100 trading close to its all-time high, it may seem as though share price growth is a given over the medium term. However, there are still numerous risks which could halt the FTSE 100’s recent gains and send share prices lower. For example, Brexit, the election and higher inflation may cause some difficulties for the FTSE 100. As such, buying shares which have wide margins of safety as well as impressive income prospects could be a shrewd move.

Improving financials

Reporting on Tuesday was gaming company William Hill (LSE: WMH). It announced improved performance following a difficult and highly uncertain period for the business. Its strategy appears to be working well even in a highly competitive industry, with the company reporting a rise in wagering and net revenue across all of its four divisions. Of particular note was double-digit wagering growth in Australia and the US, while its online operations saw a rise in amounts wagered of 9%.

With a dividend yield of 4.2%, William Hill continues to offer a relatively high income return. However, its dividend appeal looks set to be strengthened by a forecast rise in shareholder payouts. They are expected to increase by 5.5% next year and since they are covered around twice by profit, there is scope for further growth over the long run.

As mentioned, William Hill faces a highly competitive outlook. Sector consolidation has made rivals financially stronger, but with the company expected to record a rise in earnings of 8% in each of the next two years it seems to be a sound buy. That’s especially the case since it trades on a price-to-earnings growth (PEG) ratio of just 1.4 at the present time.

Low valuation

Also offering a potent mix of capital growth and income returns is sector peer Stride Gaming (LSE: STR). It may only yield 1.2% at the present time, but with dividends covered over eight times by profit, there is a good chance of rapid growth in shareholder payouts over the medium term. Evidence of the potential for this can be seen in the growth of dividends in the current year, with them rising by over 10%.

As well as dividend growth, Stride Gaming offers a wide margin of safety. It has a price-to-earnings (P/E) ratio of only 10.1, which suggests that it has a favourable risk/reward ratio. That’s especially the case since it is forecast to post a rise in earnings of 8% in the current year.

With the online bingo and social gaming sectors becoming increasingly popular among consumers, Stride could benefit from a tailwind over the medium term. While competition could remain high, there is scope for M&A activity and due to its low valuation, it could be a prime takeover target. As such, now could be the perfect time to buy it for the long run.

Millionaire prospects

Of course, finding stocks that are worth adding to your portfolio is a tough task, which is why the analysts at The Motley Fool have written a free and without obligation guide called 10 Steps To Making A Million In The Market.

It's a simple and straightforward guide that could help you to find the best stocks at the lowest prices. They could improve your chances of making a million from the market.

Click here to get your copy of the guide – it's completely free and comes without any obligation.

Peter Stephens has no position in any 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.