Even after this past month’s wild market gyrations, many stocks still look pricey in relation to their earnings and dividends. But in an expensive market like this, you can still find attractively valued dividend stocks if you know where to look.
With this in mind, today I’m going to take a look at two FTSE 250 stocks which seem to offer both enticing valuations and dividend appeal.
Tate & Lyle
First up is food ingredients maker Tate & Lyle (LSE: TATE). The company, which sold its sugar refining business in 2010, now makes its money from selling ingredients such as sweeteners, texturants and fibres to food manufacturers.
It has had a difficult few years amid a price war in the sucralose market, but has since made great efforts to diversify away from the commodity. With the launch of new products in the bulk ingredients business, Tate & Lyle has delivered broad-based volume growth, along with steady margin improvement.
What’s more, although market conditions remain challenging in North America, competition in most markets has eased considerably, leading to a stabilisation in prices. Free cash flow has also improved noticeably, leading the company to resume dividend growth for the first time since 2015.
Improving outlook
Turning to the outlook, total dividends per share are expected to grow from 28p in 2017, to 28.6p this year, giving prospective investors a dividend yield of 4.9%.
On the earnings front, Tate & Lyle expects underlying pre-tax profits for the full year to be ahead of previous expectations. City analysts currently have forecasts for the company to record a rise in adjusted earnings of 3% this year, with further growth of 2% forecast for next year. As such, valuations are undemanding, with shares trading at 11.3 times its expected earnings in 2019.
esure
Meanwhile, in the motor insurance sector, esure (LSE: ESUR) offers even more income, with a prospective dividend yield of 5.6% next year.
The internet and telephone-based insurer is often overlooked by its larger rivals, but the company deserves more attention than it gets. esure has a strong track record of profitability and looking ahead, it seems well placed within to cope with changes affecting the insurance sector compared to its peers.
The company has been less badly affected by the UK government’s recent change in the Ogden discount rate, which increased the cost of personal injury claims, due to its lower-risk approach to underwriting and conservative reinsurance programme. And as it emerges from a relative position of strength, it’s well placed to benefit from stronger pricing in premiums going forward.
Double-digit earnings growth
Looking ahead, City analysts offer upbeat forecasts on earnings growth. Although adjusted earnings is set to have fallen by 3% in 2017, they expect a strong rebound in 2018 and 2019, with earnings growth of 12% and 10%, respectively.
Despite this, valuations are inexpensive, with a 2018 forward P/E of 11 comparing favourably against the sector average of 13.1.
