Cash from cash

The electronics payment sector is very competitive, but there’s plenty of growth likely for those who make a success of it. PayPoint (LSE: PAY) is one, and its installation in many thousands of retail outlets for paying household bills and the like has given it a bit of a headstart.

Adjusted earnings per share have been growing steadily, and the company is now in a transition phase after deciding to dispose of its mobile and online payments business and concentrate on its retailer operations. That will leave it with surplus capital, which chairman Nick Wiles has said will be returned to shareholders over the next five years (although special dividends might be deferred should attractive potential acquisitions show up).

The result is that the company’s progressive dividend policy is expected to provide an overall 6.5% yield for the year to March 2017, rising to 6.7% the following year — and that’s with the 963p shares on a P/E of 15 this year, dropping to 14.3 next. Who says you can’t have both growth and dividends?

Support services recovery?

Shares in support services and construction group Interserve (LSE: IRV) have slumped by 57% over the past 12 months. The firm’s acquisition of Initial last year has ramped up its debt position, and a trading update in May warned us to expect a £70m one-off cost in the first half from a contract that’s gone bad. For a company that recorded pre-tax profit of only £79.5m in 2015, it’s a significant hit.

The price fall has left the 281p shares on a forward P/E of only around 4, and has pushed the predicted dividend yield up to 9%! I think it’s very likely that the dividend will be cut this year, and such fear is surely behind the low valuation.

But markets almost always overreact to such fears as there’s still room for a sizeable dividend cut while leaving a reasonable yield this year. The problem is a one-off, and Interserve’s progressive dividend policy should see cash handouts remaining strong in the coming years. Expect some volatility, but definitely one to consider for the long term.

The death of paper

The fall in demand for print products like newspapers and magazines has taken its toll on Trinity Mirror (LSE: TNI) shares, which are down 58% since last November to 76p, and have lost 36% since the Brexit vote on 23 June. But have the pessimists gone too far?

The company’s July trading update told us the board “anticipates that our interim results will be in line with our expectations with continued strong cash generation over the period enabling a further fall in net debt“. That debt did stand at £92.9m at the end of December, which is a lot for a company with a market cap of £212m.

But does it really justify a forward P/E multiple as low as just a little over two when the long-term FTSE average is around 14? I don’t think so, especially with a 7.7% dividend yield forecast for this year followed by 8.3% next, which would be well covered by predicted earnings. Trinity Mirror is priced to go bust, but I can’t see that happening.

The post Are these the best small-cap dividends on offer? appeared first on The Twelfth Magpie.

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

But you know what? A fall that small is completely lost within its usual day-to-day volatility, and the UK’s top index hasn’t even given up the gain it made in the week leading up to the vote.

On top of that, some shares are soaring.

Here are three that could be among the year’s big winners:

Pharma boost

Speciality pharmaceuticals developer Indivior (LSE: INDV) enjoyed a boost in early June, when a patents case in the District Court of Delaware went in its favour and confirmed the validity of the firm’s Suboxone patent. On the day, Indivior shares climbed by 36%, and since this year’s low point on 9 February they’re up 71% to 224p.

The downside is that Indivior is expected to see earnings per share dropping both this year and next, which would put the shares on a P/E based on 2017 forecasts of 15.3 — which is only a little behind GlaxoSmithKline‘s multiple of 16.2 for the same year (with EPS growth and a 5.8% dividend on the cards).

In its first full year as a public company after demerger from parent Reckitt Benckiser, chief executive Shaun Thaxter told us “We significantly outperformed our financial plan for the year“. Indivior’s focus on opioid misuse coupled with its pipeline for developing “potentially transformational treatments for addiction” could well see it ending the year on a high.

Services recovering

Services firm Serco (LSE: SRP), which manages labs, education services, leisure centres and prisons, has not done well in recent years, with its shares losing 80% since their high point in July 2013. But we’ve had a 33% recovery since February’s low, to 102p.

Full year results in February provided a boost, with underlying trading profit coming in ahead of guidance at £96m, and although cashflow was negative, an outflow of £16m was better than expected. A rights issue during the year enabled the company to almost wipe out its debts with a reduction of £605m to just £78m, and Serco saw its pipeline of larger opportunities growing by £1.5bn to £6.5bn.

The shares are on a big forward P/E of over 50, but this looks like a company that is genuinely into recovery — an update in May said performance in the first four months of the year had been “stronger than we anticipated” and that profit for the year should be ahead of previous expectations.

Oily riches

Are smaller oil explorers finally coming to the fore? Indus Gas (LSE: INDI) has suffered badly though the oil price crash, with its shares down 80% since December 2012, but again we’ve been seeing a powerful comeback in 2016 — from a February low, the price has more than doubled to 215p. Strengthening oil prices have help for sure, although the price of a barrel has dipped below $50 again.

In September last year I found it hard to understand the low valuation of Indus Gas shares when they were trading at around half their current price, so I’m pleased with the movement since then. There hasn’t been a great deal of news, so I think the recovery has largely been due to a change in sentiment towards what are actually very thinly-traded shares.

If we see further oil price gains over the next 12 months and more, Indus’s resources in Rajasthan could look very attractive.

The post Will Indivior plc (+71%), Serco Group plc (+33%) & Indus Gas Limited (+105%) be among 2016’s big winners? appeared first on The Twelfth Magpie.

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

Solid housing

Housebuilder Bellway (LSE: BWY) was looking very good on a forward P/E of nine with a PEG ratio for this year of 0.3 (where growth investors typically see 0.7 or less as a good sign) — that was when the shares were changing hands at around £27 apiece, and since then they’ve lost 37% to just 1,700p, as fears of a housing collapse grip the City’s traders.

Now, there is a big risk to the UK’s housing market, for sure, at least partly from European investors who will be a lot less keen to risk their money here. But long-term profits for housebuilders do not depend on short-term property prices, and if demand falls, prices will fall and the houses will still be sold — to grateful occupants, I hope.

But that means land prices would fall too, and cash-rich builders like Bellway should be able to top up their land banks at low prices — just as they did during the last financial crisis. Long term, I reckon housebuilders, including Bellway still show great growth potential.

Support woes

Support services group Interserve (LSE: IRV) has had a horrible time, with its shares losing 56% over the past five years — they had been rallying slightly, but have fallen back 15% since Thursday, to 266p. But the firm’s earnings per share have actually been picking up over the past few years, and an expected standstill over the next few years puts the shares on a P/E of only a little over four — and that’s with a forecast dividend yield of 8.6%!

So, why so cheap? Well, after Interserve’s acquisition of Initial last year, its net debt rose to £309m, and that’s a lot for a company with a market cap of £385m and pre-tax profit of just £79.5m. Coupled with some big one-off costs this year, I think there’s a good chance the dividend will be cut,  even though it’s currently reasonably well covered by forecast earnings.

But the current super-low valuation means Interserve could still offer a decent yield, and with the City’s brokers putting out a strong buy rating on the shares, I see good long-term growth potential — even if we could still see another volatile year in the short term.

Banking carnage

You don’t need me to tell you that banking sector shares have collapsed since the referendum, and the short-term uncertainty means there’s no surprise there at all. Lloyds Banking Group shares are down 28% and Barclays are down 31%,  which I think is seriously excessive, but the one really takes the biscuit is Virgin Money (LSE: VM), whose shares are down a massive 42% since the referendum, plummeting to 212p.

Sir Richard Branson had said he expected Virgin shares to “take a pounding” in the event of a ‘leave’ result and that there could be job losses, and the challenger bank does face danger from its focus on mortgage lending should we really see a housing slump. But if the bank can pull through the short-term pressure (and I see no reason why it shouldn’t) then it could have some serious longer-term growth prospects.

The post Bellway plc, Interserve plc & Virgin Money Holdings (UK) plc still show huge growth potential despite dips appeared first on The Twelfth Magpie.

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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

But one upside of a falling share price is that it can boost dividend yields quite nicely, and you can often lock in a nice future cash stream if you buy when shares are cheap. HSBC’s dividend is forecast to yield 7.4% this year, and who wouldn’t want that kind of income?

The risk though, is that the bank won’t meet that forecast, and in HSBC’s case it’s a genuinely big risk — with EPS set to drop 5%, earnings would be covered under 1.3 times, and that doesn’t fill me with confidence. In fact, at results time the company reminded us that its “dividend growth remained dependent upon the long-term overall profitability of the group and delivering further release of less efficiently deployed capital“.

And don’t forget, Barclays has slashed its dividend for this year, in a move that surprised me — I wouldn’t buy HSBC for the dividend right now.

Getting it right

I’m more drawn to the 7.9% forecast for NEXT (LSE: NXT) for this year, having always been impressed by the quality of the company’s management and its buying expertise. While others on the high street, notably Marks & Spencer, struggle to get their product mixes right in the fickle fashion market, NEXT just seems to get it spot on every time.

A warning at full-year results time in March told us that “2016 will be a challenging year with much uncertainty in the global economy“, and though the results showed increases across the board — including a 5.3% rise in the ordinary dividend, in a year in which NEXT also handed back 230p in special dividends — the share price shed 15% on the day, and as I write it’s standing at 5,390p.

But with two more years of EPS rises forecast, continuing NEXT’s growth trend, the forecast dividends should be adequately covered — and the shares, on a P/E of 11.6 based on January 2018 predictions, look good value to me.

Perfect time?

Facilities management and construction company Carillion (LSE: CLLN) suffered a few years of falling earnings during the economic slowdown, but things seem to have levelled-out now. And after a 4% EPS rise recorded last year, we should see a small overall increase in the next two years. And that presents us with what could be an ideal time to buy the shares — priced at 291p they’re on a forward P/E for this year of only 8.5, dropping even lower to 8.1 based on 2017 forecasts.

But the big attraction is Carillion’s dividend. A policy of maintaining high cover has allowed the company’s payouts to keep pace with inflation even when earnings were falling. And there are two years of inflation-beating rises forecast for this year and next — to yield 6.5% in 2016, with cover by earnings of a respectable 1.8 times.

With Carillion waxing about its “robust, high-quality order book and a growing pipeline of contract opportunities” at results time in March, I can see why there’s a buy consensus out there from the City’s analysts.

The post Are Dividends From HSBC Holdings plc (7.4%), NEXT plc (7.9%) And Carillion plc (6.5%) Too Good To Be True? appeared first on The Twelfth Magpie.

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

Equipment rental firm Ashtead Group (LSE: AHT) has grown its earnings remarkably strongly over the past five years, and the 27% EPS growth forecast for the year to April 2016 would put the shares on a modest P/E of 11.6 and give us a PEG of only 0.4. And 2017 forecasts drop the P/E to under 10 and maintain the PEG at 0.5.

The shares had perked up a bit ahead of today’s third-quarter update and the firm did report a 20% rise in pre-tax profit for the nine months, to £482m, after rental revenue grew by 17%. The full year should be in line with expectations. But the share price was down 13% to 800p by mid-morning, hit by the company’s plans to reduce capital expenditure next year.

There may still be weakness in Ashtead’s US markets, but at today’s price the shares look oversold to me.

Healthy growth

Another that keeps showing up is NMC Health (LSE: NMC), which has yet to release 2015 results. But with the shares priced at 885p, expectations of a 33% rise in EPS put them on a P/E of 22.4 — and a PEG spot on that sought-after 0.7 level. And it gets better — a forecast for 2016 of a further 42% EPS growth would drop the P/E to 16 and the PEG to 0.4. For 2017 we’d end up with a P/E of 13 and a PEG of 0.6. So what does it do?

It’s a healthcare chain in the United Arab Emirates and benefited from demand led by the oil boom of the 80s. Today it has more diverse interests too, with 50% of its turnover in 2014 coming from distribution and other services. Unless the UAE runs out of oil in the next few years, NMC looks like a safe growth prospect.

Poised for the future

WS Atkins (LSE: ATK) counts a role as a contractor to the London Underground among the diverse support services it offers to a number of sectors. It has seen its share price dip by 23% since its recent peak in December, to 1,282p. That’s despite several years of earnings growth already under its belt and with three more forecast.

There’s only a 1% EPS rise forecast for the year to March 2016, but for 2017 there’s a 15% uptick pencilled-in, which would put the P/E on around 11 and give us a PEG of 0.8 — a fraction outside the traditional 0.7 cutoff, but still attractive.

A Q3 update on 10 February told us of “headwinds” in some of Atkins’ markets, but the firm reckons that operating margins are improving, and it’s in some key markets that it should benefit from the ongoing economic recovery.

The post 3 Great Growth Picks For 2016? Ashtead Group plc, NMC Health PLC And WS Atkins PLC appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

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.