Why is it now surging? What caused it to fall in the first place? And should I be adding the stock to my portfolio? Let’s take a look.

Why did the Card Factory share price crash in 2020?

During the early days of the pandemic, lockdown forced Card Factory to close its stores around the UK. Its share price crashed by over 60% in a matter of weeks. And based on its interim earnings report, I can see why.

Total revenue fell by half, profitability went out of the window, and dividends were suspended. However, there were some positives — specifically, online sales grew by an impressive 64%.

Before the pandemic, this revenue source remained mostly underdeveloped. Consequently, while this surely helped mitigate the impact of Covid-19, it wasn’t able to prevent the business from making a loss. By comparison, its online competitor Moonpig thrived throughout 2020 and saw its bottom line grow by 125%.

Why did the Card Factory Share price double in 2021?

In February, the UK government announced its plans to begin easing lockdown restrictions in England. Under the proposed roadmap, non-essential stores, like the ones belonging to Card Factory, are set to reopen in April. The same is true for Wales.

This is undoubtedly fantastic news for the card and gift retailer that currently has over 1,000 stores around the UK waiting to reopen their doors. It may take a while for the business to return to pre-pandemic levels. But this latest development does give investors hope to see the revival of the stock’s famous 18% return on capital employed and its 5% dividend yield.

Should I buy now?

While the pandemic may soon be coming to an end, Card Factory has many challenges to overcome. Personally, I would like to see it focus on expanding its online operations, even after the lockdowns have ended. Let me explain why.

A quick glance between Moonpig’s and Card Factory’s income statements reveals a glaring difference in the level of profitability. Card Factory’s operating profit margin is a mere 7.6% versus Moonpig’s 21.7%. That’s quite a substantial difference that seems to be caused by the former having a network of physical stores.

Over the years, this network has helped develop Card Factory’s brand. But it also introduces substantial operating expenses such as rent and staff salaries. The latter proved to be particularly troublesome towards the end of 2019 when the company issued a profit warning following an increase in the national living wage.

What’s more, the firm now has a lot of additional debt to contend with. And is already in breach of previously established debt covenants. The banks have agreed to provide waivers and support through refinancing options, but this only delays the problem. If the government decides to change the current roadmap, it could hurt the business and its share price.

Overall, it does look like it’s on track for a recovery over the year. But for now, I’d rather wait and see before buying.

The post The Card Factory share price is on the rise. Should I buy now? appeared first on The Twelfth Magpie.

More reading

• Want to retire early? Here’s how a weak stock market could actually help

Zaven Boyrazian does not own shares in Card Factory. The Motley Fool UK has recommended Card Factory. 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.

Card Factory

Management said the “general election and weak consumer sentiment ensured that the long-running trend of declining high street footfall was maintained”, filling investors with foreboding. The Card Factory share price has now halved in five years.

The £376m group still hails itself as “the UK’s leading specialist retailer of greeting cards, dressings and gifts”, but it’s in a tough sector. Yet has the market gone in too hard today?

Like-for-like sales fell 0.6% in the 11 months to 31 December, although total group revenue rose 3.6% as new stores opened. Cardfactory.co.uk is gaining ground, with online sales up 14.8% year-to-date, boosted by “enlarged gift and party ranges and increased customer awareness”. That growth is slower than 59.1% last year, but is still good and a new platform should further boost this in 2021 by enabling click-and-collect and in-store ordering.

Management has also fought back by boosting average transaction value, opening a raft of new stores, and rolling out its agreement with Aldi to supply a range of everyday cards to 440 UK stores. This month, it rolls out its card offering to The Reject Shop‘s 360 stores in Australia.

The “depressed sterling valuation” has also weighed on Card Factory, but at least that is now changing. High cost inflation, especially wages, remains a worry, and management says efficiency opportunities are finite, but it will present a “refreshed strategy” in April.

This stock is cheap, now trading at just 8.1 times forward earnings, with a forecast yield of 9.8%, covered 1.3 times. However, there is unlikely to be a special dividend this year, and the payout will be reviewed in April. Brave bargain hunters may be tempted, but with Amazon operating on its patch, I’m wary.

Redrow

Personally, I’d be looking for a stock in a healthier sector, and I am more bullish on housebuilders than retail. I remained bullish during the post-EU referendum slump, when the sector crashed on fears the uncertainty would hammer the housing market. I didn’t buy that theory, given the massive undersupply of property.

History has absolved me, with FTSE 250 listed Redrow (LSE: RDW) up 40% in six months, and 167% over five years, as it cannot build houses fast enough to meet demand. Following December’s election, it should get a further boost from plans to reduce planning red tape, and from an anticipated economic revival.

In a further tailwind, interest rates and mortgages are set to stay low or even fall further. Yes, Help to Buy is now on borrowed time, but demand is just too great for that to be a major concern.

My big worry is that Redrow’s earnings looks set to slow. After routinely posting double-digit growth, the current year sees a forecast 1% drop, and growth of just 2% in 2021. However, the Redrow share price trades at just 8.1 times forward earnings, despite its spectacular growth, while the 4.2% forecast yield is covered 2.9 times by earnings. It also boasts £124m of net cash. House price growth is holding up too. I’d buy it.

The post This 10% yielder has crashed 20% today. Does that make it an unmissable buy? appeared first on The Twelfth Magpie.

More reading

• Want to retire early? Here’s how a weak stock market could actually help

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of Card Factory. 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.

One of these is high-street retailer the Card Factory (LSE: CARD). Most investors wouldn’t touch a high street retailer with a barge pole in the current environment, but I believe the Card Factory deserves a second look.

Indeed, the company seems to be coping quite well at a time when so many other retailers are collapsing, or asking for creditor concessions to help keep the lights on.

Sector-leader

In its latest trading update, published at the end of September, Card Factory revealed sales grew 1.5% on a like-for-like basis during its fiscal first half.

Unfortunately, pre-tax profit declined 14.4% as higher costs hit profitability. Nevertheless, management is confident the company has what it takes to be able to grow at a time when so many other retailers are struggling.

The group is investing in its online business, focusing on personalisation and introducing newer varieties for seasonal festivities like Valentine’s Day. On top of these efforts, management is signing new retail partnerships in the UK and abroad as it grows its market share.

All of these indicate to me the company is well-positioned to navigate the current retail environment and could come out stronger on the other side.

With this being the case, I think the stock is an attractive investment at current levels as it trades at a discount forward P/E of just 9.7 and offers a dividend yield of 8.1%.

Distressed investing

As well as Card Factory, I think Micro Focus (LSE: MCRO) could also be worth your research time.

Following yet another poor trading update at the end of August, investors have been selling shares in this software giant over the past month. After these declines, the stock is currently changing hands at just 6.7 times forward earnings.

However, I think the market is missing something. Micro Focus has a history of issuing trading warnings but, for the most part, it has then gone on to outperform.

For example, following the company’s last major warning in March 2018, when the stock fell around 50% in a few days, it’s shares went on to double in value over the next 12 months.

And I think the same could happen this time around. Even though analysts have revised their growth forecasts for 2019 lower during the past few months, they’re still expecting the group to earn $2.03 (or around 170p) per share for the year.

If Micro Focus hits the City’s growth targets for 2019 without any further disappointments, that looks dirt cheap at current levels. On top of this, shares in the tech business currently support a dividend yield of 8.2%. The distribution is covered twice by earnings per share, so it looks exceptionally safe for the time being.

That’s why I think it could be worth snapping up shares in the business at the current price to take advantage of the market’s short term mentality.

The post £2k to invest? Here are two FTSE 250 dividend stocks I like yielding 8%! appeared first on The Twelfth Magpie.

More reading

• Want to retire early? Here’s how a weak stock market could actually help

Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of Card Factory. The Motley Fool UK has recommended Micro Focus. 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.

AA

Motoring breakdown and insurance group AA (LSE: AA) has seen its share price fall by a thumping 45% over the past 12 months, and 77% over five years, as profits have been squeezed by tough competition in its key markets.

A flurry of directorship purchases earlier this year encouraged investors, while the FTSE 250 group’s August update pointed to a return to growth and strong free cash flow, amid positive operational momentum and a stabilisation in its paid membership base. Optimists hoped a three-year contract to offer the AA’s services to Admiral customers marked a turning point. 

Today, the AA share price is up slightly after its interims to 31 July showed a first-half performance in line with expectations, with the group “on track to deliver trading EBITDA growth and strong cash flow generation” over the full year.

CEO Simon Breakwell said the roadside business has stabilised its personal membership base, which should be broadly flat this year, and return to growth next, while its insurance business continues to generate strong rates of profitable policy growth, which he expects to continue in the second half.

Pre-tax profit jumped 50% to £42m, although operating profit rose just 3% to £120m. Revenues climbed only 2.3% to £491m. 

AA’s stock is up 47% measured over three months, so the share price recovery has already begun. However, its net debt stood at a mighty £2.7bn recently, which is massive for a company only valued at £424m. That largely explains its lowly valuation of 4.5 times future earnings, and will scare away anybody with a passing knowledge of Thomas Cook. On that note, I think I’ll look elsewhere.

Card Factory

Greetings card retailer Card Factory (LSE: CARD) has also had a rough time, its stock down 16% over one year and 28% over five. Yet I think the group has some immunity from the wider retail slowdown. Cards, gifts and party paraphernalia may seem like fripperies, but people still buy Mother’s Day, Valentine’s Day and birthday cards in a recession.

Today’s interims hailed modest like-for-like sales growth of 1.5%, including a 1.2% increase in store like-for-likes, “outperforming reported negative high street footfall.” The FTSE 250 group opened 26 net new stores, which is driving additional revenue growth and also a sign of confidence. Card Factory also has an online presence, and website sales grew 25%.

The group’s first half investment in supply chain, operations and property management business efficiencies should deliver second-half savings. It’s also struck retail partnerships with Aldi in the UK and The Reject Shop in Australia. CEO Karen Hubbard remains “positive about the resilience of the card market” and the group’s business model. The stock is currently up 2%.

Today’s steady report, and a forecast valuation of 9.7 times earnings, makes it a lot more tempting than the AA, while the yield is a whopping 8.8%, with cover of 1.2. Today, management maintained its special dividend too. The group may struggle for earnings growth in the current climate, but the yield could bring many happy returns.

The post Got £1,000 to invest? Here’s one FTSE 250 stock I’d buy, and one I’d avoid appeared first on The Twelfth Magpie.

More reading

• Want to retire early? Here’s how a weak stock market could actually help

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of Card Factory. 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.

Certainly, in some cases, this may mean taking on additional risks versus buying larger and better-diversified FTSE 100 income shares.

However, with the potential to generate capital growth alongside a 4%-plus income return, these two mid-cap shares could offer impressive prospects.

PZ Cussons

Consumer goods company PZ Cussons (LSE: PZC) has experienced a hugely difficult time over recent years. The main reason for this is a challenging economic performance in Nigeria, which is a major market for the company’s products. This has impacted negatively on demand, and has acted as a drag on the overall performance of the business. In fact, over the last four years, the company has reported a falling bottom line in each year.

Looking ahead though, PZ Cussons is expected to post a rise in earnings of 9% in the next financial year. Since it trades on a price-to-earnings growth (PEG) ratio of 1.8, it could certainly offer good value for money.

A rising bottom line may mean the company is able to increase dividend payments in the future. It currently yields around 4.5%, but with dividends due to be covered 1.7 times by profit next year, it would be unsurprising for a rapid rate of dividend growth ahead.

Therefore, while there’s a risk the company will experience further difficulties in some of its key markets, its strong range of brands and improving financial outlook may mean it offers impressive total return potential.

Card Factory

The performance of retailer Card Factory (LSE: CARD) has been mixed, with its share price volatile and its bottom line declining over the last two years. This isn’t a major surprise, given the difficult operating conditions that have been present in the UK during the period.

Looking ahead, consumer confidence could weaken further. Brexit may yet include a number of twists and turns that cause consumers to become increasingly price conscious. This could impact negatively on sales for a variety of retailers, while also hurting margins.

Card Factory, though, is forecast to post a rise in earnings of 4% in the current year. Since it trades on a price-to-earnings (P/E) ratio of around 10.5, it seems to offer good value for money. In fact, investors may have priced in many of the potential challenges it faces over the medium term.

With the company having a dividend yield of around 9%, it also offers around three times the income return of the wider index. Although it may lack the defensive appeal and resilience of fellow high-yielding shares across the FTSE 100 and the FTSE 250, it could deliver an improving total return as its profitability moves higher.

The post 2 FTSE 250 dividend stocks with yields over 4% I’d buy in my ISA today appeared first on The Twelfth Magpie.

More reading

• After upgraded guidance, is PZ Cussons primed for a FTSE 250 comeback?
• Want to retire early? Here’s how a weak stock market could actually help

Peter Stephens owns shares of Card Factory. The Motley Fool UK owns shares of Card Factory and PZ Cussons. 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.

Risky business

Investing in the retail sector is incredibly risky business at the moment, and with this in mind I think that Card Factory (LSE: CARD) is a share best avoided at the current time.

Latest financials showed that not even budget operators like this firm, which sells greetings cards, gifts and party-related paraphernalia, are immune to the mounting pressure on consumer spending power. Like-for-like sales at the business dropped 0.1% in the 12 months to January, swinging from the 2.9% rise printed in the previous year, and as a consequence, underlying pre-tax profit reversed 7.3% to £74.6m.

But Card Factory’s sales were also struck by “poor high street footfall,” a phenomenon which threatens to worsen as shoppers continue to swap bricks and mortar stores for shopping online.

Dividends in trouble?

In a reflection of these tough conditions, the FTSE 250 retailer elected to keep the full-year dividend on hold at 9.3p per share for fiscal 2019. And while it supplemented this reward with another special dividend, the tasty 5p per share bonus for last year shrank markedly from the 15p payout delivered in the prior period.

So what are City analysts forecasting for the current year? They’re anticipating another special dividend, albeit at a reduced rate again, and as such, a 13.8p per share total dividend is tipped. Consequently investors can dial into a chunky 7.1% yield.

In my opinion, though, this prediction looks a bit too good to be true — it is covered just 1.3 times by estimated earnings, some way below the widely-regarded security watermark of 2 times.

While Card Factory’s low net debt-to-underlying EBITDA remains low at around 1.6 times, and could give it the flexibility to keep paying special dividends this year, signs that the business faces prolonged strain at the checkout beyond the medium term could well cause it to wind in its ultra-generous payout policy sooner rather than later. And the stream of scary retail surveys in recent months makes this a very real possibility, in my opinion.

This 9%-yielder is a better selection

Rather than splashing the cash on that risk-heavy stock, I’d prefer to buy into Bovis Homes Group (LSE: BVS).

Dividend coverage for 2019 sits at 1.1 times, but in all other respects it appears to be a superior dividend stock to Card Factory. Like its FTSE 250 compatriot, it is also minded to dole out special payments, and right now City analysts are predicting a 102.2p per share reward. This projection yields a stonking 9.1%, soaring above that of the bedraggled retailer.

Bovis Homes certainly appears to have the financial strength to meet this estimate, the housebuilder having £126.8m of net cash on the books. And the condition of the housing market, with the chronic homes shortage that will take many years to solve, suggests that profits should keep rising in the near term and beyond, providing the base for those dividends to keep rising long into the future too. If you’re looking to load up on white-hot income shares I believe that this construction star is worthy of some serious attention.

The post Dividend investing! Should I buy or avoid these 7% and 9% dividend yields? appeared first on The Twelfth Magpie.

More reading

• Could Andy Burnham boost this beaten-up FTSE 250 stock that’s crashed 80% in 20 months?
• What could an Andy Burnham government mean for these FTSE 250 stocks?
• How could ‘Prime Minister’ Andy Burnham boost these FTSE 100 and FTSE 250 shares?
• Down 81% in 2 years, is this beaten-down FTSE 250 stock now in bargain territory?
• Having fallen up to 60.9%! Are these dirt cheap bargain UK shares to buy?

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of Card Factory. 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.

By contrast, a number of dividend stocks offer yields of 6% or more per year — equivalent to £6,000+ on an investment of £100,000. Today, I want to look at three high-yield dividend stocks that are all held by fund manager Neil Woodford.

A sustainable 8% yield?

Shares in giftware retailer Card Factory (LSE: CARD) have fallen by 23% over the last year. Despite this, the firm seems to be a good, profitable business that’s likely to be a long-term survivor.

Figures released today showed sales rose by 3.3% to £436m last year. The company reckons it gained market share, despite falling high street footfall. Although operating profit fell 6% to £70.8m last year, this still represents a profit margin of 16%. That’s higher than most other retailers.

The group’s high margins are helped by its policy of designing and producing cards in house. Cash generation is strong and the total dividend (including special dividends) for 2018/19 will be 14.3p, representing 81% of adjusted earnings.

Card Factory shares now trade on 10 times earnings and boast an 8% yield. I think that’s probably too cheap for such a good business. Buy.

A complicated picture

Card Factory’s business is refreshingly simple. The picture is more complicated for high-yielding sub-prime lenders Provident Financial (LSE: PFG) and Non-Standard Finance (LSE: NSF).

The two firms are currently in the middle of a hostile takeover battle. This appears to have been orchestrated in part by Woodford, whose funds own about 25% of both companies.

Non-Standard is much smaller and was founded in 2014 by former Provident boss, John Van Kuffeler. He wants to buy his former employer, Provident Financial, which is currently in the middle of a difficult turnaround.

Van Kuffeler’s credibility has taken a hit this week after it emerged his firm’s past dividends have breached accounting rules. If the NSF finance team can’t even manage dividends successfully, then I think it’s worth asking whether they have the skills needed to merge with a much larger and more complex business.

Provident chairman Patrick Snowball certainly thinks that Non-Standard should take a step back. In a new letter to shareholders, he pointed out that the NSF team might not have the experience required to run Vanquis Bank, a regulated bank that’s a core part of the Provident business.

Snowball also took a swipe at Woodford and the other shareholders who’ve backed the deal so far, suggesting: “We see no benefit to those invested in Provident who do not have a similar holding in NSF.”

A speculative buy

Provident’s turnaround is challenging and may not be a complete success. But I don’t see any reason why NSF — which has lost money each year since its 2015 flotation — is likely to run the business any better.

Van Kuffeler’s plans to focus more heavily on doorstep lending also seem backwards to me. I think Provident’s broader portfolio of products and services makes more sense, given the increasingly tough regulation of high-cost lending.

NSF and Provident both have forecast dividend yields of more than 6%. In my view, Provident is the better buy. I’d avoid NSF, for now.

The post Why I’d ditch the Cash ISA and buy this Woodford 8% dividend stock appeared first on The Twelfth Magpie.

More reading

• Want to retire early? Here’s how a weak stock market could actually help

Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of Card Factory. 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.

Although I think cash savings are necessary for a rainy day fund, I prefer to invest most of my savings in the stock market. The reason for this is simple — shares have the potential to provide much greater returns and a more generous income than cash.

Today, I want to look at two dividend stocks from the mid-cap FTSE 250 index which I think could be good long-term buys.

A family firm that’s out of favour

Family-owned consumer goods firm PZ Cussons (LSE: PZC) has fallen by almost 50% over the last 18 months. This may sound like bad news, but I’m starting to think the problems facing the company are now more fairly reflected in its valuation.

Today’s half-year results have knocked another 10% of PZ Cussons’ share price, after the company said adjusted pre-tax profit is likely to fall from £80m to £70m this year.

The main problem is Africa, where sales are weak and costs are rising. Severe port disruption in Nigeria is expected to cost £5.5m this year. The firm says that consumer spending and exchange rate changes are also a concern.

There is some good news

Luckily, PZ Cussons doesn’t just operate in Africa. In Asia, adjusted operating profit rose by 20.1% to £9.6m during the half-year period. In Europe, profit was 1.7% higher, at £24.6m.

This company’s 135-year history and family ownership suggest to me that it will continue to be run with a long-term view. I suspect conditions in Africa will improve in due course. Management intends to hold the dividend at 8.3p per share, which looks affordable to me. This gives the stock an attractive 4.4% dividend yield. I’d rate PZ Cussons as a long-term buy and have added the shares to my own watch list.

A high street winner

Times are tough for high street retailers. But one company that’s performing well is discount giftware retailer Card Factory (LSE: CARD).

This £600m firm continues to expand and enjoy stable sales from its existing stores. This may not sound exciting, but Card Factory’s policy of designing and producing all its own cards has made it a surprisingly profitable business.  For example, last year’s results showed an operating profit margin of 17.9%.

For shareholders, this means that this retailer is something of a dividend heavyweight. At current levels, the stock offers a forecast dividend yield of 8% this year.

What’s the catch?

Card Factory’s share price has performed poorly in recent years, falling by more than 40% since January 2016. But the firm’s financial performance has been much more stable. Sales have risen from £326.9m in 2014 to £422m last year. Profits haven’t quite kept pace with this growth, but given the firm’s high margins, I think that’s acceptable.

I’ve been watching this stock drift lower for some time now. I’m starting to consider a purchase. I’m confident this discount retailer will be a high street survivor. And with the shares trading on 10 times forecast earnings, and offering an 8% dividend yield, the risks seem acceptable to me.

The post Still relying on a cash ISA? I’d buy these FTSE 250 dividend stocks instead appeared first on The Twelfth Magpie.

More reading

• After upgraded guidance, is PZ Cussons primed for a FTSE 250 comeback?
• Want to retire early? Here’s how a weak stock market could actually help

Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of Card Factory and PZ Cussons. 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.

These numbers are particularly embarrassing for the company because peers, notably Tesco and Morrisons, reported sales growth across the festive period. Tesco, which published its numbers today, unveiled like-for-like sales growth of 2.2% in UK stores compared to last year.

Struggling for growth 

Considering the above, it looks to me as if Sainsbury’s is struggling to attract enough consumers into its stores. It is difficult to tell exactly why some customers are shunning the brand. Indeed, Sainsbury’s is not alone. The broader retail sector has been reporting difficult operating conditions for some months, but it is notable that the company is struggling while peers push ahead.

Clearly, Sainsbury’s has lost its way, and some consumers are losing confidence in the brand. The group’s planned merger with Asda may offer some relief regarding cost reductions, as my Foolish colleague Peter Stephens recently pointed out, but there is still only a 50/50 chance the merger will actually go ahead.

With Sainsbury’s facing an uncertain future, I think selling the stock could be the right course of action for investors today. If you are looking for somewhere to reinvest your funds, I reckon Card Factory (LSE: CARD) could be an exciting opportunity. 

Outperforming 

In the rough seas of the UK retail environment, Card Factory stands out as a company that has what it takes to weather the hostile environment. 

The UK’s leading specialist retailer of greeting cards, dressings and gifts today reported sales growth of 3.4% for the 11 months to the end of December 2018. On a like-for-like basis, sales declined by 0.1%. 

What I’m really interested in, however, is the growth at the firm’s online business. The update notes cardfactory.co.uk delivered revenue growth of 59.1% for the 11 months to the end of December 2018, following an increase of 65.8% in the same period last year. Granted, this is still a relatively small part of the overall business. Management estimates the group has around 1% of the £100m online personalised card market, implying total sales of just £1m compared to overall revenue of £400m+. But it is expected to start turning a profit this year. Any further sales growth should go straight to the bottom line.

With sales rising by more than 50% per annum, this online division will be a considerable driver of profits in the years ahead. Thanks to growth from the online business, as well as the contribution from new stores to overall sales, management expects to hit its profitability targets for the current financial year. 

The City is expecting earnings per share of 17.4p and a dividend of 13p, implying a forward P/E of 11.2 and dividend yield of 6.7%. Based on today’s trading update, I see no reason why the company cannot meet these targets. 

Overall, Card Factory’s growth looks to be hotting up, and this retailer appears to me to be a much better investment than Sainsbury’s.

The post I would dump the Sainsbury’s share price and buy this unstoppable retailer instead appeared first on The Twelfth Magpie.

More reading

• How much is needed in a Stocks and Shares ISA to aim to retire on £12,548 a year?
• Want to retire early? Here’s how a weak stock market could actually help

Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of Card Factory. The Motley Fool UK has recommended Tesco. 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.

Into reverse

Car dealer Pendragon (LSE: PDG) trades at a forecast valuation of just eight times earnings after a tough time that has sent its share price crashing 40% over three years. It is down another 2.26% at time of writing after posting a 6.4% drop in group revenue in this morning’s interim management statement, or 7.2% on a like-for-like basis.

Down with a bump

Earnings from both used and new motor sales in the UK are falling, amid economic uncertainty and the demonisation of diesel, hitting Pendragon hard. The group has downgraded its annual profit guidance, blaming new global vehicle testing standards for disrupting supplies and hitting revenues.

There were some positives, with gross profit in the used car business jumping 20%, although new car profits fell 0.3% and after sales revenue was down 3.5%. Management reported signs of improved used car performance in the third quarter, and said this should be a key growth area next year.

Enter Pendragon

The damage to the share price may have been even greater but Pendragon prepared investors by warning last week that profits were in peril as new vehicle tests knocked sales. Royston Wild still reckons it can be a dream stock for income seekers with the dividend up a bumper 300% in the last five years alone. The current forward yield is 5.4%, handsomely covered 2.2 times by earnings.

While City analysts predict earnings per share (EPS) will fall 6% this year they are pencilling in 16% growth for 2019. This could be one to park in your portfolio, especially if you think Brexit and car regulatory clouds will lift next year.

Factory of fun

Cards, gifts and party supplier Card Factory (LSE: CARD) has had an even worse time of it lately, falling 50% over three years. The discount retailer is also trading at a discount, with a current valuation of just 9.4 times earnings. The dividend is even juicier than Pendragon’s with a forecast yield of 8.3%, although cover looks thin at 1.2 times earnings.

As Roland Head points out here, Card Factory paid out £164m worth of dividends in 2017 and 2018, yet during that time it was generating annual free cash flow of just £125.8m, he calculates. That kind of mismatch cannot last forever.

Card sharps

Like so many retailers, Card Factory has been hit by consumer uncertainty. Last month, it posted a drop in underlying pre-tax profit and like-for-like sales, which it blamed on extreme weather and consumer caution.

Six-monthly revenues did climb 3.2% to £185.3m, helped by new store openings and growth in the online business, and pre-tax profit jumped 17.2% to £27.2m. However, underlying pre-tax profit fell 13.9% to £22.7m. Both revenues and EPS are forecast to climb in the year to January 31 2020, so this could be a good entry point although in this case, high income equals high risk.

The post These 2 unloved dividend stocks look like unmissable bargains to me appeared first on The Twelfth Magpie.

More reading

• Want to retire early? Here’s how a weak stock market could actually help

harveyj has no position in any of the shares mentioned. The Motley Fool UK owns shares of Card Factory. The Motley Fool UK has recommended Pendragon. 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.