1 turnaround dividend stock I'd buy alongside BT Group plc

Electrical goods retailer Dixons Carphone(LSE: DC) delivered its interim results this morning and the shares are up around 5% as I write. The market likes what it sees, but we need to view today's outcomes in the context of the stock's plunge of more than 60% since the beginning of 2016.

A profit warning in August revealed sales were sliding due to fewer customers upgrading their phones and holding on to handsets for longer. In today's report, chief executive Seb James assured us that the firm is taking action to adapt the business model with regard to the mobile division and "will update the market on these developments in due course." In the meantime, it looks like the firm cut prices in an attempt to prop up sales and "this has impacted mobile profitability."

Profits down, sales up

Profits are, indeed, a car crash, but one that investors saw coming. Profit before tax came in at £61m, down from £154m for the equivalent period last year with earnings per share sinking 60% too. But whenever a stock gets hammered on the market I reckon forward-thinking investors start looking for the turnaround, and there are plenty of positives to cling to in the figures.

Overall, like-for-like revenue lifted 4% in the first half of the trading year compared to last year, made up of a 7% advance in sales of electricals and a decline of 3% in the troubled mobile arena. The company managed to convert revenue into a free cash flow improvement of 164% to £169m, pointing to the drivers of a reduction in year-on-year capex, improved stock management and favourable timing on working capital. Importantly, the dividend held steady at last year's level.

Although the firm's extensive estate of dedicated mobile phone outlets may be problematic, the rest of the business is performing well with gains in market share. If profits start to rebuild as the directors reshape the mobile operation, early turnaround investors could be rewarded, and I think the firm is well worth your research time right now, given the dividend yield running around 6% at today's share price near 175p.

Challenged but cheap

BT Group(LSE: BT.A) is another interesting high-yielding stock that's been pummelled by the market. Today's share price of 269p or so throws up a yield just under 6% for the current trading year after a decline in the share price of around 45% since early 2016.

The valuation numbers make the stock look cheap, but BT faces ongoing regulatory pressure, high debts and almost continuous restructuring in a bid to push down costs. However, in November's half-year report, the directors confirmed their ongoing commitment to a progressive dividend policy, even though the future interim payment will be fixed at 30% of the full-year dividend, a smidgeon below this year's level.

City analysts following BT expect earnings to ease 5% for the current year to March 2018 and then bounce back by 2% the year after that. As with Dixons Carphone, I'm tempted to buy shares because they look cheap, but before buying into either stock I'd try to ensure that the downward trend in the share prices has halted and the charts are turning up.

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Kevin Godbold has no position in any of the shares mentioned. 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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