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3 embarrassingly cheap dividend stocks I’d buy with my last £1k

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Ibstock (LSE: IBST) is a stock whose ultra-low valuation is something that I can’t quite fathom.

The brickmaker’s share price infamously took one hell of a whack last year because of forced production shutdowns. But improving sentiment towards the housebuilding sector has carried it higher since the turn of the year (up 30% from January 1, in fact).

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Despite this uplift, the FTSE 250 firm still changes hands on a cheap forward P/E ratio of 13 times, comfortably inside the accepted value region of 15 times and below. This is mighty low given the company’s extremely bright earnings outlook, underpinned by the country’s cavernous housing shortage.

Indeed, the desperate need to get Britain building was underlined by the Chancellor Philip Hammond’s spring statement this week in which he vowed to establish an extra £3bn fund to help housing associations deliver an additional 30,000 affordable homes. And this adds to my belief that Ibstock’s bricks should keep selling like the proverbial hotcakes for many years to come.

Big yields!

Ibstock’s gigantic dividend yields of 5.1% for 2019 and 5.4% for 2020 provide more reasons to pay it close attention today. And if that whets your appetite, then Cairn Homes (LSE: CRN) is worth close attention too.

A 3.6% yield for the current fiscal year may be decent rather than spectacular, but thanks to City predictions of strong double-digit earnings rises over the next couple of years, a significantly higher dividend is forecast for 2020 and this yields an eye-popping 6.6%.

The supply crisis in Britain’s homes market is replicated across the Irish Sea, a situation that Cairn is well placed to exploit. The builder saw operating profit more than treble last year to €53.2m as it ramped up production to meet homebuyer demand in Dublin and other popular cities in Ireland. And it’s no wonder that the number crunchers are expecting the bottom line to keep swelling as construction rates rise (work is set to begin on five new selling sites in 2019 alone).

Another brilliant buy

At current share prices, Cairn can also be considered a bona-fide bargain, the firm boasting a prospective earnings multiple of a mere 5.8 times.

The final stock I’m looking at which offers the perfect blend of big dividends and great value is Hays (LSE: HAS). With City analysts expecting the recruiter’s long-running growth story to continue, it’s no surprise that dividends are expected to keep bulging too, meaning giant yields of 6% and 6.7% for fiscal 2019 and 2020 respectively.

And at recent trading levels, Hays boasts a forward P/E rating of just 12.8 times. Share pickers may be put off by continued weakness in its UK marketplace, but still-strong growth in key markets like Germany and Australia still offers plenty to cheer.

Indeed, Hays saw 20 of the 33 nations in which it operates print record performances in the six months to December. And as it invests to broaden its global footprint, I’m convinced that it should continue to thrive.

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Royston Wild owns shares of Ibstock. 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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