The Motley Fool

2 little-known dividend stocks I’d buy today

Housebuilder and construction company Galliford Try (LSE: GFRD) updated the market this morning with its full-year results.

We’ve endured a stomach-churning ride with the share price over the last couple of years due mainly to the push-pull relationship between the firm’s largest divisions. The housebuilding division, Linden Homes, has been wonderfully profitable, but the firm has found it hard to keep the construction operation in the black and today’s results reflect the internal battle.

One-off charge

Compared to a year ago, revenue is up 9% but earnings declined 55% due to the profit impact of the one-off charge of £98.3m announced in May.”  In other words, Linden Homes made lots of profit but losses in the construction division took half of it away.

However, the directors assure us that forward contracts in the construction division are under control and the firm is treating the hit to profits as an exceptional item. I hope they are right because the company puts a lot of effort into its construction operation, which accounted for around 55% of revenue during the period.

Looking at the figures after ignoring the exceptional charge to profits, underlying earnings per share lifted 10%. The firm also moved from a net debt position of £8.7m to a net cash position of £7.2m. The directors made an implied statement about their confidence in Galliford Try’s forward prospects by pushing up the full-year dividend by 17%.

High dividend

And the dividend looks attractive. At today’s 1,373p share price, the forward yield for the year to June 2018 runs at 7% and City analysts following the firm expect earnings to advance 16% and cover the payout almost 1.8 times. As long as the UK economy and the housing market are not about to plunge into recession, I think Galliford Try looks interesting from here.

Meanwhile, London-listed German company SQS Software Quality Systems AG (LSE: SQS) reported its interim results today and they look good, with revenue at constant currency rates up just over 1% and adjusted earnings per share lifting a little over 18%.

The firm provides quality assurance services for digital business processes and reckons it delivers solutions for all aspects of quality throughout the whole software product lifecycle, driven by a standardised methodology, industrialised automation processes and deep domain knowledge in various industries. According to the directors, more than 52% of total revenue comes from digital engagements where the firm executes a digital strategy or “transformation to open up new business models”

Positive outlook

The outlook comments in today’s report are upbeat and chief executive Diederik Vos said: “We are seeing healthy demand for our service offering, with continued good performance across all our verticals.” City analysts following the company expect earnings to decline 1% this year and to advance by 5% during 2018, which throws up a forward price-to-earnings ratio at today’s 552p share price of 12.5.

The forward dividend yield runs at a little over 2.9% and those forward earnings should cover the payout a comfortable 2.7 times. I’m tempted by SQS and think it looks set to make a decent defensive dividend play from here.

The fastest way to a million

I think Galliford Try and SQS Software Quality Systems look set to perform well from where they are today, but a long-term and focused approach is key to building wealth on the stock market. If financial independence is your ambition, the Motley Fool can help and our analysts have developed this brand new free report called The Foolish Guide To Financial Independence.

It's full of tips to help you create wealth and is entirely free and available for download today with no further obligation. So, if you're determined to free yourself and achieve financial independence, click here to download the report. You've nothing to lose and it might change your life.

Kevin Godbold 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.