No sector has been struck more ferociously than the retail segment, a theme I covered in some depth when looking at some of the FTSE 100’s biggest players.

Sales sliding

Retailers of all shapes and sizes have been shocking the markets in recent weeks. Bonmarche (LSE: BON) showed that not even the niche or value retailers are safe from the storm currently battering the high street. The business last week advised “the current trading conditions are unprecedented in our experience and are significantly worse even than during the recession of 2008/9.”

The retailer, which specialises in fashions for more mature customers, cut its full-year profits forecasts because of “extremely poor” trading before Black Friday and disappointing sales since the retail event. Bonmarche’s share price fell to fresh record lows in response and it could recently be seen dealing at 37p per share, down a shocking 72% since the turn of the year.

This fresh news bodes badly for fellow low-cost clothing retailer N Brown (LSE: BWNG), too. I’ve argued in times gone by that, like Bonmarche, the Jacamo and Simply Be owner can rely on its specialist product ranges — in this case plus-size fashion — to help it weather the worst of conditions.

My school of thought came crashing down in October, though. The business, in response to adjusted pre-tax profits sinking 5% between March and August, slashed the interim dividend in half and also warned of a similar cut for the final dividend of the current fiscal year.

No recovery in sight

Not even the fast-growing online segment, an area in which N Brown has been investing heavily over the past several years, can be expected to ride to the rescue of the retailers in the current climate.

This point was gloriously illustrated by ASOS this week, whose share price dropped a shocking 38% on Monday after the FTSE 250 firm cut its own profits and sales forecasts for the year. The internet giant advised of “a significant deterioration in the important trading month of November” and added that “conditions remain challenging.”

I’d add that conditions are in danger of deteriorating further as the UK is dragged closer and closer to a dreaded no-deal EU withdrawal come March. For this reason I’d be happy to overlook N Brown and Bonmarche’s big dividend yields of 9.2% and 16.8% for 2019 and sell out today.

They might be dirt-cheap, both businesses carrying forward P/E multiples inside the widely-considered bargain benchmark of 10 times and below. But they’re cheap for a reason and it’d take a braver man than me to buy into the given the economic and political uncertainty in the UK. I can see their share prices continuing to sink in 2019, and possibly beyond.

The post These dividend stocks yield 9% and 16%! Should you buy them for 2019, or sell up? 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 ASOS. 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.

Despite a predicted 12% profits drop in 2018, Legal & General is still predicted to raise the dividend to 16.3p per share from 15.35p last year. This results in a giant 5.9% yield.

And the dial moves to 6.2% for 2019 thanks to predictions of a 17.3p dividend, a forecast helped by an estimated 7% earnings recovery.

It isn’t hard to see why the number crunchers are so upbeat over Legal & General’s dividend outlook either. The company continues to sling out bags of cash and in 2017 its net release from continuing operations improved 9% year-on-year to £1.35bn. And this balance sheet strength should help payouts continue to rise even in the event of some earnings turbulence, as is expected in the current year.

And looking down the line, I am convinced Legal & General has what it takes to punch strong and sustained earnings growth as it builds scale. Total assets under management at its investment management division came within a whisker of the £1trn mark last year at £983.3bn.

In my opinion the Footsie company is far too good to be trading on a dirt-cheap forward P/E ratio of 10.6 times.

A riskier pick

Bonmarche Holdings (LSE: BON) is another London-quoted stock that could well attract serious attention from income investors.

In the year to March 2019, helped by an anticipated 21% earnings rise the value retailer is expected to lift the dividend to 7.4p per share from an estimated 7.2p reward for fiscal 2018, results for which are slated for June 19. This results in a gigantic 7.7% yield.

And supported by an expected 21% profits jump next year, the dividend is expected to leap again to 7.6p. This means the yield marches to an even-more-impressive 7.9%.

A mega-low forward P/E ratio of 6.4 times completes Bonmarche’s appeal as a brilliant stock on paper. But of course, real world investing involves more than looking at numbers, and for this reason I do not think the FTSE 250 company is a safe pick right now.

Bonmarche plummeted in January after it warned that conditions were becoming more difficult for the country’s clothes sellers. And while last week’s full-year statement came out with no fresh nasties, chief executive Helen Connolly did warn that “we expect the market to remain difficult.”

This comes as little surprise as retail sales indicators in the UK continue to disappoint, the latest batch of Office for National Statistics numbers showing a 0.5% drop in the three months to March and falling short of broker estimates.

Bonmarche may be cheap, but I for one believe the combination of crimped spending power in the UK, combined with the intense competitive pressures in the retail clothing sector, make the business an unsuitable pick for anyone without a high degree of risk-tolerance.

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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.

Higher inflation has also squeezed consumer spending, but the picture could be changing on that front. Wage growth is now higher than inflation and this could prompt an improvement in trading conditions for retail shares.

With that in mind, here are two retail stocks that seem to offer wide margins of safety. While risky, they could prove to be exceptionally cheap at the present time.

Difficult period

Reporting on Friday was womenswear value retailer Bonmarche (LSE: BON). The company’s trading update for the year to 31 March showed that it continued to experience difficult trading conditions, but that it was able to deliver profit before tax, in line with its expectations.

Total sales for the year declined by 0.5%, with like-for-like (LFL) sales falling by 1.5%. However, the performance of its online operations was strong, with LFL sales growth of 34.5% recorded for the full year. Store LFL sales declined by 4.5%, which partly reflects the wider challenges faced by clothing market operators who trade through physical stores.

Looking ahead, Bonmarche is forecast to return to strong growth over the next two financial years. Its bottom line is due to rise by 21% in the current financial year, followed by further growth of 14% next year. These figures suggest that investor sentiment has the potential to increase – especially since the stock trades on a price-to-earnings growth (PEG) ratio of just 0.4.

While potentially volatile and having an uncertain future, the company’s shares may offer high rewards. For less risk-averse investors, they could be worth buying for the long run.

Turnaround potential

Also reporting this week was department store Debenhams (LSE: DEB). It experienced further challenges across its business, with sales and profitability coming under severe pressure. Although poor weather conditions were at least partly to blame since they caused the temporary closure of around 100 of the company’s stores, the underlying performance of the business has remained disappointing.

Further challenges are expected to take place in the coming year as the business seeks to accelerate the implementation of its ‘social shopping’ strategy. The market is forecasting a fall in earnings of 42%, which could cause a drop in the company’s share price after its decline of 57% in the last year.

However, investors appear to have priced in the challenges facing the stock. Debenhams has a forward price-to-earnings (P/E) ratio of around 7, which suggests that it offers a wide margin of safety. With the company expected to return to positive earnings growth of 3% in the next financial year and set to enjoy a potential tailwind from falling inflation, now could be a good time to buy. While it may be a relatively risky stock, its reward potential seems to be high.

The post 2 shares that look absurdly cheap right now appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Debenhams. 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.

Sales rose by 5% to £97.8m, thanks to like-for-like sales growth of 4.3%. Much of this was driven by an increase in online sales, which rose by 38.6%. In-store like-for-like sales rose by a more modest 1.6%.

The group’s pre-tax profit for the first half was £4.2m, more than double the £2m reported for the same period last year. This improved performance lifted the group’s operating margin to 4.3%, compared to 2.2% last year.

H1 earnings rose from 3.1p to 6.8p per share, providing a significantly improved level of cover for the interim dividend of 2.5p per share.

The right time to buy?

This niche retailer has lost nearly 70% of its value over the last two years. Difficult trading conditions have hit profits and left the group facing a difficult turnaround. However, today’s half-year figures suggest to me that chief executive Helen Connolly’s strategy to modernise the group may be succeeding.

I’m particularly impressed by cash generation, which remains strong. Today’s interim figures showed a net cash balance of £14.9m at the end of September. That’s equivalent to almost one-third of the company’s market cap.

The latest broker consensus forecasts suggest that Bonmarche will deliver earnings of 12.7p per share this year and a dividend of 7.2p per share. This gives the stock a forecast P/E of 8 and a prospective yield of 7%.

In my opinion, these forecasts look credible after today’s results. Given the stock’s cash backing, I’m tempted to take a closer look at this share for my own portfolio.

A proven winner

Despite my optimism, an investment in Bonmarche isn’t without risk. I’d only consider this stock as part of a diversified portfolio.

One potential partner for this small-cap turnaround is FTSE 250 food-to-go retailer Greggs (LSE: GRG). The firm’s move into the coffee and café market has proved very successful, and helped to drive sales growth of 8.6% during the 13 weeks to 30 September.

A quality buy?

Greggs’ food and drink may not be everyone’s first choice. But the group’s financial ratios suggest to me that it’s a high quality business.

Return on capital employed — a useful measure of profitability — was 25% last year. That’s well above the 15% level I use as a benchmark to identify businesses with above-average profitability. The group also has a strong balance sheet and has maintained a net cash position for a number of years.

I’m in no doubt about the quality of this business. The question is how much it’s worth paying for the shares. The group’s adjusted earnings are expected to be broadly flat at 62.7p per share this year, while the dividend payout is expected to climb 4.5% to 32.4p per share.

These forecasts place the stock on a forecast P/E of 21.5, with a prospective yield of 2.4%. Although this may seem pricey, it’s worth noting that growth is expected to accelerate next year. Analysts are pencilling in earnings growth of 7% and dividend growth of around 12%.

In my view, Greggs could still be a profitable buy if you’re looking for a mix of income and growth.

The post Why this 7% yield might be worth considering for your portfolio appeared first on The Twelfth Magpie.

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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.

In 2017 the bank is predicted to pay a 3.9p per share reward, and to follow this up with a 4.4p dividend next year. As a consequence Lloyds sports colossal yields of 5.8% and 6.6% for 2017 and 2018 respectively.

Still, the prospect of slowing revenues growth and a hefty rise in bad loans in the months ahead looms large over the company, as does the prospect of further hefty rises in misconduct-related charges — Lloyds had to set aside another £1bn for the second quarter to largely cover the cost of the ongoing PPI saga.

Instead, those seeking abundant dividend flows need to check out the two stocks stars I have outlined below.

Sausage star

Food giant Devro (LSE: DVO) is one income hero I expect to deliver titanic returns.

Although earnings are expected to rise only marginally in 2017, the City still expects the Glasgow business to get its progressive dividend policy back on track after four successive years of paying 8.8p per share. A 9.2p reward is forecast for the year, resulting in a sturdy 4% yield.

And the good news does not end here, a forecasted 14% earnings improvement in 2018 predicted to nudge the dividend to 9.3p. As a result Devro’s yield rises to a mighty 4.1%.

The sausage-casings maker’s share price sprang to nine-month peaks this week after the firm announced an 11% revenues rise during January-June, to £125.2m. The fizzing top line helped drive underlying EBITDA 17% higher to £30.8m.

Devro noted that “volume growth [was] particularly strong in China, South East Asia and Russia,” a factor which helped group volumes rise 7% from the corresponding 2016 period. And the business is primed to launch a raft of new products during the second half to keep sales on an upward slant.

Looking further down the line, the company’s Devro 100 programme — designed to boost sales performance, manufacturing processes and product ranges — should lay the base for sterling revenues expansion in the years ahead. With the plan also set to keep driving costs lower, I reckon investors can look forward to plump earnings, and thus dividend, growth in the years ahead.

Value heavyweight

Bonmarche Holdings (LSE: BON) was another London-quoted dividend beauty throwing out terrific trading news in recent days.

The clothing giant announced last week that total like-for-like sales popped 6.8% higher during the 13 weeks to July 1. Underlying sales at its stores rose 4.2%, but its online operations really grabbed the spotlight — like-for-like revenues here exploded 39% from a year earlier.

While conditions are likely to remain difficult on the high street as rampant inflation squeezes shoppers’ spending power, I am confident Bonmarche’s focus on the value end of the market should allow it to thrive in such an environment.

My optimism is backed up by the number crunchers, who expect earnings to rise 3% in the year to March 2017 before revving up thereafter. A 23% advance is chalked in for fiscal 2019.

And these forecasts are expected to keep dividends on the right side of generous. An anticipated 7.2p per share dividend for this year yields a staggering 7.9%, while the 7.3p payment estimated for next year drives the yield to 8%.

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

Shares of retailer DFS Furniture (LSE: DFS) fell off a cliff last month when the company issued a profit warning and also warned of dampening consumer confidence across the UK. After this plunge, shares of the firm now trade at 4.3 times trailing earnings and offer up a whopping 5.35% dividend yield. Is now the time to buy?

Well, for income investors who are confident that the state of the economy isn’t all that bad the stock may not be a bad bet. Last year shareholder payouts totalled 11p per share and were safely covered by underlying earnings per share of 23.7p. Furthermore, at half-year results in March, the company announced a special 9.5p per share capital return due to good cash generation and net debt falling to 1.42 times EBITDA.

Of course, the profit warning in June does muddy the waters a bit. The company now expects full-year EBITDA to be in the range of £82m-£87m, which is a good deal lower than the £94.4m posted last year. That said, this is still more than enough to cover the £27.3m paid out in ordinary dividends last year and the £20m special dividend.

So, DFS’s dividend potential is still impressive as high cash generation is enough to cover shareholder payouts and reduce leverage. The company also has decent growth prospects in the coming years as it rolls out new stores in the UK, Netherlands and Spain alongside double-digit growth in traffic and sales from its online store.

While I’m not confident that I want to be investing in a retailer so exposed to economic headwinds, especially one that’s already warned on profits once, DFS does appear to be a fairly cheap income option trading as it is at around 10 times forward earnings.  

Headwinds are mounting

Another stock trading at low, low prices and offering high, high dividends is womenswear retailer Bonmarché (LSE: BON). The company’s shares trade at 7.3 times forward earnings and come with an annual dividend yield of just over 8% at today’s stock price.

Of course, shares don’t come this cheap unless the company is facing big problems. And Bonmarché is indeed in a spot of trouble as pre-tax profits for the year to April plummeted from £10.6m to £6.3m year-on-year.

This poor performance came against a backdrop of struggles for many traditional clothing retailers but was compounded by ranges that failed to resonate with today’s trends as well as outdated store layouts and tepid growth from online sales. This means investors will need to closely follow management’s plan to establish new stores at the same time as it modernises its estate, ranges and shopping experience.

An added wrinkle is that as the company ramps up spending on capital expenditure, its hefty dividend payouts are beginning to look vulnerable. Last year operations generated £9.5m in cash, which was enough to cover the £3.4m paid in dividends. However, add on tax payments and the £11m in capex and net cashflow was a negative £6.1m.

With net cash at year-end of £5.5m this isn’t yet a disaster waiting to happen, but the company will be hard pressed to maintain payouts and expansion plans if it posts another poor year of results. That’s enough to stop me from buying Bonmarché shares today.

The post These two 5%+ yielders are ridiculously cheap appeared first on The Twelfth Magpie.

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Ian Pierce 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.

However, after these declines shares in Utilitywise look exceptionally cheap and support a dividend yield that is near twice the market average. Indeed, the shares now trade at a forward P/E of 6 and support a dividend yield of 5.8%. The dividend payout is covered more than twice by earnings per share. Further, analysts have pencilled in earnings per share growth of 16% for the fiscal year ending 31 July 2017, followed by growth of 13% for the following fiscal year. The dividend payout is expected to grow by 10%, leaving the company yielding 6.3%.

So, why is the market avoiding Utilitywise? The company has taken plenty of flak in recent years over the way it books customer transactions and recognises revenue. Utilitywise tends to book sales early before it receives payment from customers, a risky strategy, especially when most of the company’s customers are small businesses. With a Brexit-inspired economic slowdown on the horizon, investors have taken fright, as small businesses are usually the first to feel the pain in a recession.

Restoring confidence

However, management is trying to restore confidence in the company. Alongside the group’s most recent set of results chief executive officer Brendan Flattery declared that the firm has decided to end the practice of taking cash advances from suppliers. A number of prior-period restatements and the non-cash impairment of Utilitywise’s investment in t-Mac were also implemented to help “improve the transparency of the balance sheet.

As yet, the City seems unconvinced, but it’s clear that management is trying to improve the group’s reputation. Utilitywise’s low valuation may discount some of the risk of investing in the firm as it attempts to rebuild and that’s why the company is on my watchlist. 

Set for a rebound? 

Bonmarché (LSE: LSE) is another company that’s fallen on hard times and after recent declines looks cheap. Over the past two years, shares in the company have lost nearly 70% and currently trades at a forward P/E of 7.6, supporting a dividend yield of 7.5%. The payout is covered 1.8 times by earnings per share.

Bonmarché’s stock collapsed during 2016 as management slashed earnings expectations. From a high of 21p, earnings per share plummeted to 10p for the year ending 1 April 2017. After this downgrade, it’s clear why the shares took a tumble. However, City analysts expect the group to return to growth of this fiscal year with earnings per share growth of 27% pencilled in and further growth of 21% expected for the following fiscal year. 

If the company can hit these targets, then the shares look exceptionally cheap on both an income and growth basis. If management fails once again, then the shares could have further to fall. But its already low valuation may help limit the downside.

The post 2 growth and income bargains on my watchlist appeared first on The Twelfth Magpie.

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Rupert Hargreaves 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.