Two ‘contrarian’ 4.5% dividend stocks I’d buy in June

The FTSE 100 may be hitting new highs at the moment, but that doesn’t mean there aren’t opportunities for the value investor at present. Here’s a look at two out-of-favour dividend-paying stocks that could offer opportunities from a contrarian perspective.  

Greene King

I last covered Greene King (LSE: GNK) back in February when the shares were hovering around the 700p mark. At the time, I said the shares offered “cracking value for those willing to look beyond short-term uncertainty“, and so far my call is looking pretty good, with the shares up around 6% in just three-and-a-half months. However in my opinion, there’s plenty more to come from the pub operator.
You see, sometimes the best way to get a feel for a company’s health is to take a first-hand look at its products. And that’s exactly what I did over the recent bank holiday weekend, popping into several Greene King establishments in London to see how they were performing. As far as I could see, business was healthy, and there was absolutely no sign of a Brexit-related slowdown. And that leads me to think that the stock’s forward looking P/E ratio of 10.5 is simply too cheap.

I also think Greene King has excellent potential as a dividend stock. The company paid out 32.1p in dividends last year, equating to a yield of 4.3% at the current share price, and this is forecast to grow 3% per year over the next two years. Dividend coverage is healthy at 1.9 times.
Obviously, the investment case with Greene King is not risk-free, and the pub owner faces several headwinds from cost pressures due to government initiatives such as the minimum wage increase and apprentice levy. However, with a P/E of just 10.5 and dividend yield of 4.3%, I believe Greene King offers an attractive risk to reward ratio right now.

William Hill

Also company offering contrarian appeal at present is William Hill (LSE: WMH).
Shares in the bookmaker have endured a torrid run over the last two years, falling from over 430p to under 300p, a decline of over 30%. But at the current price, is value now starting to appear?
A trading statement earlier this month was relatively positive, with the company seeing growth in online sportsbooks wagering and gaming net revenue of 9% and 8% respectively. The bookmaker noted that it is on track to deliver annualised cost efficiencies of £40m by the end of 2017 and that it is trading in line with market expectations for 2017 so far this year.
And William Hill also has significant dividend appeal, with the company’s FY2017 forecast payout of 13.1p equating to a yield of 4.5% at the current share price. The bookmaker did not increase its dividend last year, however dividend growth over the last five years stands at a healthy 7% per year.
While the gambling industry is likely to remain competitive, William Hill’s forward-looking P/E of 12.2 does not appear to be too demanding. On that basis, at the current share price below 300p, I believe William Hill could offer potential for the contrarian investor.

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Edward Sheldon owns shares in Greene King. 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.