The Motley Fool

These two cheap dividend stocks look like buys to me

Amino Technologies (LSE: AMO) has all the hallmarks of a top dividend stock. The company is highly cash generative, has no debt and has a record of returning all extra cash to investors. These are highly desirable qualities for any business, but are especially important for dividend stocks.

Today’s trading update from the company for the six months ended 31 May shows just how much of a cash cow Amino is. During the period the company generated revenue of approximately £40m, up 21% year-on-year. Net cash the end of the period was £13.1m, up from £3.1m at the end of the same period a year ago and up from £6.2m at the end of November 2016. With a market capitalisation of £142m at the time of writing, this means around 10% of Amino’s market value is cash.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Dividend policy

Its cash generation and strong sheet gives it room to pursue an aggressive dividend policy. Over the past five years, the payout has risen 100% as earnings per share have grown by 150%. The dividend is covered twice by earnings per share, and this headroom means management has scope to increase the payout this year despite the fact that City analysts are projecting flat earnings growth. Amino’s per-share payout is expected to rise by a little more than 10% this year to 6.7p giving a dividend yield of 3.2%. The shares currently trade at a forward P/E of 15.2, so the shares are not particularly cheap although if you strip out the 20p per share in cash, the valuation falls to around 13 times forward earnings.

Special dividend?

Acal (LSE: ACL) is another company that has all the hallmarks of a top dividend play. Today the company announced its full-year results for the year ended 31 March 2017 showing strong growth across the board. Earnings per share rose 13% to 19.2p as underlying profit before tax rocketed higher to £17.2m, up from £14.5m in the year-ago period. Revenue grew by 18% or 6% at constant exchange rates. The best performing metric was the group’s cash flow. Cash flow from operations increased 66% from £16.3m to £27.1m and the group’s cash balance at the end of the period hit £22m, up from £20m at the end of the last fiscal year. This cash balance gives the company more than enough headroom to maintain its current dividend payout of 8.6p per share, which is costing around £5.2m per annum.

Unfortunately, this kind of dividend security does not come cheap. Like Amino, shares in Acal trade at a relatively high forward earnings multiple of 15 times, but City analysts have pencilled-in earnings per share growth of 14% for the year ending 31 March 2018, so the high multiple is to some extent justified by growth. The shares support a dividend yield of 3%, and the payout is expected to grow by around 5% per annum for the foreseeable future. With such a healthy balance sheet I wouldn’t rule out special dividends along the way as well.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Rupert Hargreaves 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.