I love searching for high-yield dividend stocks to add to my Stocks and Shares ISA. With my passive income, I have more financial firepower to buy stocks to accelerate the compounding process and grow my portfolio.

I especially like buying beaten-down dividend shares when they command big discounts. The idea is that I could also achieve substantial capital gains if their share prices recover over time.

2 high dividend stocks

The FTSE 100 and FTSE 250 indices continue steadily rising. But a number of top passive income stocks still carry sky-high dividend yields and trade on rock-bottom price-to-earnings (P/E) ratios.

A couple in particular have caught my eye. These are OSB Group (LSE:OSB) and ME Group International (LSE:MEGP). The problem is, many dirt-cheap shares have low valuations for a reason right now. The question is, do the benefits of buying these cheap dividend stocks outweigh the risks?

Cash machine

ME Group International operates 49,000 self-service machines across 16 European and Asian countries. Think automated units like washing machines, photo booths, and drinks machines.

This is a highly cash generative model which can make the stock ideal for dividends. Customers use cash or card to pay for their services upfront, providing immediate cash. And once they’re installed, they require little capital to keep going.

The problem is ME is facing challenges as the Middle East conflict impacts travel in key markets and with it photo booth revenues. Its share price slumped in July after it warned on profits and has remained largely subdued since.

The good news for bargain lovers is ME’s valuation has collapsed. Its forward P/E ratio is 8.5 times as of today. The firm’s dividend yield’s also shot up to 6.6%.

Does this represent an attractive dip-buying opportunity to consider? I think so. Its net cash of £7.5m means ME Group’s in good shape to pay the near-term dividends City analysts expect.

Over the long term, I expect earnings to rise strongly as the firm rapidly grows its high-margin laundry business.

7.5% dividend yield

OSB is a specialist mortgage provider. Its operations including writing residential loans for buy-to-let landlords and the self-employed, and providing finance to specialised sub-sectors where manual underwriting and bespoke application reviews are needed instead of automated scoring.

But this is a tough sector to operate in today. OSB’s share price dived in August when rising impairments and higher costs caused H1 profits to fall. It’s also facing the squeeze as competition in the deposits market forces it to offer higher rates to savers.

The question is, are OSB shares now so cheap they deserve serious attention? The bank’s forward P/E ratio has tumbled to 6.7 times. Meanwhile, the dividend yield has pumped up to 7.5%.

The tough economic backdrop and growing competition makes OSB a riskier pick in my view than many other dividend stocks, including ME Group. Rising interest rates should boost the bank’s net interest margins (NIMs), but then they will also heap more pressure on the worsening housing market.

OSB’s disciplined underwriting should leave it in a much better position than peers. But given those dangers, I think risk-averse investors might want to consider other dividend stocks, including the income hero discussed in the free wealth report below.

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Royston Wild does not hold any positions in the companies mentioned.