One of the most appealing things about the UK stock market is its reputation for generous dividends. Right now, there are plenty of shares trading on low valuations while offering chunky yields. For income-focused investors, that combination can be particularly attractive.
To gauge whether a share is undervalued, I usually start with ratio metrics such as price-to-earnings (P/E) or price-to-sales (P/S). A low multiple compared with peers can often signal that the market’s overlooking a stock’s potential.
The trick, of course, is figuring out whether there’s a realistic path to recovery. With that in mind, here are two UK shares I think look cheap and carry dividend yields high enough to warrant serious consideration.
WPP
WPP‘s (LSE: WPP) one of the world’s biggest advertising and communications companies, managing brands and campaigns across digital, media and PR. The stock’s suffered a torrid 2025, with the share price halving to around £4.
On the income front, it currently offers a jaw-dropping 10% dividend yield. However, the payout ratio’s sitting at 90%, which is high and leaves limited room for error. If debt obligations take priority, investors may have to brace for a potential cut. Debt’s already weighing heavily on the balance sheet, with borrowings of £6.75bn – almost double the company’s equity.
That said, there are reasons to think this might be an early-stage turnaround. Earnings have improved by 89% year on year, suggesting operations could be stabilising. The valuation looks dirt cheap as well, with a price-to-earnings growth (PEG) ratio of 0.12 and a price-to-sales ratio of just 0.3.
If WPP can keep the momentum going, today’s low price may end up being a bargain.
Mears Group
Mears Group (LSE: MER) operates in social housing, providing maintenance, repairs and care services to local authorities and housing associations across the UK. It’s not the most glamorous sector, but the company does have a strong foothold in essential services.
The shares currently yield 7.7%, underpinned by a much healthier payout ratio of 48.7%. That suggests the dividend’s more sustainable than WPP’s. Trading at £3.54, the share price has been flat this year, but the valuation looks appealing. The P/E ratio’s just 6.3, while the P/S ratio sits at a low 0.26.
Financial performance has been mixed. Revenue slipped 2.8% this year, but earnings growth surged 36%, which shows the business is finding ways to be more efficient. The risks come from thin margins. Its net margin is only 4.28% and it has a relatively high debt-to-equity ratio of 1.63. With that limited buffer, there isn’t much room for mistakes if market conditions turn sour.
Final thoughts
Both of these companies offer attractive dividend yields combined with early signs of improving performance. I think both names are worth considering as part of a diversified income portfolio.
But as always, some caution is necessary. WPP’s debt pile and high payout ratio raise questions over sustainability, while Mears faces risks from thin margins and leverage.
Still, in today’s market, they offer two of the best value and income opportunities I’ve seen. For those hunting yield, these could be cheap shares with recovery potential written all over them.
