Momentum share for a stock market rally

Harry Potter publisher Bloomsbury (LSE: BMY) enjoyed a magical 2020 thanks to more of us picking up a book or 10 during lockdowns. Back in October, the firm revealed a 10% rise in revenue (to £78.3m) and 131% jump in pre-tax profit (to £3m) over the six months to the end of August. Since we’re now into our third national lockdown, I can see this performance lasting a while longer.

Bloomsbury’s financial year ends next month. However, it probably won’t be until May that the company reveals how it’s performed over the last few months. That said, this does allow me time to take a position before the news is announced. 

Of course, whether the company can sustain recent momentum once the stock market rally has run its course isn’t a given. But I’m encouraged by it having plenty of cash on its balance sheet and reinstating dividends.

Rocketing revenue

With its share price soaring in recent months, my decision to buy a stake in laser-guided equipment manufacturer Somero Enterprises (LSE: SOM) in 2020 was one of my better calls.

Somero expects to post revenue of roughly $88m for the full year thanks to excellent trading in North America. This is far more than the $80m analysts were predicting. Adjusted earnings (EBITDA) of about $26m will also be “significantly ahead” of the $21m previously expected.

I can see Somero carrying this form into 2021, even if further planned investment in staff will temporarily impact profits. Demand for its products in the US looks likely to be sustained based on feedback the company has received. A revival of business in Europe and other markets once Covid-19 is conquered is also possible.

Factor-in a special dividend from cash-rich Somero and a forecast P/E of 14 for FY21 and it looks attractive to me in a stock market rally.

Looking good

Bath-based eyewear maker Inspecs (LSE: SPEC) is another small-cap stock showing positive momentum.

It wasn’t always this way. The shares fell 25% not long after their debut on the market last February. After recovering over the summer, they fell again in September and October, highlighting the volatility of small-cap shares that investors need to be aware of.

More recently, the performance has been much better. The shares have almost doubled in value since November. That’s quite a result considering we’ve heard very little from Inspecs over this period. No matter. I think the best stocks for me to own are often the ones not making headlines.

On 28 times forecast FY21 earnings, Inspecs looks expensive. But I think the PEG (price-to-earnings ratio/earnings growth) ratio of 1.6 is worth paying attention to. This implies the shares may actually be trading at a fair-rather-than-excessive valuation given the company’s potential. Add in its global reach and non-cyclical market (those who need glasses get glasses) and I think the £350m cap becomes an increasingly enticing investment proposition.

The post With £3,000 to invest in the stock market rally, I think these UK small-cap shares will keep rising in 2021 appeared first on The Twelfth Magpie.

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Paul Summers owns shares of Somero Enterprises, Inc. The Motley Fool UK has recommended Bloomsbury Publishing and Somero Enterprises, Inc. 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, here are three examples from the small-cap space that have been doing the business for those already invested.

Trading strongly

EKF Diagnostics (LSE: EKF) specialises in manufacturing point-of-care (POCT) devices and tests. These are used in hospitals, clinics and doctors’ surgeries to provide measure hemoglobin, glucose and lactate levels. As you might expect, increased demand since the emergence of Covid-19 hasn’t done business any harm at all. 

In a short-but-encouraging update, the firm stated that “strong trading” last month and a packed order book for the remainder of the year would likely lead it to exceed market expectations on its full-year performance. It’s worth noting that analysts had already adjusted their expectations several times in 2020. 

EKF’s share price is up almost 300% since March’s market crash. That said, I think it’s far more likely to hold on to these gains compared to your typical ‘pop and drop’ penny stock. A valuation of 36 times earnings for FY21 is high but unsurprising.

Blooming sales

Everyone knows Harry Potter. Ask who prints the boy wizard’s tales, however, and many people will draw a blank. Just in case you’re one of them, it’s Bloomsbury Publishing (LSE: BMY). Based on recent trading, it’s a name worth remembering.

A beneficiary of the first lockdown and the move to remote learning, Bloomsbury recently reported record earnings for the six months to the end of August.

All told, revenues climbed by 10% to £78.3m. Year-on-year profits grew 60% to £4m, exceeding even management’s expectations. The shares have understandably rallied.

Will this momentum fall once we’re released from lockdown round 2? It’s possible. Then again, true investors rarely concern themselves with short-term fluctuations. It’s the underlying business that matters, and Bloomsbury looks sound. So sound, in fact, management has reinstated its dividend policy.

Shares currently trade at 23 times forecast earnings. That’s not cheap, but a bulletproof balance sheet (£44.1m in net cash at the end of August) helps justify this valuation. 

A small-cap treat

Last on my list of top small-cap buys would be global ingredients specialist Treatt (LSE: TET). In its most recent trading update, the £375m-cap reported that FY20 pre-tax profits were likely to be “in line with pre-Covid-19 expectations” of around £14m, despite a slight dip in revenue.

Clearly, the outlook remains foggy due to the coronavirus. According to CEO Daemmon Reeve, however, Treatt is “strongly positioned to benefit from key consumer trends including the preference for natural products, a growing interest in health and wellness, and premiumisation.” 

A price-to-earnings ratio of 31 for FY21 is, again, undeniably punchy. Even so, I’d argue that a company with a market-leading position like Treatt is worth paying more for.

Like EKF and Bloomsbury, its finances are in good order. At the end of FY20, the business had £1m in net cash (excluding lease liabilities) in its coffers.

It’s also still paying out dividends. You won’t find many penny stocks doing that!

The post Forget penny stocks. I’d buy these top UK small-cap shares for my ISA instead appeared first on The Twelfth Magpie.

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• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Bloomsbury Publishing and Treatt. 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 these opportunities that I think it could be an excellent investment if you have just £1,000 is Bloomsbury Publishing (LSE: BMY). 

Cash cow

Bloomsbury’s most famous publications are the Harry Potter novels, but this is much more than just a one-trick pony. The company operates four publishing divisions, adult, children’s and educational, academic and professional, and information. 

Even though J.K. Rowling’s books continue to provide a steady stream of income for the group, other non-fiction publications, such as Three Women by Lisa Taddeo, have reached the bestseller lists. Cookbooks by TV chef Tom Kerridge, have also been”significant titles” for Bloomsbury over the past two years.

It is also investing in its digital offering. Last month, Bloomsbury announced a partnership with the National Theatre, enhancing the profile of its “award-winning Drama Online platform,” a digital library for the acting profession.

As Bloomsbury continues to push out titles and invest in its digital offering, City analysts expect earnings per share to jump 26% this year to 16.2p. According to a trading update issued by the business today, management believes the company is well on the way to meeting this target, which puts the stock on a forward P/E of 14.4.

On top of this, shares in Bloomsbury support a dividend yield of 3.6%. The payout is covered twice by earnings per share and backed up by £28m of cash on the balance sheet, enough to sustain the dividend for more than four years according to my calculations.

Mixed outlook

In comparison to Bloomsbury, Royal Mail looks to me to be a bit of a basket case. Shares in the postal service are cheaper than those of Bloomsbury, trading at a forward P/E of just 8.9, but they are cheap for a reason.

City analysts have pencilled in a 49% decline in earnings per share for the company’s 2020 financial year, and they don’t expect earnings to snap back in the following year either. As well as falling earnings, Royal Mail’s dividend is set to contract by a third in the current financial year. There’s a chance the firm will have to reduce its payout further in the years ahead as well.

Management wants to spend £1.8bn over the next five years to try to reinvent Royal Mail for the 21st century, investing more money in the parcels division and improving operational efficiency. According to reports, this investment is badly needed, but it will reduce the amount of cash that is available for distribution to investors. The payout is only covered 1.4 times by earnings per share, which does not give the company much headroom if earnings suddenly lurch lower again.

The bottom line 

So overall, compared to Royal Mail, Bloomsbury looks to be a much better investment. Not only is the company growing rapidly, but it also has a strong balance sheet, attractive dividend credentials and owns the rights to some of the most popular books sold over the past 20 years.

The post £1k to invest? I’d avoid the Royal Mail share price and buy this dividend hero instead appeared first on The Twelfth Magpie.

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• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Rupert Hargreaves owns no share 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.

I still consider it to be a brilliant income share to buy today and hold forever, though, given that the yield is still quite chubby, as well as the probability that dividends should keep rising at a health rate each year. Shareholder rewards at Bloomsbury have already risen for 24 years on the bounce.

Why am I so confident? Well the colossal popularity of Harry Potter, of course, and the huge amounts of profits and cash that the wizard conjures up for his publisher. This was perfectly illustrated by the fact that revenues from JK Rowling’s legendary franchise boomed 31% last year, one which marked the 20th anniversary since Potter first rolled into Hogwarts.

Bloomsbury would be mad not to capitalise on this and thankfully it has no intention of neglecting the franchise. Following the special editions which marked last year’s milestone, the publishing house has plans to unveil an illustrated version of Harry Potter and the Goblet of Fire in the months ahead, just to give you a flavour.

Strength all round

I’d be doing Bloomsbury a massive disservice by suggesting that it’s simply the House of Harry, though. The company has terrific strength and depth as shown by the 24 bestsellers it delivered last year.

I’m also hugely encouraged by the progress it’s making in the field of academic and professional digital resources, a segment in which revenues blasted 42% higher in the last fiscal year. Bloomsbury has big plans to keep sales here shooting through the roof by adding aggressively to its library and signing content partnership deals with major universities and academic organisations.

City analysts expect Bloomsbury’s profits growth to improve 14% in fiscal 2020 and this, allied with the rate at which it’s creating cash — net cash on the books rose £2.2m year-on-year as of February to £27.6m — suggests that it will indeed raise the dividend again this year. I think it’s safe to say that it’s in great shape to keep hiking rewards long beyond the near term.

Brick beauty

I’m also confident enough to tip Forterra (LSE: FORT) as another share that can provide huge returns for many years to come.

Not that dividend chasers have to wait long to make a large windfall. In May, the brick-maker said that it was increasing the dividend payout ratio to 45% of earnings in 2019 and to keep lifting rewards thereafter.

The rationale behind this move? The receipt of planning permission to build a state-of-the-art brick-making facility in Leicestershire, a move that’ll more than double current capacity and allow the production of 180m bricks per year when it opens in 2022. Forterra can be confident that its bricks should fly out of the factory and that demand should remain robust for many years given the scale of the country’s homes shortage. 

Like Bloomsbury, yields at the business may not be the biggest right now — this currently sits at 3.7% for 2019 — but its bright profits outlook and appetite for rewarding shareholders also makes it a top buy for income chasers, I believe.

The post Dividend alert! 2 small-cap income stocks that I’d buy and never sell appeared first on The Twelfth Magpie.

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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.

Decent progress

At 235p, the share price is up around 14% since October and the company still displays some tempting value indicators such as a forward-looking dividend yield just over 3.5% for the trading year to February 2020 and an anticipated forward earnings multiple around 14. I don’t think that’s too high a valuation considering that City analysts following the firm have pencilled in double-digit percentage increases in earnings for the next couple of years.

Today’s figures reveal that although revenue only rose a little under 1% during the year, diluted earnings per share jumped up 16% and the directors slapped almost 6% on the total dividend for the year. The firm has been a consistent dividend raiser, claiming that this is the “24^thconsecutive year of dividend growth.” Over the past five years, the dividend has grown by 36%, which strikes me as decent progress.

The company’s global growth strategy was reinvigorated just over a year ago when the company shaped its plans around the theme of a Bigger Bloomsbury under the current chief executive Nigel Newton. He reckons the company achieved all seven of the initiatives launched under the banner, including improved working capital engineered by lowering inventories by £2m.

Fast-growing non-consumer trade

He explained in today’s report that the Academic and Professional division delivered an “outstanding” performance in the period with revenue climbing 13% leading to a £3.5m uplift in profit before tax, which is good news because the year before, that division lost £0.4m. Profit of £3.1m now represents quite a turnaround in the division. Overall, what the company classifies as Non-Consumer revenues grew by 7%, helped by progress in Digital Resources and the May 2018 acquisition of IB Tauris in that area of operations.

The Non-Consumer business delivered around 15% of overall operating profit in the period and growing. It looks like a fast-growing area of business worth keeping an eye on and which could help propel the share price and profits to new heights in the years to come.

Bloomsbury’s share price peaked on the back of stonking sales from the Harry Potter series back in 2005 before falling back considerably. But there is much more to the publisher than just the boy wizard, even though the franchise remains important to the firm.

If you’d bought shares in the company 10 years ago, and after the fall-back from their peak, you’d be sitting on both dividend and capital gains. The same if you’d bought into the firm five years ago, and it’s all because of steady operational progress as exemplified in the record of dividend growth. I like the story here and would be happy to hold the stock with a five-year-plus time horizon in mind.

The post Here’s another super stock I’d buy today appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any share 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.

On top of these attractive qualities, shares in the company currently support a dividend yield of 5.3%, which is around 0.5% above the FTSE 100 average. 

There’s also one other reason why I reckon this company is expected to produce significant returns for investors in the years ahead.

Investor windfall

At the end of December, Glaxo shocked the market by announcing it was merging its consumer healthcare arm with US drugs giant Pfizer. The combined business will become a mega-giant in the consumer healthcare market, with annual sales of £9.8bn. 

It was only at the beginning of 2018 that Glaxo announced it would be activating the option to acquire the rest of its consumer healthcare joint venture with Swiss peer Novartis, formed a few years ago. The scale acquired through this initial transaction allowed Glaxo to grab the lion’s share of the new joint venture. The company will have 68% of the new business. 

Even better news for investors is that Glaxo and Pfizer have decided the new business will be spun off and listed separately in London within three years. This could provide a massive windfall for investors. For years, Glaxo break-up rumours have been circulating because analysts believe splitting the company up will create more value for investors. Star fund manager Neil Woodford has been one of the most vocal critics of the group’s conglomerate structure and once did a sum-of-the-parts valuation, claiming a potential market value of £100bn (over 2,000p a share) in the event of a breakup.

Only time will tell if this is accurate, but I believe Woodford is in the right ballpark. And investors will be paid to wait for the divorce. 

Over the next three years, I calculate the company will distribute 240p per share in dividends (80p per quarter). Added on to the potential 2,000p sum-of-the-parts estimate, and investors could be looking at an upside of 48% from the current level.

Magic income

If you already own Glaxo, another dividend stock I’d buy alongside is Bloomsbury Publishing (LSE: BMY). 

Publisher of the Harry Potter books, this company isn’t just a one-trick pony. It’s been expanding its presence in the academic and professional markets, which provide a steady income away from more traditional publishing income streams. This strategy is expected to pay off handsomely, with City analysts forecasting earnings per share growth of 19% for fiscal 2019, and 14% for fiscal 2020. 

These estimates put the stock on a forward P/E of just 12.2 for fiscal 2020, a multiple that I think undervalues the company, especially when we factor in its double-digit earnings growth. 

On top of this attractive valuation, investors can also look forward to a dividend yield of 4%. With the payout covered 1.8 times by earnings per share, the distribution seems sustainable, with room for growth. As a bonus, the company has a net cash balance of £17m, enough to sustain the diffident for roughly three years, if profits evaporated overnight.

The post One dividend growth stock I’d buy alongside the GSK share price appeared first on The Twelfth Magpie.

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• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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 Motley Fool we’ve spent no little time explaining why recent risk-aversion across stock markets leaves ample opportunities for savvy investors to grab a bargain or two. Even the release of stellar trading news hasn’t prevented some great companies from sinking and this, quite frankly, is barmy.

Take Bloomsbury Publishing (LSE: BMY), for instance. ‘The House of Harry’ (Potter, that is) fell back below the 200p per share milestone in Thursday trading and it is now dealing at levels not seen since the middle of May.

Considering that the publisher released another set of exemplary financials earlier this week, I reckon this weakness should put all bargain hunters on red alert. And particularly those with a predilection for chunky dividend yields.

It’s not all about Harry

Bloomsbury announced on Tuesday that, thanks to a 4% revenues rise between March and August, to £ 75.3m, pre-tax profit before one-off costs (such as restructuring charges related to its acquisition of publisher I. B. Tauris) charged 13% higher to £2.9m.

The performance of Bloomsbury’s Harry Potter cash cow franchise is of course the first thing that investors look at. And thankfully the results showed that reader interest in the Hogwarts favourite has remained bubbly following on from the fanfare of last year’s 20th anniversary, with sales of these titles having risen 5% during the six months to August.

But the magician’s enduring popularity isn’t the only reason to cheer latest results. As I’ve mentioned previously, Bloomsbury’s drive into the academic and professional publishing segments provides some really terrific earnings opportunities for the years ahead. And this was laid bare in the half-year report, with the business declaring that revenues from its academic and professional titles had risen 9% during March-August to £18m.

Bloomsbury continues to make strong development progress on this front too. It remains on track to launch three new digital resources in the second half of this year alone following the three that it brought out in the first. And this week it also inked a five-year subscription deal with the Institute of Chartered Accountants of England & Wales to supply its online tax services.

Dividend upgrades

Bloomsbury’s sterling performance over the past several months has led brokers to upgrade their medium-term profits estimates, and rises of 2% and 12% are now forecast for the fiscal years ending February 2019 and 2020 respectively.

And consequently dividend projections for this period have been improved too. An 8p per share reward predicted for this year remains the same, yielding 4.1%, but next year’s has been raised to 8.5p, a figure which nudges the yield to 4.4%.

What’s more, that share price weakness I mentioned earlier now leaves Bloomsbury dealing on a dirt-cheap forward P/E ratio of 13.6 times. This reading should command attention from all wise value investors and I for one am seriously considering buying into the books behemoth.

The post Have £2,000 to invest? A shockingly-cheap dividend growth stock I’m considering buying today appeared first on The Twelfth Magpie.

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• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

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.

Growth at a reasonable price?

I think the firm is attractive because of its valuation too. The current share price has drifted down around 25% from its June high and sits close to 197p, which throws up a forward price-to-earnings ratio a little over 12 for the year to February 2020. The forward dividend yield runs close to 4.3%.

In today’s half-year results report, the directors said the firm is “trading in line with the Board’s expectations for the full year.” Revenue in the first six months rose 4% compared to the equivalent period the year before and adjusted diluted earnings per share moved 12% higher. Historically, the firm’s trading figures have been biased to the second half of the year, so I’m expecting H2 to look like a bumper result compared to H1. The directors expressed their confidence in the outlook by pushing up the interim dividend by 5%.

Bloomsbury is busy integrating its May acquisition of London-based academic publisher I B Tuaris, for which it splashed out £5.8m. In today’s report, the directors said the acquisition is on course to contribute £3.5m of revenue and £0.3m of profit for the full year, which looks promising. Meanwhile, in another growth initiative, the company announced today “a significant seven-figure deal” with the Institute of Chartered Accountants in England & Wales (ICAEW) to provide ICAEW firms with core tax and accountancy content online.

A bigger Bloomsbury

The agreement lasts five years and provides the employees of eligible ICAEW firms with access to Bloomsbury’s online tax and accountancy service, which includes core legislation, expert commentary and tax cases aimed at supporting firms in their client practice work. The company said in the announcement its Bloomsbury Professional division has some of Britain’s leading tax advisors and practitioners writing expert content. Greg Kilminster, managing director of Bloomsbury Professional said: “Collaborating with ICAEW to provide content is a key initiative for us.” He asserts that the firm’s practitioner content is “widely recognised as being core to the tax and accountancy market.” 

I find these developments encouraging and supportive of the firm’s clear focus on growth, which involves seven key growth initiatives that the directors are pursuing under the banner of ‘a bigger Bloomsbury’. The first half saw “notable” progress in the profitability of the Adult and Academic & Professional divisions, growth in overseas sales and “continued” improvement in the working capital figures.

The global strategy for expansion includes building up sales in the US, Australia and India, as well as “developing” business in China by publishing books in English in the west for “major Chinese publishers”.  Overall, Bloomsbury has been making quiet progress for years but I sense renewed vigour in the growth rate and expectations of the firm and see the shares as attractive.

The post Why I’d buy this small-cap, despite the shares sinking 25% in four months appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Kevin Godbold 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.

Britain’s small-cap index is jam-packed with exceptional income shares so I’ve picked out even more for you to consider, placed in no particular order. Count them down; you won’t be disappointed.

6. International Personal Finance

International Personal Finance’s(LSE: IPF) share price has spiked in recent sessions amid news of better-than-expected collections in its European marketplaces in the first six months of 2018, a situation that prompted the doorstep lender to advise that full-year profits would beat all forecasts.

While impressive, it is the huge revenues possibilities over at its Mexican home credit and IPF Digital arms that I am really excited about — the amount of issued credit in these areas rose 13% and 44% respectively during January-June, and demand here looks set to continue booming.

Now City analysts are expecting the dividend to remain on hold at 12.4p per share yet again in 2018. The good news is that this figure still yields 5.2%, however.

To put an even bigger smile on your face, International Personal Finance is expected to bounce back into earnings growth in 2019, meaning that the Square Mile is confident that the firm should lift the dividend to 12.6p. This means that the yield stomps to a staggering 5.3%.

5. 4Imprint Group

The yields at 4Imprint Group (LSE: FOUR) may not be as mesmerising as those of International Personal Finance. But the rate at which dividends are growing (up 111% over the past five years alone) should make income-seekers sit up and take notice.

It’s not likely that dividend expansion is set to slow any time soon either, given the rate at which its cups, bags and other promotional products are being snapped up. Revenues grew 16% and order intake jumped 15% year-on-year during the first four months of 2018, and a strong US economy should help sales to keep spiralling skywards.

Earnings at the firm are expected to continue swelling by double-digit percentages through to the close of 2019, keeping City brokers expectant of further dividend leaps too. Last year’s 58.1 U cents per share reward is expected to skate to 63.5 cents this year and 72 cents next year, resulting in handy-if-unspectacular yields of 2.5% and 2.8% respectively.

4. Bloomsbury Publishing

The publisher of the Harry Potter series of books, Bloomsbury Publishing (LSE: BMY), can always rely on the evergreen popularity of the boy wizard to keep driving dividends higher.

It may be two decades since the Hogwarts hero first hit bookshelves, but his popularity with young and adult readers alike remains undiminished. The franchise ranked amongst Bloomsbury’s hottest sellers in the four months to June, and the publisher continues to capitalise on its broad acclaim by bringing out new editions on a regular basis.

Harry Potter isn’t the only reason to expect profits and dividends to keep growing, however. The small-cap is also in a good place thanks to the vast amounts it is investing in building its position in the academic and professional digital resources sphere.

With earnings expected to keep rising City brokers are predicting dividend growth to hit as much as 8p per share in the 12 months to February 2019, from 7.51p last year, and again to 8.4p next year. This means that yields stand at an inflation-topping 3.6% and 3.8% for these respective years.

3. Devro

Sausage-casings manufacturer Devro (LSE: DVO) has been forced to keep the dividend locked at 8.8p per share for what appears to be an age. A lengthy period of earnings fluctuations has seen it lack the confidence (and the balance sheet strength) to hike payouts, but things could be about to change.

City analysts expect the firm to deliver robust profits growth through to the end of next year, meaning that Devro is expected to raise the dividend to 9p this year and again to 9.3p in 2019. Subsequent yields clock in at 4.5% and 4.7%.

There’s a lot of reason for the number crunchers to be optimistic. Devro is a rare firm in that it’s seeing its costs dropping through the floor (down £7m in 2017, beating forecasts), at the same time as its sales are marching on, particularly in hot growth territories like Russia and China. There’s a lot to like about Devro and its self-help strategy right now.

2. MJ Gleeson

News that MJ Gleeson (LSE: GLE) remains on course to supercharge home sales over the next five years has got me very excited.

The urban regeneration specialist sold 1,225 properties in the 12 months to June, up by a fifth (or 20.9% to be exact) from a year earlier. It’s well on track to hit its target of 2,000 homes per year within the next five years, it said, and I wouldn’t bet on it missing expectations as it ramps up production (it aims to be active on 70 sites in the course of fiscal 2019 versus 65 today).

Dividends at the firm have jumped 860% over the past five years as earnings have shot through the roof, culminating in last year’s 24p per share reward. Payout expansion is expected to slow in the medium term, however, to 27.1p in the year just passed and 29p in the current year. But the builder and its meaty forward yield of 3.8% are not to be scoffed at, particularly as cash flows burst through the roof and profits look set to keep growing.

1. Headlam Group

Those hunting for blowout yields now and in the future could do a lot worse than splashing the cash on Headlam Group (LSE: HEAD).

A 26p per share dividend is anticipated for 2018, up from 24.8p last year and yielding 5.6%. The yield for next year moves even higher to 5.9%, thanks to the firm’s estimated 27.4p payment.

The floorcoverings giant has been hit more recently by tough conditions in its UK marketplace in 2018 so far, but its divisions in continental Europe continue to perform well. Like-for-like sales in Europe edged up by 1.8% in the six months to June. And it is a combination of robust economic conditions on the continent, plus the completion of Headlam’s shrewd acquisitions at home and abroad, that make me confident that this is one business that could provide you with a packet to retire on.

The post 6 small-cap dividend stocks that could be millionaire-makers appeared first on The Twelfth Magpie.

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

Management said that revenue for 2018 is now expected to be about $130m, compared to $137m last year. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) are now expected to be “marginally lower” than last year’s figure of $47.1m.

Analysts’ forecasts I’ve seen suggest revenue was previously expected to rise to $144m, with after-tax profits to increase by about 10%. So this is a significant miss, although not a catastrophe.

What’s gone wrong?

This company publishes a wide range of websites, most of which carry content and reviews related to online gaming. XLMedia makes money by using these websites to generate leads and new customers for online gaming operators, who then pay the firm a commission.

It’s a lucrative business and the firm generated an operating margin of almost 30% last year. However, regulatory risks are a concern in this sector.

In an effort to diversify, management has been buying up personal finance assets, such as credit card comparison sites. Although progress is said to be good, this shift isn’t happening quickly enough to counter regulatory headwinds in the gaming sector.

Regulatory headwinds

In today’s profit warning, XLMedia said that regulatory changes in Australia had led to the “closure” of this market at the end of last year. I can’t find any mention of this in previous results, so I’m not sure if this was flagged up previously.

Regulatory uncertainty in Europe is also said to be hampering performance. And the firm says there has been “some reduction in SEO [search engine optimisation] performance in a few specific territories”. What this means is that some of the firm’s websites are not ranking as highly in internet search results as they did previously, reducing visitor numbers.

Should you buy, hold or sell?

I’ve previously been a fan of this stock, thanks to its high profit margins, strong cash generation and five-year growth record.

But today’s statement warns that “regulatory changes have triggered a re-alignment in how operators and marketers can work”. This suggests to me that profitability could be lower in the future.

Today’s warning could be a short-term blip, but it could also be a turning point for the firm. After today’s drop, I estimate that the shares trade on about 12 times forecast earnings with a prospective yield of about 4%. That’s not cheap enough for me at the moment, so I’ll be avoiding this stock until the picture becomes clearer.

A traditional moneymaker?

XLMedia provides free content and makes money by generating leads for gaming operators. But my next firm has customers who are happy to pay to read the material it publishes.

This traditional business model is working well for the publisher of the Harry Potter series, Bloomsbury Publishing (LSE: BMY). The firm’s latest results showed that sales rose by 13% to £161.5m last year, while pre-tax profit was 10% higher, at £13.2m.

These results were ahead of expectations. And the company delighted the market by announcing that 2018/19 profits were also now expected to be “well ahead of previous expectations”.

What could go wrong?

Bloomsbury doesn’t just publish Harry Potter. The group also has a growing academic publishing and adult fiction business. But one thing that jumps out at me from last year’s results is that 86% of adjusted operating profit came from “Children’s Trade”, which I assume is dominated by Harry Potter sales.

The only other profitable part of the business was “special interest”, which includes non-fiction books in areas such as history, sport and wildlife.

Over-dependence on Harry Potter could be a risk in the future, but it seems safe enough at the moment.

Should you keep buying?

Bloomsbury’s share price has risen by 20% since its results were published in May. The shares now trade on 17 times forecast earnings for 2018/19, with a forward yield of 3.3%. That’s not obviously cheap, but if earnings growth can be maintained, the shares could soon grow into this valuation.

I’d continue holding and would buy more on any dips. This appears to be a good quality business that’s firing on all cylinders.

The post Here’s why this battered small-cap dividend stock has fallen 25% today appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Roland Head 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.