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2 dividend stocks that are dirt cheap right now

Businesswoman calculating finances in an office
Businesswoman calculating finances in an office

With inflation still high and growth companies out of favour, owning at least a few dividend stocks right now makes sense to me. This is especially when they can be picked up on the cheap.

10% yield!

I continue to hold a position in laser-guided equipment manufacturer Somero Enterprises (LSE: SOM) for a number of reasons. One of the most prominent of these is that it’s a fantastic source of income.

Analysts currently have the company returning 43p for every share I own in the current financial year. Using the share price at the close of play on Friday, that translates to a stonking dividend yield of over 10%. That’s probably high enough to wipe out inflation. No small feat.

Based on recent trading, I think this payout looks pretty secure. Back in September, Somero announced record revenues for the first half of 2022. Boosted by a “very strong US market“, it also made no change to guidance for the whole year.

Fear priced in?

Having fallen by a third in value in 2022, Somero changes hands for a seriously low price-to-earnings (P/E) ratio of just under seven. Why so cheap? Well, this is undoubtedly a cyclical stock that could suffer if trading drops off a cliff as we enter a protracted recession.

The question is how much of this fear is already priced in? I suspect quite a lot, but I could easily be wrong. So while I am getting interested in adding to my position in this high-margin, financially robust, market-leading business, I’m also conscious of the need to stay adequately diversified.

Trading well

Some of that diversification could come from international banking, investment and wealth management firm Investec (LSE: INVP). It provides services in both South Africa and the UK.

What’s interesting about the FTSE 250 member is that its shares have actually been rather resilient in 2022, rising 10%. That’s in sharp contrast to other London-listed asset managers, no doubt helped by the fact that Investec focuses solely on supporting high net worth individuals.

Despite this, the shares still change hands for 8 times earnings. Again, this looks pretty cheap.

The income stream is also attractive. While not as high as Somero, the 5.8% yield is projected to be covered more than twice by profit. This makes it a relatively safe bet.

I say relatively because dividends are never guaranteed. As evidence of this, Investec cut its payout in half in 2020. On a more positive note, this reduction proved to be temporary and the company is now back to consistently hiking its cash returns every year.

More to come?

Half-year results are due later this month. Taking the company’s last update into account, I don’t think holders have anything to fear.

Investec said it expected adjusted operating pre-tax profit for the six months to the end of September to come in between £372.6m and £406.2m. Despite a “volatile macro environment“, that’s a big increase on the same period in the previous year (£325.7m).

I don’t expect the shares to rocket on the day but a number near the top end of expectations could certainly see more investors buying in.

Regardless, I’d be interested in acquiring a stake in this company for the income if and when funds are available.

The post 2 dividend stocks that are dirt cheap right now appeared first on The Motley Fool UK.

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Paul Summers owns shares in Somero Enterprises. The Motley Fool UK has recommended Somero Enterprises, Inc. 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.

Motley Fool UK 2022