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2 high-yield stocks on attractive valuations

2014 has been a rather mixed year for investors in Adelaide Brighton Ltd. (ASX: ABC) and Automotive Group Holdings Ltd (ASX: AHE), with the share prices of the two companies switching between the red and the black throughout the year. Indeed, Adelaide Brighton is currently down 2% year-to-date, while Automotive Group is up 6%. Neither move is particularly impressive given that the wider index has gained 5% over the same time period.

However, both companies have decent future potential and offer big fully franked yields. As such, they could beat the ASX moving forward.

Income prospects

The most obvious place to start with both companies is their dividend yields. As mentioned, they’re 100% franked and currently stand at 4.6% (Adelaide Brighton) and 5.4% (Automotive Group). On an after-tax basis, they equate to yields of 3.6% and 4.3% respectively, which when interest rates are just 2.5% is a big draw for income-seeking investors.

Re-rating potential

However, there’s much more to both stocks than just an impressive yield. Indeed, they offer great value for money at current price levels. For instance, Adelaide Brighton currently trades on a P/E ratio of 14.9, while Automotive Group’s P/E ratio is even lower at 13.7. Crucially, both are considerably below the ASX’s P/E ratio of 16, which highlights the potential for an upward revision to their ratings moving forward. This could allow them to make gains relative to the ASX in future years.

Looking ahead

Although neither stock looks set to manage double-digit earnings growth over the short to medium term, they appear able to hold their own when it comes to bottom line increases. Adelaide Brighton is due to increase its earnings at an annualised rate of 5% over the next two years, while Automotive Group’s earnings per share are forecast to increase by 9.2% per annum over the same period.

If met, both of these growth rates would be improvements on their historic records. Over the last five years, Adelaide Brighton has managed annualised growth in earnings of 3.2% and for Automotive Group the figure is higher at 5.9%.

Therefore a potential upward re-rating and relatively high yield could help Adelaide Brighton and Automotive Group beat the ASX over the medium term.

However, they're not the only stocks that could do so. In fact Motley Fool investment advisor Scott Phillips has hand-picked 1 ASX dividend stock with outstanding potential. Just click here to download your free copy of "The Motley Fool's Top Dividend Stock for 2014-2015" today.

Motley Fool contributor Peter Stephens does not own shares in any of the companies mentioned.

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