2 cheap dividend stocks for patient investors

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Aggreko heating and drying equipment

Times have been tough for holders of stock in mobile power solutions provider Aggreko(LSE: AGK) and bookmaker WilliamHill(LSE: WMH). However, for those with long investing horizons and a penchant for dividends, I think both companies warrant attention.

Power-saving

Since August last year, FTSE 250 constituent Aggreko's shares have lost almost 20% of their value. While today's interim numbers are unlikely to see the stock rocket any time soon, the fact that full-year guidance remained unchanged does suggest that the company may be starting to turn the corner.

Excluding the impact of currency and pass-through fuel, the Glasgow-based company recorded revenue of just under £800m in H1. If problematic legacy contracts in Argentina aren't counted, this amounts to a rise of 6%.

While lower pricing on the aforementioned contracts caused pre-tax profits to come in 11% lower (at £63m) than that reported over the same six-month period in 2016, these figures were nevertheless in line with market expectations.

Thanks to its efforts to reduce working capital, Aggreko reported "strong" operating cash inflow of £184m over the interim period, comparing favourably with £100m in H1 2016. CEO Chris Weston also remarked on his confidence that recent changes to the business (the enhancement of its products, customer experience improvements and £100m in cost reductions) would allow Aggreko to grow this year.  

While it may take some before the £2.2bn cap fully recovers, its status as a market leader should not be forgotten. In the meantime, its shares come with a decent 3.2% forecast yield, fully covered by profits. At 15 times forecast earnings for this year, reducing to less than 14 in 2018, I think the shares look good value.

Ready to recover?

I've not been a fan of William Hill for some time. A combination of failed mergers and apparent lack of strategy reduced my confidence in the company and its management. Based on the performance of its share price, it seems I wasn't alone. Before today, Hill's shares were down 24% since last August.

Today's interim numbers were an indication that the company is beginning to step in the right direction, however. Over the 26 weeks to 27 June, revenue at the bookmaker grew 3% to £837m, with a rise in new customers leading CEO Philip Bowcock to declare that the company's focus on improving its products and marketing had been successful.

While a 7% fall in pre-tax profit to £93.5m (blamed on "poor football results" and a lack of major tournaments) wasn't pretty, Hill's online offering continues to show positive momentum with amounts wagered rising 13% and UK gaming net revenue climbing 9%. Modest revenue growth of 3% was also seen in its retail division.

Like Aggreko, it's clearly going to take time for William Hill to bounce back. Nevertheless, I'm encouraged by the fact that it remains on track to deliver £40m of annualised efficiency savings by the end of December. As a company, Hill still generates a huge amount of cash (operating cash flow of just over £115m at period end) and debt levels look under control. A possible relaxation of US gambling laws could also transform the company's prospects over the pond.

Trading at just 11 times predicted earnings, shares in the company still look very fairly priced, even after today's encouraging 10% rise. Perhaps most importantly for income hunters, there's also an enticing forecast 5.3% yield on offer, reasonably covered by profits.

10 steps to £1,000,000 

Dividend investing may not get the heart pounding, but studies show that the simple process of receiving and reinvesting bi-annual or quarterly payouts remains an excellent strategy for building wealth over the long term.

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Paul Summers 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.


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