Last time I tipped Reach (LSE: RCH) as a hot dividend stock to buy I lauded the exceptional revenues opportunities afforded by its acquisition of the Express and Star newspaper titles.
Newsflow from the publishing giant has been a little less celebratory since then. While revenues rose 11% during the six months to June 2018, to £353.8m, it swung to a statutory pre-tax loss of £113.5m from a profit of £38m a year earlier, it advised in July.
This bottom line smack was caused by Reach booking a £150m impairment charge on its regional titles, a move that it said “reflects the more challenging than expected trading environment for local advertising.”
These troubles are reflected in broker estimates that are suggestive of a 1% earnings fall in 2018. Still, Reach is predicted to start bouncing back immediately with a 3% bottom line advance next year.
And it isn’t difficult to see why. Not only does its digital-led growth strategy offer plenty to get excited about from 2019 onwards, but it is also making huge strides when it comes to stripping out costs. It remains on track to deliver £18m worth of structural cost savings this year alone, £3m ahead of target.
8% yields!
This bright earnings picture is not reflected in Reach’s dirt-cheap forward P/E ratio of 2.1 times, in my opinion. Indeed, this figure, which comes nowhere near the widely-accepted bargain benchmark of 10 times, makes it a steal right now.
The share should be on the radar of all value-minded dividend investors, I feel. Thanks to its promising long-term outlook, Reach lifted the interim payout 5% year-on-year to 2.37p per share, and prompted it to confirm dividend further hikes by at least this percentage for the foreseeable future.
This leads to City predictions that the small-cap will raise the full-year dividend in 2018 to 6.1p per share from 5.8p in 2017, meaning share pickers can enjoy an 8.3% yield. The good news doesn’t end here either. Next year, a 6.4p reward is predicted, a number that drives the yield to 8.7%.
More stunning value
The newspaper giant isn’t the only 8% yielder trading far too cheaply, in my opinion.
Take Marston’s (LSE: MARS), for example. It goes without saying that the tough economic environment has clouded the outlook for many of Britain’s listed publicans. That said, this smallcap stock has shown marvellous resilience while many of its rivals have struggled.
Indeed, sales performance has picked up in the second half of the fiscal year. In the 42 weeks to July 21, like-for-like sales were up 0.3%, with comparable revenues rising 0.9% in the most recent 16 weeks, thanks in part to the good weather and the FIFA World Cup. And in the 12 weeks since April, a month which was beset with bad weather, like-for-like sales rose 2%.
Marston’s is expected to endure a 2% earnings reversal in the year to September 2018, but helped by ongoing expansion it is expected to fire back with a 5% rise next year. This means that the firm carries a forward P/E ratio of just 6.8 times, and also that dividends should continue rising as well.
Last year’s 7.5p per share reward is anticipated to rise to 7.6p this year and to 7.8p in fiscal 2019, projections that create mountainous yields of 8.1% and 8.3% respectively. The pub operator is worth a serious look at current prices, in my opinion.