The Motley Fool

Stock market crash: 2 cheap dividend shares I’d buy in September

Image source: Getty Images

The stock market crash in March left many shares trading at bargain levels. Some share prices have risen since then, but I think there are still some good, cheap shares out there for investors.

Dividends are making a return to the market too. After widespread cuts earlier this year, there are now some attractive yields on offer. The two stocks I’m looking at today both offer forecast dividend yields of more than 7%. I reckon both payouts look sustainable.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

I’d ring up this 7% yield

Vodafone Group (LSE: VOD) cut its dividend in 2019, but analysts believe the group’s shareholder payout is now back on the path to growth. I’m confident too. The FTSE 100 telecom group’s forecast yield of 7.2% looks safe to me. During the stock market crash earlier this year, Vodafone was one of a small number of FTSE high-yielders not to suspend its payout.

If you’ve had a look at recent broker forecasts for Vodafone, you might question this. The latest consensus figures suggest that it will report earnings of 6.7 eurocents per share this year, but pay a dividend of 9 cents per share. Is that really affordable?

The answer lies in accounting rules that mean Vodafone’s reported profits are much lower than the free cash flow generated by its operations. Without getting into too much detail, this relates to the way that past acquisitions are accounted for.

What we need to know is that Vodafone’s cash generation remains strong. Last year, it reported an accounting loss, but still generated free cash flow of nearly €5bn. This was enough to cover the dividend twice. A similar result is expected this year.

When combined with the measures CEO Nick Read is taking to slim down and consolidate the group, I’m confident that Vodafone’s 7% yield will remain safe this year.

A stock market crash bargain?

FTSE 100 cigarette giant British American Tobacco (LSE: BATS) isn’t everyone’s cup of tea. But all the numbers suggest to me that this stock is seriously cheap at the moment.

The BATS share price has been hit hard by the stock market crash and has fallen by 20% this year. But the firm’s numbers show a much more stable performance.

During the first half of the year, the company gained an extra 0.5% market share and added 1.1m new “non-combustibles consumers”. I think this means customers buying vapes and oral tobacco pouches.

Adjusted operating profit for the six-month period rose by 3.3% to £5.4bn and the quarterly dividend was maintained. Management expects full-year profits to rise this year, even with some disruption to sales from Covid-19.

Despite this strong performance, the shares currently trade on less than eight times forecast earnings, with a dividend yield of 8.5%. My sums suggest this payout should be comfortably covered by surplus cash, as it was last year.

Although tobacco faces headwinds due to health issues and the risk of declining demand, I can’t help thinking that this is too cheap for such a profitable business. I suspect that income fund managers looking for reliable yield will gradually move into this stock, despite ethical concerns. In my view, the shares are a solid buy for dividend investors.

Did Boris Give This Stock a £50million+ Boost?

On February 3rd, 2020, Boris Johnson made a surprise announcement…

…potentially helping to grow one little-known British company’s revenues by an expected £50million+.

You probably saw this announcement in the news. But we bet you’ve never heard of the company which we believe could profit.

Get the full details here – while you have time.

Roland Head owns shares of British American Tobacco. 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.