Via Yahoo Finance

It’s a well-worn trope: shares offering a combination of low price-to-earnings (P/E) multiples and bulging dividend yields are a recipe for disaster, putting investors in danger of a nasty payout cut in the not-too-distant future.

I wouldn’t say that STV Group (LSE: STV) is a stock that falls into this category, however. Sure, it trades on a dirt-cheap forward P/E multiple of 8.8 times and boasts a jumbo 5.5% dividend yield. But in my opinion, it’s in great shape to keep growing both profits and dividends long into the future.

A Scottish play

The trading environment isn’t exactly a bed of roses for Britain’s broadcasters right now as advertising budgets remain under pressure. STV itself saw total ad sales tick 0.6% lower in the six months to June. However, the Scottish broadcaster’s resilience right now is nothing short of remarkable and the business expects things to remain so. This is why it predicts total revenues will flatline in the nine months to September versus a 6% to 7% decline for the broader market.

The numbers reflect STV’s decision to focus on the digital and regional ad markets, segments that both delivered sales growth of 19% at the firm in the first half and that should deliver strong revenues expansion once broader conditions in the ad market improve. In the meantime, the small cap can look to the huge investment it’s made in its digital operations and its production arm to keep driving the bottom line.

And City analysts agree. It’s why earnings at STV are expected to rise 7% in 2019 and 14% in 2020, predictions that lead to expectations of more dividend growth over the period too.

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Down with Brown

Can it be said that N Brown Group (LSE: BWNG) offers terrific bang for your buck like STV?

City consensus suggests that earnings should keep rising at the clothes retailer over the next couple of years, by 8% and 1% for the years to February 2020 and 2021 respectively. As a consequence, N Brown boasts a bargain-basement forward P/E ratio of 4.8 times.

What’s more, with dividends expected to grow over the period, N Brown’s prospective payout yield sits at a monster 6.5%. On paper, then, the small cap seems too good to be true. And I consider this to be absolutely true – indeed, I reckon there’s a high chance of City forecasters slashing their profits and dividend estimates possibly as soon as 10 October when interims hit the market.

It doesn’t matter that the Simply Be and Jacamo owner has invested heavily in the fast-growing internet shopping segment. N Brown is still toiling amid a broader decline in consumer confidence and in the 13 weeks to 1 June saw total revenues drop 3.8%. I fear what those upcoming six-month results will reveal, given that retail conditions have worsened over the summer.

What makes things doubly difficult for N Brown is that it is also languishing under a hulking great debt pile, one so large that whispers of another painful dividend cut are increasing. The retailer hasn’t been helped on this front either by a recent glut of PPI-related misconduct claims, ones that have prompted it to raise its full-year net debt guidance to £460m–£490m (from £440m–£460m previously).

STV and N Brown might both look great on paper but there’s only one that I’d be happy to stash in my ISA today.

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Royston Wild 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.

Motley Fool UK 2019