2 undervalued dividend champions

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Crest Nicholson

Following a rocky year, shares in CMC Markets(LSE: CMCX) are rising today after the company issued a robust first-half trading update. 

Indeed, according to the update, profitability in the first half is "significantly higher than the same period in 2017 with both net operating income and revenue per client higher." This comes despite a "small decline in active clients," which "reaffirms the firm's continuing focus on high-value, experienced clients."

However, while the company has made a good start to the year, regulation remains a key focus for the business and "despite profitability in H1 2018 being significantly higher than the same period in 2017, the firm remains cautious about the future outlook given the ongoing regulatory uncertainty."

CMC is concerned about regulators' desire to crack down on the use of CFD products by inexperienced investors. The company is one of the biggest CFD providers in the UK, so it has a lot at stake here. 

Still, I believe that despite the concerns, CMC continues to look attractive as an investment.

Impressive dividend yield 

City analysts are only forecasting a 9% decline in earnings per share for the year ending 31 March 2018, followed by a decrease of 3% for the following fiscal year as CMC's exposure to high net wealth clients should provide some insulation. 

With this being the case, after the recent declines, shares in the financial services firm look undervalued today. Specifically, the shares trade at an EV to EBITDA ratio of 6.9, compared to the financial services industry median of 11.6 and a forward P/E of 12.5, compared to the industry median of 15. 

On top of this, CMC also offers a market-beating dividend yield of 5.1%, and the payout is covered 1.5 times by earnings per share. 

Best buy in the sector? 

CMC isn't the only dividend champion that I believe is worth buying today. Homebuilder Crest Nicholson Holdings(LSE: CRST) has established itself as one of the UK market's top income stocks during the past few years and right now, the shares look too cheap to pass up. 

At the time of writing, shares in the homebuilder are trading at a forward P/E of 7.7. Earnings per share growth of 9% is projected for the fiscal year ending 31 October, followed by growth of 12% for the following period. Based on these estimates, the shares are trading at a 2018 P/E of 6.8. 

The company pays out around half of its earnings to investors via dividends, which implies that shareholders a set to receive a yield of 7.6% next year. 

Crest's shares seem to have come under pressure due to the general concerns about the state of the UK housing market. After years of growth, some analysts are now worried that the market is overstretched. The entire sector trades at a low valuation for this reason, but few stocks are as cheap as Crest. For example, Bovis Homes, Barratt Developments and Taylor Wimpey trade at forward P/Es of 12.6, 9.3 and 9.3 respectively, on average 35% higher than Crest's valuation.

Dividends are the key to success

Overall, I believe that Crest and CMC are two of the market's most attractive, undervalued income stocks.

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Rupert Hargreaves owns no share 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.