Are these 2 beaten-up dividend aristocrats bargain buys?

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Pearson, teacher educating schoolkids

While share prices have generally risen in recent months, a number of shares have struggled to keep pace. This could be for a variety of reasons, including internal and external challenges. In some instances, this provides an opportunity for investors to buy high-quality companies at discounts to their intrinsic value. With that in mind, is now the time to buy these two beaten-down dividend shares?

A difficult period

FTSE 100 education specialist Pearson(LSE: PSON) continues to endure a highly challenging period. Although its turnaround appeared to be on track, difficulties in some of its end markets have meant that its outlook has been downgraded. It is now expected to record a fall in its bottom line of 16% in the current year, which has helped to send its share price 18% lower since the turn of the year.

Lacklustre financial performance and a difficult outlook has also meant that Pearson will cut its dividend in the current year. In fact, it will roughly halve according to current forecasts. However, this still leaves it trading on a yield of 4%, which is around 30 basis points higher than the FTSE 100's yield. And since dividends are covered 1.8 times by profit, they appear to be highly sustainable at their current level.

With Pearson trading on a price-to-earnings (P/E) ratio of 13.5, its shares appear to be fairly valued at present. Its earnings growth is forecast to return to positive territory in 2018, which could improve investor sentiment in the stock.

Certainly, there is a long way to go regarding its turnaround. However, a strategy which focuses on cost reduction of around £275m and investment of over £700m to drive the digital offering within its products and services could quickly enhance its profitability and dividend potential in the coming years.

A bright future?

While shares in global publisher Bloomsbury Publishing(LSE: BMY) have risen by 3% since the start of the year, they are still 12% down on their pre-credit crunch level. During the same time period, the FTSE 100 has outperformed the company by around 28%, which highlights the disappointing performance of the business.

However, Bloomsbury seems to be making progress with its current strategy. It has increased dividends per share in each of the last five years, and is forecast to do likewise in each of the next two years. In fact, dividends are expected to be over 10% higher in 2019 than in 2017, which should provide a degree of protection against rising inflation. And since Bloomsbury currently yields 3.8%, its income return is already higher than that of the wider index.

Furthermore, the stock currently trades on a price-to-earnings growth (PEG) ratio of only 1.6. This suggests that after a somewhat lacklustre long-term performance, its shares could deliver index-beating performance in the coming years.

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Peter Stephens has no position in any 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.