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Are BT Group plc and this 5% dividend stock bargains of the year?

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These are glory days for income seekers with the FTSE 100 trading on a yield of 4.1%, while these two dividend payers offer an even more generous yield than that.

Bad call

Telecoms giant BT Group (LSE: BT-A) currently pays an astonishing 6.47% income with cover of 1.8, but as so often is the case, the sky-high yield flags up underlying problems. The group’s share price peaked at 500p in December 2015 but trades at just 237p today.

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The rot started with irregularities at its Italian business and only worsened when the scandal turned out to be worse than originally thought (don’t they always?). As my Foolish colleague Kevin Godbold points out here, BT continues to struggle with a £9bn debt mountain, stiff industry competition, and the need to constantly restructure to drive down costs and comply with regulator Ofcom’s demands.

February’s figures showed a 3% drop in revenues and adjusted earnings across the three months to 31 December amid weaker trading in its Global Services division, and falling monthly revenues from mobile users. 

Italian job

This leaves the group trading at a forecast valuation of just 8.5 times earnings, deep into bargain territory. Investors should not bank on a spectacular comeback as earnings per share (EPS) are forecast to grow just 3% in the year to 31 March 2019, and 1% the year after. Competition is likely to intensify, rather than weaken. By then, the yield is forecast to hit 6.9%, provided it is sustainable.

Union approval to close its final salary scheme should offer some relief and unlike its telecoms rivals, BT should benefit from higher interest rates, which will shrink its £9bn pension deficit. A fix for its Italian problems and EE synergies could also boost growth. All of this may take time, but while you wait, there is that dividend.

Steady Eddie

Here’s a much smaller stock that is also trading at a bargain valuation, and with a juicy dividend to match. Eddie Stobart Logistics (LSE: ESL) has just announced full-year results for the 12 months to 30 November 2017, with a headline 9.4% increase in group revenues to £623.9m, and underlying EBIT up 17.4% to £48.5m, although operating profit fell by 1% to £26.6m.

The £450m logistics group has had a bumpy ride lately, its share price falling 20% in the last three months, with only the slightest of recoveries on today’s announcement. Yet chief executive Alex Laffey hailed “significant progress” in its first year as an AIM-listed stock, with strong underlying revenue growth, £41m of existing contracts renewed and £89m of new volume. It also completed acquisitions of iForce, Speedy Freight and Logistic People.

Rolling, rolling

The board proposed a final dividend of 4.4p, making a total of 5.8p for the full year, in line with its progressive dividend policy. 

The stock currently offers a generous forecast yield of 5.3%, with cover of 1.8. Fellow Fool Jack Tang has previously highlighted its low valuation and attractive yield. Its EPS are forecast to rise an impressive 20% over the year to 30 November 2018, then another 13% the year after that, when the dividend will hit 5.9%. Eddie Stobart looks set to carry on trucking.

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Harvey Jones 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.

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