2 dirt-cheap dividend shares to buy right now

At FTSE 100 has gone up, but I think the large cap index still contains some very low dividend stocks.

Today, I want to look at two companies on my radar – one I already own, and one I’m looking to buy.

A well-supported 8% yield

My first was a FTSE 100 tobacco giant British American Tobacco (LSE: BATS). Shares in this classic sin stock have pulled back from last summer’s highs. It currently offers an 8% dividend for 2023, based on the latest brokerage forecast.

At current levels, my numbers suggest that American British stocks are worth zero. This may be sensible, reflecting the serious health risks that smokers face.

However, the reality is that the tobacco industry has continued to grow for much longer than expected. Tobacco companies have consolidated and simplified their operations. They remain large and profitable.

BAT is expected to report an operating profit of around £12bn for 2022, with an operating profit margin of over 40%. Further increases are expected in 2023 and 2024.

Looking forward

The company used some of this cash to build a cheaper vaping business. The non-combustible product is expected to generate £5bn in sales and become profitable in 2025. Management said some vaping firms now have a market share of nearly 40% in the US.

Despite this progress, I think there are some risks that investors should consider. The only problem for me is the BAT debt.

The group has net debt of almost £40bn. Rising interest rates mean that interest payments will continue to rise in the coming years, as debt is refinanced. And I wonder if debt payments could limit dividend growth for a few years.

There is also the risk that smoking rates may fall faster than expected, putting pressure on profits.

Dividends are never guaranteed. But based on what we know now, I think BATS’s 8% yield looks safe for the next few years, at least.

Long-term options

The second option is the FTSE 100 property group English land (LSE: BLND). Commercial property is going through a rough patch right now, as investors try to understand the impact of rising interest rates. However, I think English Land will be near the top of the pile, given its strong financials and focus on high-quality London properties.

The company’s latest results show rental growth of 5% in the six months to 30 September. This helps offset lower property prices and higher borrowing costs.

Currently, British Land shares are trading at a 35% discount to their last reported book value of 695p. Although the value of the British Land property portfolio may fall further, I think this discount gives an attractive margin of safety.

Most of the group’s properties are modern and well-stocked. Finances also seem healthy to me, after several property sales in recent years.

I see it as a long-term buy today. The stock offers a forecast dividend yield of 5% and trades at a useful discount to book value. Over time, I think it is likely to be a decent purchase.