The opportunity

Anglo Pacific is a mining company that doesn’t do any mining. That may sound odd at first, but it’s actually quite brilliant. The firm provides funding for other mining businesses – like Rio Tinto and BHP Group – to develop and operate new sites in exchange for royalties in the form of minerals dug up from the ground.

I’ve previously explored how Anglo Pacific’s unique business model creates extraordinary levels of profitability within an industry that has virtually no pricing power. Since then, two new pieces of information have been released – third-quarter earnings, and an exciting announcement for shareholders.

The earnings report mostly followed expectations, with a slight decline in royalty revenue from £6m to £5.7m. This reduction hardly good news. However, the cause is mainly due to a longwall change out at the Kestrel mine in Australia.

Put simply, the mine was extended and fourth quarter royalties are expected to see an increase in production.

Another change out is planned for Q3 2021. It is expected to cause a similar level of disruption but once again, will further increase the production of the site.

A more impressive result is that two sites extracting uranium and vanadium saw a triple percentage growth of 117% and 131%, respectively. Despite the massive disruptions from Covid-19, both minerals – in addition to copper and iron – are reaching multi-year highs in value.

Share buyback scheme

Beyond earnings, it successfully completed a £5m share buyback scheme. As a reminder, share buybacks are an alternative to dividends, as a method of returning profits to shareholders. Buying back shares reduces the number of shares available on the market and thus increases the value for existing shareholders.

Therefore, since Anglo Pacific has around 180m shares outstanding, the firm indirectly paid a dividend 2.8p per share. This is in addition to the direct dividend payments of 1.75p due on 13th November 2020 and 17th February 2021.

At the current stock price of £1.03, collectively these payments represent a 6.1% return on investment over the next three months.

The bottom line

The closure of mines back in March had a significant impact on operations. As such, the stock is unlikely to achieve its historical double-digit growth this year. However, the performance loss is not due to a problem with the company but rather a pandemic that affected the entire world.

Of course, this is only my opinion. But it also appears to be similar to the views of the management team. Several of the board members – including CEO Julian Treger – have been buying up shares over the past month.

In light of all this new information combined with an incredibly attractive share price, I have doubled my stake in the business in my attempt to get rich.

The post How I’d invest £1,000 today and get rich appeared first on The Twelfth Magpie.

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Zaven Boyrazian owns shares in Anglo Pacific. The Motley Fool UK has recommended Anglo Pacific. 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.

In my opinion, that’s still true today. In this piece, I’m going to take a look at two stocks where big dividends are a top priority for management.

This firm is returning $10.4bn to shareholders

My first pick is FTSE 100 commodity giant BHP Group (LSE: BHP). This £86bn Anglo-Australian firm can trace its roots back to 1851. Last year, it sold $43bn of resources, mostly iron ore, oil, gas, copper and coal.

The company is currently in the final stages of returning $10.4bn to shareholders from the sale of its US onshore oil fields last year. Of this cash, $5.2bn has been used to buy back shares, while the other $5.2bn is being paid out as a special dividend of $1.02 per share.

City analysts’ consensus forecasts indicate that BHP is expected to pay a total dividend of $1.77 per share for the 2018/19 financial year, which ends in June. This gives the stock a forecast yield of about 8.5% at current levels.

Why I’d buy

I should point out that this payout is exceptional. Last year, shareholders received a more modest payout of $1.18 per share. Forecasts for 2019/20 are at a similar level. However, this still suggests a tasty 5.5% dividend yield.

Commodity profits will always depend on market prices for raw materials, such as oil and iron ore. But BHP benefits from owning a number of large, low-cost assets that provide good cash generation, even at lower prices. Debt levels are low and spending seems to be under control. I rate these shares as a buy for income.

This could be a cash machine

If you’re looking for a smaller business with greater growth potential, one stock I’ve invested in is mining royalty firm Anglo Pacific Group (LSE: APF). This company makes money by providing upfront cash payments to mine owners, in return for a percentage of future sales.

For mining operators, royalties can be a useful source of funding. For Anglo Pacific shareholders, they’ve provided an attractive income.

Figures released today suggest that 2019 could be another good year. Anglo Pacific shares were 5% higher at the time of writing after the firm reported a record portfolio income of £48m-£50m in 2018. The company says that the dividend for 2018 will be “not less than 7p” per share, giving a yield for last year of at least 4.6%.

The group’s biggest source of income is a stake in the Kestrel coal mine in Queensland, Australia. This generated about 75% of income during the first half of last year. There’s some risk here — Anglo Pacific’s royalty interest doesn’t cover the entire Kestrel mine. If the mine’s owners choose to develop other areas in the future, Anglo’s income could fall.

However, as things stand, the company believes it’s likely that Kestrel production will increase significantly in 2019. If coal prices remain stable, the company says this could have “positive implications for the level of dividends in 2019.”

In the meantime, the firm’s management is making use of strong cash flow from Kestrel to diversify the firm’s portfolio of investments. In my view, the shares are worth a closer look at current levels.

The post A dirt-cheap, 8%-yielding FTSE 100 dividend stock I’d buy for 2019 appeared first on The Twelfth Magpie.

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Roland Head owns shares of Anglo Pacific. The Motley Fool UK owns shares of Anglo Pacific. 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.

In an update on Friday, the company said that production of key commodities, such as copper, coal and nickel, was either flat or higher during the third quarter.

The only disappointment was that oil production was 14% lower than during the same period last year. This was due to an unscheduled one-month outage at the firm’s Mangara field in Chad.

Full-year production of all commodities will be in line with previous forecasts, except oil, where a 6% fall is expected. The shares have edged lower following this news, but I don’t see this as a serious problem, given the group’s financial performance so far this year.

A $5.2bn shareholder return

During the first half of the year, Glencore’s adjusted operating profit rose by 35% to $5.1bn. The group’s net debt fell by $1.6bn to $9bn, and the company committed $4.2bn to shareholder returns for 2018, through a mix of dividends and share buybacks.

It’s since added a further $1bn to its planned buybacks for the year, meaning that a total of $5.2bn should be returned to shareholders by February 2019. That’s equivalent to a return of about 28p per share, or a yield of 9.4% at the last-seen 300p share price.

Too cheap to ignore?

I am sure that Glencore’s founder and chief executive, Ivan Glasenberg, is confident that the value of his 8.5% holding (about £3.7bn) will be enhanced by this programme of buybacks.

I share this view. The shares look decent value to me on 8 times 2018 forecast earnings, with a 5.3% dividend yield. I’d be happy to buy at this level.

A cheaper alternative?

One commodity stock I’ve added to my own portfolio in recent months is Anglo Pacific Group (LSE: APF). Unlike Glencore, this £240m firm doesn’t develop or operate mines itself.

Instead, Anglo Pacific buys stakes in mining assets from which it receives long-term royalties. It’s a nice idea — pay up front and then sit back and let the cash roll in.

Of course, this business model is equally exposed to commodity price movements. The difference is that the firm’s passive role means it can simply stop spending money if cash is tight, and wait for a recovery.

The idea is that the firm builds up a cash buffer during good years, so that it can maintain its dividend during lean periods.

Although chief executive Julian Treger did end up cutting the dividend during the exceptional slumps seen in 2015 and 2016, the stock still offers a generous forecast yield of 5.5%.

Better still, this payout is covered 2.6 times by forecast earnings. It now looks pretty safe to me, even if profits dip.

What could go wrong?

The downside of Anglo Pacific’s business model is that it has no real control over the assets it owns. This means that if the company operating the mine changes its plans, Anglo’s revenue can be affected.

Despite this risk, I see this as a well-run niche business with the potential to provide a reliable income. Trading at 1.1 times book value, with a forecast dividend yield of 5.5%, I’d be happy to buy more.

The post Tempted by the 25% fall in the Glencore share price? Here’s what I’d consider first appeared first on The Twelfth Magpie.

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Roland Head owns shares of Anglo Pacific. The Motley Fool UK owns shares of Anglo Pacific. 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.

At the current share price, which is down from highs of over 600p just a few months ago, Royal Mail trades on a modest 12 times current-year forecast earnings with a prospective dividend yield of 5.4%. However, I’m not tempted by the share price today. Let me explain why I’m avoiding the stock but why I’d buy mining royalties firm Anglo Pacific (LSE: APF).

Contrasting outlooks: near term

At a share price of 141p, Anglo Pacific has a market capitalisation of £256m, so is a considerably smaller company than £4.6bn FTSE 100 giant Royal Mail. However, it offers a similar prospective dividend yield and trades on a more attractive earnings multiple of eight times current-year forecast earnings. The fundamentals of the two businesses and their near-term and longer-term outlooks also persuade me that Anglo Pacific is a far more appealing investment proposition.

In its latest half-year results today, Anglo Pacific reported a 12% increase in revenue and a 15% increase in adjusted earnings per share (EPS). Ahead of the results, City analysts were forecasting an 11% increase in EPS for the year, so the company is well on track. In contrast, Royal Mail is forecast to post a mere 2% rise in full-year revenue and a 15% fall in adjusted EPS.

Longer-term outlook: Anglo Pacific

As well as the contrast in the immediate outlook for the two companies, I believe Anglo Pacific’s longer-term prospects are also significantly more promising than Royal Mail’s.

The royalty firm’s biggest asset is its interest in the Kestrel coking coal mine in Australia. A new joint venture has recently acquired Kestrel from Rio Tinto and the new owners are intent on doubling production over the next two to three years. This is good news for Anglo Pacific because the period coincides with mining being within its private royalty land, which would lead to a material increase in its royalty income.

The company has other royalty income streams from diverse mines and continues to invest in high-quality products, well-established jurisdictions, long mine life and Tier-1 operators. Its £37m acquisition of a 4.25% shareholding in Labrador Iron Ore Royalty Corporation, giving exposure to the 7% Labrador Iron Ore gross revenue royalty is the latest example.

I believe Anglo Pacific can deliver long-term top- and bottom-line growth, albeit with some fluctuation due to cyclical metals prices. But this seems infinitely more attractive than investing in a structurally challenged business like Royal Mail.

Longer-term outlook: Royal Mail

It’s become increasingly clear that delivering letters is a business that’s in long-term decline. Royal Mail’s latest quarterly numbers of a 6% fall in volumes and a 7% fall in revenue are indicative of the trend. Expansion of its parcel delivery business (including geographically) has offset the decline in letters but is producing only anaemic top-line group growth.

I believe parcel delivery systems will see radical change in the coming years. I’d back Amazon (currently both a customer and competitor of Royal Mail) to be a cutting-edge pioneer and Royal Mail to have to run fast just to stand still.

The post Why I’d ignore the Royal Mail share price and buy this other 5%+ yielder appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK owns shares of Anglo Pacific. 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.

However, despite its 4.7% dividend yield and fast-improving profitability, I’m not any closer to buying the shares right now than I was two or three years ago.

This isn’t to take away from the fact that Lloyds is the best out of a bad bunch, but there are a few things that worry me about the black horse. One is its valuation. Its shares currently trade at 0.95 times book value, which is a fair price but one that leaves little upside re-rating potential in my eyes. 

This is because I see few growth prospects due to the group’s substantial market share in the UK, its only market. It has market share above 20% in retail banking and new mortgage issuance, leaving few opportunities to measurably and profitably grow, given the intense competition in the market.

Of course, Lloyds could still grow by simply maintaining market share if broader economic conditions kicked it up a notch. Unfortunately, there appear to be few catalysts for improved domestic economic growth in the short term.

That basically leaves acquisitions as the last method of growing the business. Here there are prospects to grow, such as the £1.9bn purchase of the MBNA credit card business and deal to purchase £19bn worth of pension assets from Zurich. However, while these are both growth areas for Lloyds, they are highly competitive sectors that are attracting many firms. This increases the risk of overpaying and means potentially lower margins as firms fight for the same customers, not to mention the long history of banks’ acquisitions going sideways.  

So far, these are fairly small bets for the company and there’s no doubt Lloyds is on the right track with interest rates rising and costs falling. But with economic growth prospects tepid at best, Lloyds appears to me to be a fairly low-growth income option. Fine for some investors, but perhaps not those who want a bit more capital appreciation prospects from such a cyclical sector as banking.

Digging for cash

With that in mind, I’ve got my eye on mining royalty firm Anglo Pacific (LSE: APF). Full-year results released this morning showed the group is in great health with royalty income rising 90% year-on-year to £37.4m as commodity prices rebounded and management made good calls on which assets to allocate capital to.

Free cash flow for the year tripled to £41.5m, which allowed the group to pay down all outstanding debt, increase total dividends from 6p to 7p per share, and still end the year with £8.1m in cash. This puts Anglo Pacific shareholders in a great spot as they’re enjoying a 4.7% dividend yield but also considerable growth prospects as management intends to use fast-rising cash flows to invest in new assets.

And Anglo Pacific certainly doesn’t lack targets as miners, still scarred by the recent commodity crash, turn to outside financing like royalties firms to develop new projects. With growth potential, a very nice dividend and valuation of only 9 times earnings, I’d easily pick Anglo Pacific over Lloyds for my retirement fund. 

The post Why I’d sell Lloyds Banking Group plc to buy this dividend king appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK owns shares of Anglo Pacific. The Motley Fool UK has recommended Barclays and Lloyds Banking Group. 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.

Pure royalty

Shares of mining royalty firm Anglo Pacific Group (LSE: APF) rose by nearly 5% today after the company said its royalty income rose by about 90% to £37m last year.

Anglo Pacific makes money by owning stakes in mines operated by other companies. Essentially, it pays for a stake in a mine, and then sits back and collects royalties for years to come.

The group’s largest single producing royalty is its stake in Rio Tinto‘s Kestrel coal mine in Australia. In 2016, only 67% of the coal mined from Kestrel came from Anglo Pacific’s land. But in 2017, this figure increased to 93%. This increase in volume came together with a 40% increase in the average coal price realised at Kestrel, providing a big boost to royalty incomes.

A long-term prospect?

The board has recommended a 16.7% increase in the dividend this year, taking the total payout to 7p. That’s equivalent to a yield of about 4.8%, at the last-seen share price of 145p.

Management expects at least 90% of Kestrel output to come from royalty land in 2018. Many of the group’s other royalty interests are also expected to perform well, so this could be another bumper year for the firm.

The downside for shareholders is that long-term visibility of earnings is very poor. There’s no way for us to predict when commodity prices will fall, or when mining will shift away from the group’s royalty lands.

These risks mean that I wouldn’t put a high valuation on this stock. However, the group’s shares currently trade on a 2018 forecast P/E of 8.5 with a prospective yield of 5.4%. I’d consider this for an income buy.

Wake up and smell the coffee

One company that would definitely be on my shortlist for a lifetime income portfolio is Whitbread (LSE: WTB). The owner of Premier Inn and Costa Coffee is a proven cash machine, whose profits have risen by an average of 9.5% per year since 2012.

Although “tougher market conditions” reduced UK like-for-like growth to just 0.3% during the third quarter, new coffee shops and hotels helped lift overall sales by 5.8% during the period.

I can see a number of potential reasons to own the shares today.

Three reasons

The first is that a falling share price over the last year has left the business looking quite attractively priced. A forecast P/E of 14.7 and a prospective yield of 2.7% seem tempting to me, given the group’s track record of growth.

A second attraction is that some investors believe the group will eventually be split into two. The most likely route would be for management to spin out Costa Coffee into a separate business. As a standalone coffee group, Costa could attract a higher valuation. US rival Starbucks trades on more than 20 times forecast earnings.

One final attraction is Whitbread’s 15-year history of dividend growth. The group’s dividend has risen by an average of about 13% per year since 2002. Dividend growth is expected to be more modest at 4%-6% over the next couple of years, but this payout should be covered 2.5 times by earnings. This leaves plenty of room for further growth.

The post 2 dividend stocks that could give you a lifetime income appeared first on The Twelfth Magpie.

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Roland Head owns shares of Rio Tinto. The Motley Fool UK owns shares of and has recommended Starbucks. The Motley Fool UK owns shares of Anglo Pacific. 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.

And even as commodity prices have started to trade sideways in recent months, we’re still seeing some spectacular gains of late. Republic of Congo-focused miner Zanaga Iron Ore (LSE: ZIOC) is one such example as shares in the small-cap iron exploration and development company have more than quadrupled in the last month alone.

Promising prospects

The miner has benefitted from a string of positive news these past few weeks, which showed the company closer to bringing its flagship Zanaga Iron Ore asset into production than previously thought. Glencore, which owns a controlling stake in the project, is assessing the opportunity for a small-scale early production start-up project.

Such a project has been under consideration for several months and would determine the economic feasibility of ramping-up production. It’s difficult to make predictions before the results come out, but initial indications have been promising, showing the project to be cost-effective even in an iron ore low-price environment.

And with an expected peak production output of 30m tonnes per annum (mtpa), the Zanaga project could be one of most significant iron ore discoveries in Africa, potentially bringing in huge returns for the £50m company. That said, there’s still a very long way to go before it generates meaningful profits and there are a lot of execution risks on the horizon.

Safer way to invest in the sector

That’s why I prefer Anglo Pacific Group (LSE: APF). As a mining royalties outfit, it earns stable royalties connected with the mining of natural resources. It’s a business which is less exposed to operational risks and commodity price volatility. This makes it a much safer way to invest in the mining sector, allowing investors to earn a stable income regularly.

Now, natural resources royalty companies are much more common in Canada and the US, but their business model is relatively easy to understand. They essentially invest in a diversified portfolio of claims on different projects, earning them revenue on the production of a whole range of commodities, which include coal, iron, copper and precious metals. And because these companies don’t have to put up cash for capex, they don’t have the same risks and expenses that traditional producers have.

Still, Anglo Pacific is not completely immune to commodity prices and changes in production output, because royalty income is variable. Earnings and dividends still remain well below 2012 levels, although revenues have perked up quite a bit recently, with royalty income up 89% to £8.9m in its most recent quarter.

Dividends

High margins and strong free cash flows enable the firm to pay impressive dividends to its shareholders. Shares in Anglo Pacific currently yield 4.3%, and City analysts have high expectations about future growth — they expect dividends per share will grow in the mid-double-digits over the next two years, giving its shares a prospective yield of 5.4% in 2019.

Obviously, the risk/return trade-off means Anglo Pacific can’t promise the opportunity Zanaga has to offer, but on the upside, it’s unlikely that an investment in the firm could lead to a huge capital loss either.

The post One bargain dividend stock I’d consider before Zanaga Iron Ore Co Ltd appeared first on The Twelfth Magpie.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK owns shares of Anglo Pacific. 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.

Unfairly unloved by investors?

Anglo Pacific currently kicks off a 4.3% yield and trades at a relatively sedate 8.9 times consensus forward earnings. Now, interested investors should know up front that the company’s ability to pay dividends is tied to the health of the global commodity sector.

However, as the company has no debt, doesn’t do any mining itself and merely receives royalty income from miners based on production levels at its mines and commodity prices, Anglo Pacific is considerably less risky than investing directly in miners themselves. Indeed, with no debt on the balance sheet and access to $30m-$40m in cash and debt facilities, the company would face no liquidity crunch were commodity prices to fall and is actually well-placed to go out and make further investments.

The combination of this healthy balance sheet and fast rising profits should be music to the ears of Anglo shareholders as the company announced at its interim results that it plans to pay out dividends quarterly and also accelerate the payment schedule of these payouts. In the first half, earnings per share rose to 7.44p from 1.43p the year prior and free cash flow leapt over 300% year-on-year (y/y) to £18.9m. This allowed management to increase interim dividends to 3p and has led analysts to forecast a 7.2p full-year payout that would equate to roughly a 5.1% yield.

While Anglo Pacific is still indirectly reliant on high commodity prices to maintain impressive cash flow and dividends, I reckon the firm represents a less risky way for income investors to gain exposure to the industry on its current upswing.

Benefitting from blockbusters 

With its shares currently yielding 3%, Cineworld offers less income but steadier and greater growth prospects for interested investors. From 2012 to 2016 the cinema operator increased earnings per share from 19.22p to 35.2p and with solid dividend and capital appreciation potential and a valuation of only 16.9 times forward earnings, I reckon it’s well worth taking a closer look.

The chain has been growing nicely by expanding the number of cinemas it operates, periodically refurbishing existing ones to attract bigger audiences, increasing uptake of its food and beverage options and showing a slew of blockbuster films released over the past few years. In H1 2017 total revenue increased 17.8% y/y to £420m due to it adding three new sites and it saw 10% growth in admission numbers and a 22% uplift in retail sales.

This translated into earnings per share growing from 12.7p to 15.4p y/y and allowed interim dividends to rise from 5.2p to 6p. Year-end net debt is expected to be around £265m, which is a very comfortable figure given full-year 2016 EBITDA hit £175.8m and H1 2017 saw EBITDA rise a whopping 19.6% y/y.

With expansion at home and overseas going well, robust margins and cash flow and an attractive valuation, Cineworld could be a great long-term option for both income and growth investors alike.

The post 2 bargain dividend stocks you can buy today appeared first on The Twelfth Magpie.

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• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK owns shares of Anglo Pacific. 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.

Royalties roll

During the first half of the year, Anglo Pacific benefitted from higher commodity prices, favourable exchange rates and increased mining within its private royalty acreage at Kestrel.

I calculate trailing 12-month adjusted earnings per share (EPS) of 15.77p, giving a price-to-earnings (P/E) ratio of just 7.7. On a statutory basis, H1 EPS was negative. This was due to non-cash charges (mainly related to resource depletion and pricing assumptions), so I’m happy to use the adjusted number as it better reflects the company’s strong cash flows.

Free cash flow of £18.9m in H1 alone is well above the last 12 months’ dividends of £10.1m (6p a share) and supports analysts’ forecasts of a payout of 7p this year, for a prospective yield of 5.8%.

The board said today that commodity prices are ahead of expectations so far in Q3 and that royalty revenues are continuing to benefit from weak sterling versus the US and Australian dollar. This bodes well for the remainder of the year.

Looking further ahead, I note that Anglo Pacific is debt free and has ready access to between $30m and $40m of cash and borrowing facilities for further royalty investments. The board told us that making such investments “is very much the focus for the second half of the year.” This should further strengthen royalty streams for 2018 and beyond.

Bargain brew

Also trading on a cheap earnings multiple with sparkling dividend yield is FTSE 250 brewer and pubs group Greene King (LSE: GNK). Its shares were trading not far off 1,000p towards the end of 2015 but are currently changing hands for 660p. I believe now could be a good time to buy a slice of this £2bn business.

The company posted adjusted EPS of 70.8p for its financial year ended 30 April, giving a P/E of 9.3. Meanwhile, a 33.2p dividend for the year is forecast to rise to 34p this year, providing a prospective yield of 5.2%.

The reasons for Greene King’s current depressed share price and the reason I’m not put off buying the stock at the present time are succinctly summed up in a comment by chief executive Rooney Anand. “Our performance has been achieved against a demanding backdrop of increased costs, weaker consumer confidence and increasing competition. While I expect these challenges to intensify over the next few years, Greene King has a very strong track record of delivery in tough market conditions.”

In light of this track record, and in view of the group’s scale, robust balance sheet and strong cash generation, I believe the depressed share price, low P/E and high yield represent a generous offer by the market.

The post 2 cheap stocks with 5%+ dividend yields appeared first on The Twelfth Magpie.

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• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

The Motley Fool UK owns shares of Anglo Pacific. 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

The market’s best investments are usually hidden from plain sight and away from the crowd. Because they are difficult to find, these stocks often trade at deeply discounted valuations, giving investors who are willing to put in the extra effort an excellent opportunity to profit.

I believe Anglo Pacific Group (LSE: APF) is one such company. Anglo Pacific is a resource royalties company, which means it’s not as exposed to commodity prices as traditional miners. It has revenue-based royalty deals limiting direct exposure to operating and capital costs of the underlying mine operations. The beauty of this business model is that it’s hugely cash generative and there’s very little capital required to generate returns.

Cash cow

In 2016 the company received £19.7m in royalty income from investments and free cash flow for the period was £13.2m.

The majority of this income is returned to shareholders with a minimum annual payment of 6p per share. Management has committed the company to pay 65% of earnings out to shareholders, and at current revenue run rates, the 6p per share payout will have to be revised upwards this year.

However, it doesn’t look as if the market understands the full dividend potential here. Management is looking to pay 65% of earnings per share to shareholders via dividends, but City analysts have only pencilled-in a dividend payout of 7p per share for 2017 on earnings per share of 15.6p. A payout ratio of 65% is equal to a dividend of 10.1p per share giving a yield of around 8.7% at current prices. Of course, management may decide to adopt a more conservative dividend policy if earnings come in below expectations, but right now, it looks as if Anglo Pacific is an extremely undervalued dividend play.

Income and capital

I believe Palace Capital (LSE: PCA) is another hidden dividend champion. The company is a commercial property investment firm with a portfolio worth £185m and a net asset value per share of 419p. At the time of writing, shares in the firm are trading at a near 15% discount to NAV and it is here, as well as the company’s 4.5% dividend yield, where I believe the value lies.

City analysts believe the company is set to hike its dividend payout by more than 10% for the year ending 31 March to 18p per share, which would give a dividend yield of 5.1%, an extremely attractive yield for a solid property investment.

At the same time, investors will be able to take advantage of Palace’s discount to NAV. By buying the shares at a 15% discount to the last recorded net asset value, there is a near 18% upside available in addition to the yield of 5.1%. If the company manages to increase its NAV during the period, the return could even be even higher.

So, if you’re looking for a stock that can provide both income and capital growth with reduced risk, Palace Capital might just be the one.

The post 2 shares on my watchlist yielding more than 5% appeared first on The Twelfth Magpie.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares of Anglo Pacific. 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.