2 cheap dividend stocks I'd buy today

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beer_pub-Marston's

Finding the market's best dividend stocks is one thing, but finding the market's best dividend stocks trading at cheap valuations is another thing altogether.

Indeed, high-quality dividend stocks tend to trade at a premium to the rest of the market as investors are willing to pay up to get their hands on the secure income stream.

However, two dividend champions have recently fallen out of favour with the market for non-dividend-related reasons, and the shares now look cheap.

Consumer concerns 

Over the past 12 months, shares in Marston's(LSE: MARS) have lost nearly 10% of their value excluding dividends thanks to concerns about consumer spending following Brexit. Rising inflation and falling wage growth will put pressure on consumers' discretionary income, which is bad news for pubs and restaurants. 

Despite these concerns, Marston's management remains cautious but upbeat, and the City seems to have adopted the same attitude. After reporting several years of consecutive high single-digit and double-digit earnings growth, for the fiscal year ending 30 September 2017, City analysts are expecting Marston's to report earnings growth of 3%, followed by growth of 5% for the following fiscal year. These lower forecasts warrant a lower valuation. The shares currently trade at a forward P/E of 9.8, down from the firm's historical average of around 12.

Nonetheless, even though Marston's growth is expected to slow, the company's dividend remains well covered by earnings per share. The payout of 7.6p is covered 1.9 times by EPS of 14.4p, and at the current share price of 141p, the shares support a dividend yield of 5.4%.

Dividend remains safe 

Following regulators' decision to clamp down on CFD trading, shares in CMC Markets(LSE: CMCX) lost around half of their value, and since this ruling, the shares have struggled to recover lost ground. 

Year-on-year shares in the company are down by 53% excluding dividends, and it is easy to see why investors have rushed for the exit. City analysts expect the company's earnings per share to fall by 30% for the fiscal year ending 31 March 2017 and a further 30% the following fiscal year. Still, despite these earnings declines, CMC's dividend looks safe. Specifically, for the financial year ending 31 March 2018, the company is projected to earn 9p per share and pay out 5.2p per share in dividends. 

Based on these forecasts the shares currently support a forward dividend yield of 4.5% trade at a forward P/E (based on fiscal 2017 figures) of 9.5. 

Overall, even though CMC's earnings are expected to collapse over the next two years, the dividend payout will remain well covered by earnings per share and looks safe for the time being. If the regulatory impact on CFDs is not as bad as expected, there could even be substantial earnings forecast revisions on the cards as analysts rush to readjust their outlook for the firm. 

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Rupert Hargreaves 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.