Today I’m going explain why I remain happy to own Aviva stock. But before that I want to look at another financial firm with the potential to provide an attractive long-term income.

Finding value overseas

FTSE 250 asset manager Ashmore Group (LSE: ASHM) focuses on finding value opportunities in emerging markets. On Friday the company’s chief executive, Mark Coombs, said that a recent sell-off in emerging markets “has created significant value opportunities”.

Mr Coombs’ comments provided an upbeat ending to a slightly mixed quarterly trading statement. During the three months to 30 June, the value of the firm’s assets under management fell by $2.6bn to $73.9m. This overall shift had two parts — a net inflow of $2.6bn of new customer money, and a $5.2bn “negative investment performance”.

What this shows is that customers continued to invest fresh cash as the value of the firm’s investments fell. This suggests to me that many of these investors share Mr Coombs’ view that the recent slide in emerging markets has created attractive buying opportunities.

Time to buy?

I don’t have a strong view on emerging markets. It’s a specialist area. But Mr Coombs’ firm does have a solid track record of generating shareholder returns from such investments. The group has held or increased its dividend every year since 2007.

And in 2017, Ashmore generated a return on equity of about 23%. That’s an impressive figure that’s consistent with previous years. Cash generation is also good and the group ended last year with unrestricted net cash of £420m and regulatory capital of £559.4m, five times its required minimum of £111.1m.

 Although dividend growth has been slow, the shares currently trade on a forecast P/E of 16.8 with a prospective yield of 4.6%. I think this stock could be a decent buy for investors wanting to diversify their dividend income.

Growth problems?

One possible reason why Aviva’s share price has lagged the FTSE 100 by about 10% over the last year is that the group’s growth potential seems limited.

Growth is important to most businesses, even if they’re fairly large and mature. But at the right price I’m happy to buy low-growth businesses for income, as long as they have strong balance sheets and are performing well.

In my view, Aviva ticks both of these boxes. In 2017, operating profit rose by 2% to £3.1bn. Operating earnings per share climbed 7% to 54.8p and the dividend was lifted 18% to 27.4p, the fourth consecutive year of double-digit growth.

Chief executive Mark Wilson also announced plans to deploy £2bn of surplus cash in 2018. Of this, £900m is being used to repay expensive debt, saving £60m in interest payments. About £600m was earmarked for potential acquisitions, with £500m planned for shareholder returns.

I’d buy

Returns so far have exceeded this promise, as the group is currently midway through a £600m share buyback. With the stock now trading under 500p, I believe this should deliver good value and help to support future earnings growth.

The shares now trade on just 8.6 times forecast earnings, with an estimated yield of around 6%. At this level, I believe Aviva offers good value for income investors.

The post Is the Aviva share price heading for 600p? appeared first on The Twelfth Magpie.

More reading

• A £10,000 ISA buys 1,931 shares in these 6.5%+ yielding dividend stocks!
• 3 top passive income shares to consider with dividend yields above 5%
• How much do you need in a SIPP to target a stunning £750.75 weekly passive income?
• How to turn a £20k ISA into a £12,000 yearly second income
• Starmer resigns as PM — what could this mean for UK stocks and the FTSE 100?

Roland Head owns shares of Aviva. 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.

Look, I’m not blind and can understand how tales of nosediving property values in London are having something of an impact on investor appetite for the likes of Redrow (LSE: RDW). However, while homes demand in the capital may be waning amid accusations of inflated price growth for some decades now, aggregated demand across the country continues to hold up quite well.

While a weakening domestic economy is sapping homebuyer activity to some extent, a combination of low interest rates and the government’s Help To Buy purchasing scheme for first-time buyers is keeping buying activity on the burner.

And for Redrow, a shortage of available properties on the market — created by inadequate decades-old government housing policy and, more recently, a reluctance of existing homeowners to put their homes on the market given current political and economic uncertainty — is still driving demand for its new-builds.

Profits set to keep rising!

A generation of breakneck property price growth may be consigned to history, and this, combined with the pressures created by a rising cost base, is likely to see earnings at Redrow moderate from the colossal rises of previous years.

But this is not to say that profits growth for the FTSE 250 business will grind to a halt. Far from it. Indeed, City brokers are still expecting the construction ace to report earnings expansion of 14% and 9% for the years ending June 2018 and 2019 respectively.

And this, combined with Redrow’s vigorous balance sheet — net debt more than halved in the six months to December, to £35m — is expected to keep dividends rising at quite a pace. Payouts swelled from 1p per share in fiscal 2013 to 17p five years later, and further improvement, to 24.2p in fiscal 2018 and 28.5p next year is forecast by the number crunchers.

Yields for this year subsequently stand at a mountainous 4.1% and 4.8% respectively. While Redrow isn’t without its problems thanks to the tense trading environment, this is more than reflected in its forward P/E ratio of 6.8 times, in my opinion.

Another big yielder

Ashmore Group (LSE: ASHM) is another great buy for income chasers, I believe.

In spite of an anticipated 14% earnings dip in the 12 months to June 2018, the emerging markets asset manager is still predicted to raise the dividend from 16.65p per share last year to 16.9p. And next year, helped by an anticipated 13% profits recovery, Ashmore is expected to raise the dividend again to 17.3p.

Consequently yields clock in at a punchy 4.4% and 4.5% for fiscal 2018 and 2019 respectively.

A prospective P/E rating of 15.8 times for the upcoming fiscal period may be less tasty, but this is a small price to pay given that long-term appetite for stocks with developing market exposure should remain significant and thus keep business activity at Ashmore ticking over — the firm’s latest trading statement showed assets under management booming $7bn during January-March, with net inflows standing at $6.4bn.

The post 2 FTSE 250 dividend stocks I’d buy and hold until retirement appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Redrow. 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.

With a difficult outlook due in part to challenges for UK consumers, could an alternative option, a 5% dividend-yielder, be a stronger income opportunity than the retail stock?

Improving performance

The 5% yielder in question is emerging markets asset manager Ashmore (LSE: ASHM). It reported an encouraging third quarter update on Tuesday which showed that its assets under management increased by $7bn (10%) during the period. They were boosted by net inflows of $6.4bn, as well as a positive investment performance of $0.6bn.

There has been continued rising demand for the company’s products, with recent market volatility having little effect on the fundamental drivers of returns in emerging markets. The company is forecast to post a rise in its bottom line of 10% in the next financial year, although investors appear to have fully priced-in its improving performance. The stock trades on a price-to-earnings growth (PEG) ratio of 2.1, which suggests it is fully valued.

With a dividend yield of 5% forecast for next year from a payout that is due to be covered 1.3 times by profit, Ashmore seems to have income appeal. However, its performance could be volatile depending on how emerging markets perform, and this could mean that dividend growth is somewhat erratic over the medium term.

Difficult outlook

In contrast, Marks and Spencer has a relatively low valuation at the present time. It trades on a price-to-earnings (P/E) ratio of 11, which suggests that investors are expecting difficult trading conditions. Since consumer confidence has been weak in recent periods, it would be unsurprising for the company to see its sales growth come under pressure. And when its changing strategy is added to the mix, this could lead to underperformance over the near term versus the wider index.

However, Marks and Spencer continues to have long-term income appeal. Its 7% dividend yield is covered 1.4 times by profit. And with the company’s bottom line forecast to flatline over the next two financial years, it appears to be relatively sustainable at current levels.

Certainly, there could be a high degree of volatility ahead. But with a strong brand, a loyal customer base and a competitive advantage within the food retailing space, the stock could be a better performer than the market is anticipating. Therefore, while relatively risky, it continues to have income appeal. Potential rewards on a total return basis appear to be high, with a wide margin of safety suggesting that now could be the right time to buy it.

The post Can this 5% dividend-yielder provide a safer income than FTSE 100 member Marks and Spencer? appeared first on The Twelfth Magpie.

More reading

• FTSE 100 to surge to 11,668! 2 cheap stocks to buy before the rally

Peter Stephens 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.

One of the companies on my radar is a stock owned by star fund manager Neil Woodford. The other is a FTSE 250 stock where the boss owns 39% of the shares. Is either of these companies a buy?

Skin in the game

Chief executive Mark Coombs owns 39% of the shares of FTSE 250 asset manager Ashmore Group (LSE: ASHM). There’s no doubt that Mr Coombs has plenty of skin in the game, but it’s less clear to me whether the shares are attractive for outside investors.

The company’s performance in recent months has been strong. Assets under management (AUM) rose by $2.8bn to $58.7bn during the last quarter, thanks to a mix of investor inflows and investment gains. Over the last 12 months, AUM has risen by 12%.

However, this is partly a result of strengthening conditions in the emerging markets in which Ashmore invests. It’s not clear to me whether the firm’s funds have significantly outperformed their underlying markets. The firm invests in a complex mix of currencies, debt and equities. For outside investors, it’s very difficult to get an idea of how well the firm’s products are really performing.

I’d say that Ashmore definitely provides a useful service to institutional investors looking for exposure to emerging markets. But I’m not sure how attractive it is for shareholders. Although the stock offers a tempting 4.8% dividend yield, the shares have only risen by 10% over the last five years. By contrast, the FTSE 250 has gained 76% over the same period. In my view, the problem is that the firm’s performance is closely linked to macro factors beyond management’s control.

However, Ashmore seems to be on a roll at the moment. Mr Coombs said today that investor allocations to emerging markets remain “significantly underweight”. Further gains may be possible, but I don’t see this as a long-term hold.

A newcomer with potential

Neil Woodford backed the 2015 flotation of IT infrastructure group Softcat (LSE: SCT). His Equity Income Fund remains a shareholder in this FTSE 250 firm.

While it’s new to the public markets, Softcat has been trading since 1987. The group provides data centre, networking and security solutions for public sector and corporate customers.

This is clearly a growing sector of the market. Softcat appears to be benefitting from this trend. Sales have risen from £395.8m in 2013, to £672.4m in 2016. Profits have followed, climbing from £20.6m in 2013 to £33.2m last year.

The firm benefits from very strong financial foundations. Net cash was £46.6m at the end of January, and the firm has a strong track record of generating free cash flow to fund dividends and expansion.

Softcat stock currently trades on a forecast P/E of 19 with a prospective yield of 3.2%. Although that’s not obviously cheap, I think this is a good quality business that could easily grow into its current valuation. I’d be happy to buy at current levels.

The post One overlooked Woodford dividend stock I’d buy today appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Roland Head has no position in any 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.

With this in mind, I’m taking a look at the dividend sustainability of these two high-yield stocks.

Retail spending squeezed

Debenhams‘ (LSE: DEB) dividend outlook is uncertain as trading conditions seem likely to become ever more tough. Yesterday’s results showed a 6.4% decline in pre-tax profits in the first-half of its 2016/17 financial year, as the rise in online shopping, coupled with rising inflation has left little cash left over for spending on the high street.

With profits getting squeezed, I reckon payouts could come under significant pressure from next year. Retail activity is already on the back foot, and the department store chain faces a huge challenge to remain relevant as consumer spending patterns, competition and technology are changing.

The retailer says its new Debenhams Redesigned strategy should help revitalise sales and drive efficiency by simplifying the business. It plans to close up to 10 of its department stores and 11 warehouses, revamp its remaining stores and improve its online and mobile shopping experience to make itself a destination for ‘Social Shopping’. This seems a step in the right direction. However, the question remains: will a turnaround in earnings come before a dividend cut becomes necessary?

City analysts expect earnings at the retailer to fall 14% this year and 9% next year, which still leaves the stock with reasonable dividend cover of around two times in 2017 and 1.8 times in 2018. However, when we factor-in the £216.9m in net debt on its balance sheet and plans to raise capital spending to £150m a year, there doesn’t seem to be a whole lot of flexibility to sustain dividends at current levels.

With an uncertain outlook ahead, I’m staying away from Debenhams’ 6.7% dividend yield.

Recovering confidence

Another high-yield dividend stock that’s been grabbing headlines recently is FTSE 250-listed asset manger Ashmore Group (LSE: ASHM). The emerging market debt specialist reported net inflows for the first time since 2014 as investors started to re-establish confidence in emerging markets.

Ashmore reported assets under management increased by 7% in the latest quarter to $55.9bn, following net inflows of $1.4bn in the first three months and strong investment returns since the start of the year. And with assets under management being regarded as an important indicator of future profits in the business, Ashmore’s earnings outlook seems to be improving.

City analysts expect Ashmore will see adjusted earnings growing 23% in this year, which gives it a forward dividend cover of 1.34 times. This would be an improvement on 1.15 times last year, but it’s still significantly below a level considered to be safe.

However, valuations seem attractive, with shares in the company trading at 15.8 times forward earnings this year, modestly below the sector average of 16.7 times. And with the stock up 23% year-to-date, Ashmore currently yields 4.7%, which is also noticeably better than the sector average dividend yield of 3.8%.

The post Should you be tempted by these high-yield dividend shares? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Jack Tang has no position in any 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.

Improving performance

Reporting on Tuesday was specialist Emerging Markets asset manager, Ashmore (LSE: ASHM). It has made progress in the third quarter, with assets under management increasing by $3.7bn during the period. This was aided by positive investment performance of $2.3bn and net inflows of $1.4bn. Net inflows were primarily driven by an increase in the level of gross subscriptions, through new mandates and incremental allocations from existing clients, as well as a reduction in redemptions.

Looking ahead, Ashmore’s strong investment performance in areas such as Emerging Markets could help to improve its financial outlook. The company is forecast to record a 14% rise in its bottom line in the current year. This puts its shares on a price-to-earnings growth (PEG) ratio of just 1.2, which indicates that they offer good value for money even while the FTSE 100 is close to a record high.

In terms of its dividend outlook, Ashmore’s 4.8% dividend yield is above the FTSE 100’s yield of around 3.7%. Since its dividends are covered 1.3 times by profit, they appear to be sustainable and could rise at a similar pace to profit growth in the long run. Certainly, asset management companies tend to be relatively cyclical. However, with clear growth potential, Emerging Markets could be a strong sector in future years. Therefore, now seems to be the right time to invest in the company for the long run.

Dividend growth potential

While technology-based service company Nex Group (LSE: NXG) has a dividend yield of just 2.7%, its outlook as an income stock is relatively positive. A key reason for this is the company’s growth potential, with its bottom line due to rise by 6% in the current year, and by a further 14% next year.

Beyond that, more growth is on the cards as the company has a relatively strong position in its areas of operation. Therefore, its competitive advantage may prove to be relatively high in the long run.

Over the course of the next two years, Nex Group is expected to record a rise in its dividend payout of over 20%. This puts it on a forward dividend yield of 3.2% and since dividends are expected to be covered 1.9 times by profit next year, there seems to be scope for further rapid rises in shareholder payouts beyond the 2019 financial year.

With Nex Group trading on a PEG ratio of 1.2, now seems to be an opportune time to buy it. The company appears to have a potent mix of growth, value and income potential for the long run.

The post Two cheap dividend stocks I’d buy in May appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Peter Stephens has no position in any 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.

Cash from cash

Currency hedging specialist Record (LSE: REC) saw its shares spiking upwards in anticipation of today’s first-half results, though they have fallen back on the day by 6.3% at the time of writing to 31.5p.

Assets under management equivalents rose to $55bn, from $52.9bn at 31 march, with the firm growing its client base from 58 to 61. The result was a 7% rise in revenue to £11.1m, although underlying pre-tax profit declined by 2% to £3.6m with earnings per share down 2.2% to 1.33p.

Record might be in a pretty small niche market, but that kind of exclusivity brings in big profits — the company enjoyed an underlying operating margin of 33%.

With shareholders’ equity increasing from £33.3m a year  previously to £35m this time, Record maintained its interim dividend at 0.825p per share, which is on track for the 5.7% full-year yield currently forecast by the City’s analysts. And that might not be all the cash that shareholders receive, as Record has said it will consider returning excess cash in the form of special dividends.

Pointing to the opportunities raised by currency volatility, the low interest rate environment and an attractive investment performance, chief executive James Wood-Collins said “I believe further progress will be made in the second half of the financial year“.

Forecasts put the shares on forward P/E multiples for this year and next of 12.2 and 11.3 respectively. To me that looks like an attractive valuation for a company generating cash in excess of its capital requirements and ordinary dividends, and with a real possibility of handing over spare cash as a nice bonus for shareholders.

It’s a small business in a small market, but I see Record as an investment risk worth taking.

Emerging market profits?

The somewhat bigger and less specialist Ashmore Group (LSE: ASHM) is one I’ve been watching for a while, intrigued by its investment focus on emerging markets — that’s risky, but it can be profitable.

This week’s first-quarter update showed a modest 4% rise in assets under management, entirely from investment performance as net flows were flat. Chief executive Mark Coombs suggested that emerging market returns are looking attractive and that’s “causing investors to reconsider their underweight positions“.

That would put Ashmore in a good position, and turmoil in Europe and the US while emerging market assets are apparently stabilising can only help — and it suggests Ashmore shares might be good to buy now for the next few years.

I did think the shares were a bit too expensive, recently commanding forward P/E ratios in the twenties, and the sell consensus put out by the City looked hard to dispute.

But since 6 October, the Ashmore price has shed 20%, and that’s giving us a multiple of around 16.5 which is looking more reasonable. The mooted dividend yield of 5.7% looks attractive, though with EPS dropping it’s starting to look a little stretched with likely cover of only 1.08 times — so there’s risk there, too.

But the valuation tide could well be turning for Ashmore, and while I wouldn’t buy just yet, I think it’s one to watch.

The post Record plc could be set for big dividend payments appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Silver surfer

Insurance giant SAGA (LSE: SAGA) continued its recent upsurge in Tuesday trade, the release of bubbly full-year results propelling the stock to fresh three-month peaks.

SAGA saw pre-tax profit leap 55% higher in the year to January 2016, to £176.2m, the business enjoying sales growth of 11% and 4.1% for its travel and insurance products respectively. SAGA put this robust performance down to “new and improving products, new routes to market and the ability to target a broader range of customers.”

The City has certainly bought into SAGA’s growth story, and expects earnings to rise 5% and 15% in fiscal 2017 and 2018, resulting in decent P/E ratings of 14.3 times and 12.6 times. Like the number crunchers, I believe SAGA could prove a very lucrative investment.

Fund manager flips higher

Emerging market play Ashmore Group (LSE: SGM) gave its troubled shareholders a much needed boost in Tuesday trade after a string of disappointing recent updates.

The fund manager announced that assets under management edged 4% higher between January and March, to $49.4bn. The company noted that “the quarter saw strong returns from emerging markets assets as value was recognised and prices recovered from over-sold levels earlier in the period.”

Ashmore isn’t quite out of the woods, however, as fears over developing markets — allied with the fragility of commodity prices and subsequently many emerging region currencies — still remain large in many investors’ minds.

And with predicted earnings dips of 28% and 2% in 2016 and 2017 respectively resulting in high P/E ratings of 21.2 times and 21.3 times, I believe there is plenty of room for Ashmore’s share price to stage another shocking reversal.

Driller in dire straits

The volatility washing over Gulf Keystone Petroleum (LSE: GKP) in recent sessions shows no signs of abating. The business was recently dealing 17% higher from Monday’s close, moving away from fresh troughs below 4p per share struck last week.

The cash-starved company cheered the market last Tuesday with news of $15m payment from the Kurdistan Regional Government for March. But the euphoria was washed away later in the week as Gulf Keystone announced plans to start discussions over its battered balance sheet.

Alarmingly Gulf Keystone advised that its Shaikan wells “may begin to exhibit natural declines later in 2016” without further capital expenditure. The firm says that it needs around $71m to maintain output at around 40,000 barrels per day, a colossal amount given that Gulf Keystone only has $69.5m in its bank account.

And the driller has a series of interest payments in the months ahead, too, leaving the company on perilous ground as it scrambles to execute near-term fundraising and balance sheet restructuring.

Things are clearly in danger of getting a lot more turbulent at Gulf Keystone in the weeks and months to come, even discounting the strong possibility of another sharp oil price correction. I believe the Middle Eastern producer is a risk too far for savvy investors.

The post Should You Buy Gulf Keystone Petroleum Limited, SAGA PLC & Ashmore Group plc Today? appeared first on The Twelfth Magpie.

More reading

• Hot, hotter, hottest. Is it too late to consider these 3 amazing FTSE 250 shares?

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Asset manager marches lower

Emerging market-focused Ashmore Group (LSE: ASHM) has seen its share price move steadily lower in recent times. The stock is now dealing at a 44% discount to levels seen a year ago, the shares conceding a further 5% on Thursday following a worrying trading update.

Ashmore saw assets under management slip 16% between July and December, to $49.4bn, the result of chunky net outflows of $5.7bn and negative investment performance of $3.8bn. And worryingly, the business advised that “sentiment is likely to continue to be affected by the lower oil price and ongoing concerns about slowing global growth, particularly with respect to China.”

In this environment, the City expects Ashmore to endure a 23% earnings dip in the year to June 2016, although this still creates a reasonable P/E rating of 16.1 times.

It’s in the dividend stakes where the investment managers really stand out from the crowd, however. A projected payment of 17p per share creates a storming 6.8% yield, obliterating the FTSE 100 average around 3.5%.

Still, I reckon the risks over at Ashmore outweigh the potential rewards at the present time, and I reckon a combination of developing market weakness and renewed US dollar strength is likely to keep hitting fund performance.

Financial favourite urges caution

Fellow asset manager Henderson Group (LSE: HGG) also saw its share price rattle lower from Wednesday’s close, the business last dealing 6% lower on the day.

This is despite the company releasing broadly-positive full-year results. Henderson saw net retail inflows clock in at a record £8.5bn in 2015, a result that propelled total assets under management 13% higher to £92bn.

The number crunchers expect Henderson to record a 5% earnings advance in 2016, slowing down from the double-digit advances of previous years but still creating a decent-enough P/E multiple of 15.9 times. And an estimated dividend of 11.4p per share produces a meaty 3.8% yield.

But like Ashmore, shaky investor appetite could throw up troubles further down the line at Henderson, prompting the firm to announce “we will review our short-term plans if difficult market conditions persist.” While the firm’s global expansion drive is currently paying off handsomely, I believe difficult trading conditions could easily throw Henderson off course.

Drugs giant ready to rock

In times of extreme macroeconomic turbulence such as these, I believe medicines mammoth GlaxoSmithKline (LSE: GSK) could prove a canny stock selection for defensively-minded investors.

The Brentford firm hasn’t proved immune to the wider tsunami smacking global indices in Thursday trade however, and the business was last down 0.7% in Thursday’s session.

But sales of essential drugs like Dolutegravir for HIV and Nucala for asthma aren’t something that declines in line with wider movements in the global economy. Rather, a backcloth of rising populations and increased healthcare investment across the world is likely to keep fuelling medicines demand in the near term and beyond.

And with GlaxoSmithKline having chucked vast sums at its R&D operations to offset crushing patent losses, the City expects the company to get earnings moving again from 2016 onwards. Indeed, a 12% earnings rise is predicted for 2016, resulting in a P/E rating of 15.8 times. And a pledged yield of 80p per share gives an impressive 5.9%.

The post Are GlaxoSmithKline plc, Ashmore Group plc & Henderson Group Plc Today’s Barnstorming Buys? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

With this in mind, should you buy Royal Dutch Shell (LSE: RDSA)(LSE: RDSB), Ashmore Group (LSE: ASHM) and MedicX Fund (LSE: MXF)?

Earnings slump

If we ignored Shell’s recent earnings slump, then the oil giant would look like an amazing dividend stock. The company has never cut its dividends since the end of the second world war, benefits from a 5-year average gross margin of nearly 17% and has very low levels of indebtedness.

Unfortunately, we can’t ignore Shell’s declining profitability, as the signs point to an uncertain future. Shell has already had to conserve cash by freezing its quarterly dividend at $0.47 per share and re-introduced its Scrip Dividend Programme in 2015. Low oil prices, which caused underlying annual earnings to fall 53% over the past year, is likely to persist for longer than expected and possibly fall to as low as $10 per barrel.

To finance the gap between operating cash flow and spending on capex and dividends, Shell has resorted to selling assets and raising new debt. Net gearing remains low, at 14.0%, compared to 12.2% last year. But, this has only been made possible by large-scale asset sales (which helped bring down oil production by 4% to 2.95m barrels of oil equivalent per day) and because Shell’s costly acquisition of BG Group has yet to be completed. The BG deal will do little to help Shell’s cash flow either, as BG’s annual free cash flow (before dividend payments) in 2015 was a negative $2.4bn.

So, unless oil prices rebound significantly, Shell’s 8.6% dividend yield does not seem sustainable for too much longer.

Massive outflows

Like its bigger rival Aberdeen Asset Management, Ashmore Group is suffering from massive fund outflows as investors cash out of investments in emerging markets. Assets under management have fallen 22.4% over the past year, as a result of a combination of investor outflows and declining asset values.

Net outflows have slowed recently, but there a few signs that a reversal will be soon be due. Fundamentals in emerging markets are beginning to look more attractive but investors are maintaining a cautious stance in fear of further interest rate hikes in the US and the constant stream of disappointing economic data.

With assets under management being regarded as an important indicator of future profits in the business, Ashmore’s long term earnings outlook is unimpressive. Analysts expect Ashmore will see earnings fall 23% in this year, and this should mean dividend cover is expected to decline to 0.9x. With earnings unable to cover dividends, Ashmore’s 7.7% dividend yield is at great risk.

Well positioned

MedicX Fund seems like a better buy. The closed-ended investment company focusses on primary healthcare properties (mostly GP practices and pharmacies), and thus benefits from the non-cyclical nature of the healthcare sector.

Shares in the fund currently trade at a 21% premium to its net asset value, which was valued at 70.8p per share at the end of 2015. The fund’s premium may seem expensive, but it is actually lower than the 12-month historical premium of 34%. Still, pessimists would argue that the commercial property sector in the UK is nearing its peak and risks of a cyclical downturn could mean the premium may erode further.

Whilst there are some signs of overheating in the property markets, there are many reasons to be optimistic. The fund is somewhat shielded from any potential downturn, as almost 90% of rental income comes from NHS reimbursable sources and a growing proportion of tenancies have inflation-linked rent review clauses. What’s more, robust growth in healthcare demand and slow supply growth should mean it is well positioned to gain from steadily rising rental income and capital growth.

The fund currently pays a quarterly dividend of 1.475p per share, giving it a 6.9% dividend yield and an underlying dividend cover of 68.0%.

The post Should You Be Tempted By Yields At Royal Dutch Shell plc (8.6%), Ashmore Group plc (7.7%) & Medicx Fund Ltd. (6.9%)? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Jack Tang has no position in any shares mentioned. The Motley Fool UK has recommended Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.