The Motley Fool

2 bargain dividend stocks you can buy today

In the current environment of rock bottom interest rates and rising valuations across major indices, it’s becoming more and more difficult to find suitably attractive income investments that trade at attractive valuations. But this doesn’t mean they can’t be found, and I believe two stocks that fit the bill are mining royalty firm Anglo Pacific (LSE: APF) and cinema chain Cineworld (LSE: CINE).

Unfairly unloved by investors?

Anglo Pacific currently kicks off a 4.3% yield and trades at a relatively sedate 8.9 times consensus forward earnings. Now, interested investors should know up front that the company’s ability to pay dividends is tied to the health of the global commodity sector.

However, as the company has no debt, doesn’t do any mining itself and merely receives royalty income from miners based on production levels at its mines and commodity prices, Anglo Pacific is considerably less risky than investing directly in miners themselves. Indeed, with no debt on the balance sheet and access to $30m-$40m in cash and debt facilities, the company would face no liquidity crunch were commodity prices to fall and is actually well-placed to go out and make further investments.

The combination of this healthy balance sheet and fast rising profits should be music to the ears of Anglo shareholders as the company announced at its interim results that it plans to pay out dividends quarterly and also accelerate the payment schedule of these payouts. In the first half, earnings per share rose to 7.44p from 1.43p the year prior and free cash flow leapt over 300% year-on-year (y/y) to £18.9m. This allowed management to increase interim dividends to 3p and has led analysts to forecast a 7.2p full-year payout that would equate to roughly a 5.1% yield.

While Anglo Pacific is still indirectly reliant on high commodity prices to maintain impressive cash flow and dividends, I reckon the firm represents a less risky way for income investors to gain exposure to the industry on its current upswing.

Benefitting from blockbusters 

With its shares currently yielding 3%, Cineworld offers less income but steadier and greater growth prospects for interested investors. From 2012 to 2016 the cinema operator increased earnings per share from 19.22p to 35.2p and with solid dividend and capital appreciation potential and a valuation of only 16.9 times forward earnings, I reckon it’s well worth taking a closer look.

The chain has been growing nicely by expanding the number of cinemas it operates, periodically refurbishing existing ones to attract bigger audiences, increasing uptake of its food and beverage options and showing a slew of blockbuster films released over the past few years. In H1 2017 total revenue increased 17.8% y/y to £420m due to it adding three new sites and it saw 10% growth in admission numbers and a 22% uplift in retail sales.

This translated into earnings per share growing from 12.7p to 15.4p y/y and allowed interim dividends to rise from 5.2p to 6p. Year-end net debt is expected to be around £265m, which is a very comfortable figure given full-year 2016 EBITDA hit £175.8m and H1 2017 saw EBITDA rise a whopping 19.6% y/y.

With expansion at home and overseas going well, robust margins and cash flow and an attractive valuation, Cineworld could be a great long-term option for both income and growth investors alike.

But if Cineworld is still too pricey for you, I recommend reading the Motley Fool’s free report on one Top Small Cap trading at just eight times earnings. This bargain basement valuation doesn’t equate to low growth though as the firm has increased earnings by double-digits four years in a row.

All you need to do to discover this under-the-radar value and growth stock for yourself is follow this link for your free, no obligation copy of the report.

Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK owns shares of Anglo Pacific. 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.