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This FTSE 100 dividend hero and FTSE 250 9%+ yielder are trading far too cheaply

If you’re seeking brilliant dividend bets on a budget then, as I explained in a recent Motley Fool piece, you could do a lot worse than to splash the cash on Britain’s blue-chip housebuilders.

However, these corking construction stocks are not confined to the FTSE 100. One such share that I’m tipping for big things outside the country’s premier share index is Crest Nicholson (LSE: CRST).

The FTSE 250 homebuilder isn’t exactly the flavour of the month right now, however. Its share price has declined 31% since the start of the year, worsened by a pretty uninspiring trading update released in May. Back then, Crest Nicholson said that “generally flat pricing against a backdrop of continuing build cost inflation at 3%-4%” would cause operating margins to fall at the lower end of its 18%-20% guidance for the six months to April.

Yields above 9%

I believe that the weakness of recent months represents a prime buying opportunity, and particularly when you consider Crest Nicholson’s ultra-low valuations. Right now it carries a forward P/E ratio of 5.8 times, well inside the watermark of 15 times and below which indicates very good value for money.

The combination of rising costs and dragging house prices is expected to cause earnings to fall 2% in the year to October 2018. However, with favourable lending conditions and government purchase incentive schemes expected to remain in place, and initiatives to tackle the country’s housing shortage still not forthcoming, the long-term profits outlook for Crest Nicholson and its peers remains supportive.

Indeed, the business announced in its most recent statement in mid-June that forward sales for the full fiscal year (including year-to-date completions at mid-June 2018) were up 12% year-on-year. It’s no surprise therefore that the City is expecting an 8% earnings bounce-back in fiscal 2019.

What’s more, the prospect of the business churning out really bulky dividends through to the close of next year at least adds another reason to sit up and take notice. A 33.1p per share payout is forecast for this year, up from 33p last year and yielding 8.8%. With the company predicted to return to earnings growth from next year, the predicted dividend marches to 35.3p, taking the yield to 9.4%.

Firing on all cylinders

It might yield less but, going back to the FTSE 100, I believe BAE Systems (LSE: BA) is worth a close look today.

It changes hands on a forward P/E ratio of 15 times, bang on that accepted value watermark. This is much too cheap in my opinion given its position as an essential supplier to the US and UK militaries, and the rate at which the West is likely to continue weaponising on command from President Donald Trump.

This position of strength was underlined in chief executive Charles Woodburn’s AGM statement in May in which he said that “we have a large order backlog and strong franchises with good prospects to further these positions in the coming months.” This feeds through to City predictions that BAE Systems will recover from a 1% earnings fall in 2018 with a 9% rise next year.

What with the likelihood that dividends should continue to grow, I think BAE Systems is a great pick today. In the near term payouts of 22.5p and 23.3p are projected for 2018 and 2019 respectively, figures that yield 3.4% and 3.6%.

Buy-And-Hold Investing

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Royston Wild 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.