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Digging for treasure: Are these diamonds in the mining services rough?

These companies are paying great dividends and are forecasting strong growth in the year ahead – just the ticket for your portfolio.

Many investors are scared to enter the sector, worried about another debacle like Forge Group – but trawling through the bottom of the barrel can throw up a number of opportunities. And let’s face it – if you want to beat the market, you can’t follow the herd and expect to outperform.

And more than a few of the companies labelled with the mining services tag have very little to a small amount of exposure to the resources industry.

Here are four cheap construction and engineering ideas for you…

Brierty Limited (ASX: BYL)

My top stock pick for September, Brierty is currently trading on a P/E ratio of 7x and paying a 4.8% fully franked dividend. The company also recently declared a fully franked special dividend of 8 cents per share to release surplus franking credits – although a black mark was raising $8.25 million in a placement to pay for it. Brierty also has more than 2 years’ worth of work in hand, with $27 million in cash and little debt.

WDS Limited (ASX: WDS)

WDS pays dividends on a quarterly basis, unlike most ASX-listed companies, and paid a fully franked dividend yield of 9.6% in 2014. Grossed up, that’s a return of 13.7%! Shares look cheap, currently trading on a P/E ratio of 8x, and the company has net cash of $18 million at the end of June. The company has plenty of work in hand across both its mining and energy divisions and says it’s well positioned for profitable growth.

Watpac Limited (ASX: WTP)

Currently trading on a P/E ratio of just 10x, Watpac is also paying a 50% franked dividend yield of 6.1%. At the end of June 2014, the company had $1.84 billion in work in hand, and cash of $190 million (which incidentally is less than its market cap of $179m), although it does have debt of $75 million – most of which is finance leases for the equipment it utilises. That cash balance could rise too, with $41 million worth of property earmarked for sale over the next three years.

GR Engineering Limited (ASX: GNG)

Trading on a P/E ratio of 10.2x and paying a fully franked dividend yield of 7.4%, GR Engineering posted an 89% rise in net profit for the 2014 year, despite flat revenues. The company has net cash of $36.9 million and is forecasting growing revenues this financial year, with recent acquisitions to add further growth in the years ahead.

Man who said buy Kogan shares at $3.63 says buy these 3 ASX stocks now

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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