2 dirt-cheap dividend champions

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beer_pub-Marston's

It's been a painful year for shareholders of Marston's (LSE: MARS) as the pubco's share price has fallen over 20% in value. However, this means they're now trading at less than eight times forward earnings while kicking off a whopping 7.1% dividend yield that is still covered by earnings.

Encouragingly, there are also signs that a nascent turnaround in the company's fortunes are beginning to take hold. The company's full year trading update released Tuesday morning reported positive like-for-like (LFL) sales growth in each of its divisions as well as the opening of 19 new pubs and plans to open a further 15 in fiscal year 2018.

This is great news for the company as the sector as a whole has been fighting falling footfall and subdued out-of-home alcohol purchasing for several years now. Marston's has fought back with a twin-pronged strategy that has seen it turn tatty old boozers into family-friendly pubs, heavy on food offerings, as well as going upmarket with other pubs and bringing in plenty of craft beer options.

The group's brewing options were also a bright spot during the year to September as it shipped 6% more volume of its own brand beers than in the prior period. Adding in the acquisition of Charles Wells brewing and beer distribution rights for £55m helped drive good market share gains.  

The trading update didn't release any word on profit movement for the year as a whole but underlying earnings per share did rise 4% year-on-year (y/y) in H1. At the end of the opening half, net debt was level at £1.3bn, or 5 times EBITDA, which is in line with competitors and makes sense for what is essentially a property company. This figure will constrain huge returns of capital to shareholders but it did allow for a 3.8% rise in interim dividends.

If management's plans to increases same-store sales and open new outlets continues to work, I reckon Marston's could be an attractively priced income share right now.

Can magic be bottled again? 

Another option in the same vein is Harry Potter publisher Bloomsbury Publishing (LSE: BMY), which trades at under 13 times forward earnings and offers shareholders a 4.2% dividend yield. While Harry Potter may be celebrating its 20th anniversary, Bloomsbury continues to profit from the series as well as increasing demand for children's books in general.

In the year to February, sales of Harry Potter books were up 88% y/y and children's book sales generally were up 44%. Adult book sales growth was more modest but overall consumer sales still rose 28% to £85.4m, with pre-exceptional operating profits up 33% to £7.9m.

Good progress in the consumer division was weighed down by problems with its non-consumer division which has sought to create stable revenue growth by tapping into the market for textbooks and online learning. Sales from this division were flat at £57.2m, while operating profits fell from £7.1m to £4.1m before exceptional items.

This imbalance between the two divisions has continued into the current fiscal year but if management can finally figure out the secret to turning its non-consumer division into a source of steady growth and decent profits, the company could be an attractive growth option. But for now, the company's healthy net cash position and decent dividend could be enough for risk-averse income investors.

If you're looking for a bargain basement stock that's offering a much better track record of growth, I recommend reading the Motley Fool's free report on One Top Small Cap that trades at just eight times forward earnings. On top of this value investor friendly valuation the company has also increased earnings by double-digits four years in a row.

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Ian Pierce 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.