Two 5% dividend stocks that could beat the FTSE 100

Today I'm looking at two dividend stocks that have each fallen by 20% over the last month.

Although each company faces specific problems, I believe that both of these unloved growth stocks have the potential to beat the FTSE 100 over the next year.

Accounting questions

Shares of aviation services group Air Partner (LSE: AIR) fell by 20% when markets opened on Tuesday after the firm said it had found some historic accounting errors. It seems that a number of bad debts may not have been properly accounted for.

Investigations are still at a preliminary stage, but today's statement suggests to me that past years' profits may have been overstated. The company says that "uncollected receivables" (bad debts) were offset against pre-payments from customers, rather than being written off against profits in the appropriate financial year.

The total amount involved is said to be £3.3m, and the period affected stretches from the 2010/11 financial year until 31 January 2018. To put this into context, the firm's annual profits have been between £2m and £5m per year during this period.

A bargain buy?

Today's statement stresses that these accounting issues don't have any impact on the group's cash position and haven't disadvantaged any of its customers or suppliers. I don't see any reason why these issues should affect future profits or cash flow either.

However, it's worrying that these issues have arisen in the first place, as they suggest poor accounting standards.

After today's fall, the shares trade on a forecast P/E of 13 with a prospective yield of 4.7%. Although I don't think there's any need for shareholders to sell, I'm not sure the shares are cheap enough for me to buy until we know more about this issue.

Printing a profit

Shares of FTSE 250 banknote and identity document firm De La Rue (LSE: DLAR) have fallen 20% since the start of March. The main reason for this was news that the company has lost the contract to produce UK passports.

The current 10-year contract expires in July 2019 and has a value of £400m. I estimate that this is equivalent to between 5% and 10% of annual revenue each year for the company, which is expected to report sales of £505m and a net profit of £48m for the year ended 25 March.

A contrarian buy?

Press reports suggest that De La Rue plans to appeal against the decision to award the contract to French-Dutch firm Gemalto. But even if the appeal is unsuccessful, I believe the shares could be a contrarian buy at current levels.

The business remains out of favour, thanks to a £191m pension deficit and a forecast for earnings to fall by 8% in 2018/19.

But the pension deficit has fallen by almost half since September 2016 and is expected to shrink by a further £70m this year. The group's profits have also staged a strong recovery since 2016.

Analysts have pencilled in earnings of 43.4p per share and a dividend payout of 26.9p per share for 2018/19. These figures put the stock on a forecast P/E of 11.7 with a prospective yield of 5.3%. I think the shares could be a long-term buy at this level.

Buy-And-Hold Investing

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Roland Head 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.

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