Three dividend stocks that offer great value right now

good value dividend stocks

The FTSE 350 has enjoyed a fantastic run since the Brexit chaos last June. As a result, a lot of dividend paying stocks have risen to levels where they now look a little expensive.

Having said that, there’s still attractively valued dividend stocks to be found. Here’s a look at three dividend stocks that I believe look appealing right now.

Imperial Brands

Tobacco manufacturer Imperial Brands (LON:IMB) (IMB.L) has been an excellent dividend stock over the years. Indeed, the company has increased its dividend by an impressive 10% per year for the last eight years now, meaning that shareholders who bought the shares eight years ago would now be enjoying a dividend yield of over twice the original yield when they bought the shares. The company recently announced that it was “committed to this size of increase in the medium term”, meaning that the growth looks to continue going forward.

The market clearly has some doubts about the long-term profitability of the company, and the shares have underperformed the FTSE 100 significantly in the last six months or so. However, on a forward looking P/E ratio of 12.8 (vs 18.3 for British American Tobacco) I believe the shares now offer value.

Last year’s dividend payout of 155.2p equates to a dividend yield of 4.4% at the current share price, and with the payout forecast to rise 10% this year, the yield will advance to 4.8%. On forecast earnings of 269p, dividend coverage will be just under 1.6 times. It can pay to buy high-quality companies when they’re out of favour, and I believe Imperial’s share price fall has presented an opportunity to buy a dividend hero at a very attractive valuation.

Bellway

Looking outside the FTSE 100 index, I like the look of house builder Bellway (LON:BWY) (BWY.L) at present. The company has enjoyed strong revenue growth over the last five years and as a result, it’s dividend has increased exponentially. Indeed, over the last five years, Bellway has increased its dividend from 11.5p per share to 108p per share, a compound annual growth rate (CAGR) of an incredible 57%. While I’m not expecting that kind of dividend growth going forward, I reckon Bellway will still be able to increase its dividend between 5%-10% a year over the medium term. City analysts have pencilled-in a payout of 116p for Fy2017, giving a forward looking yield of 3.8%, with strong coverage of around 3.1 times.

The investment case from a dividend perspective isn’t risk free and it’s worth noting that in 2009, Bellway cut its dividend from 24p per share to just 9p per share. However market conditions remain ‘robust‘ according to the company and on a forward looking P/E ratio of just 8.1, Bellway appears to offer an attractive yield at a very reasonable valuation.

Saga

Lastly, I also like the look of over-50s specialist Saga (LON:SAGA) (SAGA.L). It’s always a good thing when a company has big tailwinds driving revenue growth, and in Saga’s case, I reckon the UK’s ageing population should do exactly that.

Saga paid out a dividend of 8.5p per share for FY2017, equating to a yield of 4.2%, and City analysts forecast a rise of 9.7% for Fy2018, which would take the yield to 4.6%. Dividend coverage last year was 1.7 times, indicating that the dividend is fairly safe.

Investors buying now would be in good company, as fund manager Neil Woodford recently revealed that Saga is held in his Income Focus portfolio. On a forward looking P/E ratio of 13.2, the stock’s valuation looks very reasonable.

Disclosure: Edward Sheldon, CFA owns shares in Imperial Brands. 

This article is provided for general information only and is not intended to be investment advice. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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