As my Foolish colleague Malcolm Wheatley commented in his recent piece: “Inflation is a devastating destroyer of wealth and standards of living.” Strong words but he’s absolutely on the money.

Like Malcolm, I believe the best way to beat inflation is via the stock market. However, there are certain parts that could prove particularly good destinations for my cash.

Buy quality to beat inflation

I’m a big fan of quality stocks. These are companies that have strong brands, sound finances, consistent earnings, and big profit margins. On a geekier note, they also tend to be capital-light and able to generate great returns on the money they invest, otherwise known as Return on Capital Employed (ROCE). Let me explain.

Naturally, I want a business that produces a higher return than inflation. If prices jump by 10%, any stock generating the same ROCE (or worse) isn’t really doing anything. However, one generating a ROCE of 20% is still doing well for investors, under the circumstances.

I’m not the only one who thinks this is a good way to beat inflation. Biased he may, be but top UK money manager Terry Smith thinks stocks in the Fundsmith Equity fund have that quality tilt which should preserve (and eventually enhance) investors’ wealth. That said, there’s nothing to stop the actual value of these holdings from falling if investors head for the exits.

Grab some shiny stuff

Another way to beat inflation would be to have some exposure to precious metals. One obvious candidate here is gold. Historically, anything connected to the shiny stuff tends to do well in inflationary times because of its trusted ability to hold its value.

If stuffing a load of gold bars under the bed doesn’t appeal, UK investors have a number of options. In the FTSE 100, there’s producer Polymetal International. In the FTSE 250, there’s Centamin. If diversification was important, I could buy an exchange-traded fund (ETF) that holds the biggest miners around the world.

Another option would be to buy a passive fund that tracks the gold price. This might be the least risky option since it avoids any company-specific risks. That’s not to say it’ll always be a comfortable ride, of course, especially if interest rates rise. After all, gold doesn’t generate income on its own! 

Don’t forget real estate

Thanks to the growing desire to work from home, post-coronavirus, the UK property market has been in fine form in 2021. However, owning stocks that have links to real estate can also help investors beat inflation. 

Step forward REITs (Real Estate Investment Trusts). These are listed companies that generate income for holders from property. Although nothing can be guaranteed, this asset tends to increase in value when inflation rises because price increases are passed through in rental leases (assuming demand for property is there). 

As you might expect, there’s no shortage of options out there for UK investors. These can be invested in office space, healthcare buildings and retail units. Thanks to the huge and growing popularity of online shopping however, my favourite pick in this space is warehouse owner Tritax Big Box.

The post 3 ways to beat inflation with stocks appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Fundsmith Equity. The Motley Fool UK has recommended Tritax Big Box REIT. 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.

There’s another reason why I’m wary. There are no dividends or interest when you buy gold. By contrast, the FTSE 100 and FTSE 250 are full of stocks that pay dividends, even if many have suspended payouts this year. The following two shares give exposure to the gold price too.

Gold and dividends? That’s what can be achieved investing in gold mining stocks, but with an extra layer of risk. It not only brings exposure to gold price movements, but the operational performance of the mining company.

One way to play the gold price

FTSE 100-listed gold miner Fresnillo (LSE: FRES) has thrashed the actual gold price in recent months. While global stocks crashed in March, the South American miner took off. Its share price has almost doubled from 620p to today’s 1,220p.

I don’t expect it to continue climbing at that rate, especially since management recently cut full-year gold and silver production guidance. Covid-19 safety measures have hit output, while recent ore grades were lower than expected.

Fresnillo’s dramatic share price growth has shrunk the dividend yield. It’s now forecast to yield 1.5% next year, with cover of 2.2. Although Fresnillo would sit nicely in my portfolio, I wouldn’t necessarily buy it today. Thanks to the recent price surge, it looks expensive trading at 68.7 current earnings.

I’m sticking it on my watchlist though. Fresnillo’s earnings are forecast to rise 117% this year and 108% in 2021. That should slash the valuation to 14.5 times earnings and increase the yield to 3.4%. There may be a better time to take a position.

The Centamin share price tempts me more

While so many FTSE 100 companies have cut their dividends this year, FTSE 250 miner Centamin (LSE: CEY) doubled its payout in August. The spiralling gold price helped first-half profits more than triple, from $59.6m to $191.1m.

The Centamin share price has actually fallen by a third over the last month, after it suspended operations to stabilise its Sukari mine in Egypt and warned 2021 gold production would fall. This confirms my point that the gold price isn’t the only factor affecting gold mining stocks. However, this leaves Centamin trading at a less-demanding P/E ratio of 23 times earnings, and a forecast P/E of just 12.9.  Earnings per share are predicted to grow 77% over the next year.

Given Fresnillo’s toppy price I reckon Centamin could offer a better way of playing the gold price, especially given its impressive forecast dividend yield of 7.7%.

The post Tempted by the gold price? I’d consider these 2 dividend-paying FTSE gold miners appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. 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.

Why might gold keep rising?

Last week, the US Federal Reserve implied that it was ready to inject further stimulus into its economy via another bout of money-printing. This ‘whatever it takes’ strategy, and the possibility of other central banks following suit, increases the risk of inflation picking up. 

Inflation isn’t known as the ‘silent killer’ for nothing. The rise in the cost of things means the spending power of any money you have is reduced. Investors try to counter this by moving into assets that tend to hold their value.

Another, related reason that gold might continue to soar is the possibility that we’ll get a second wave of the coronavirus, perhaps coinciding with seasonal flu. This could bring forth another bout of volatility in stocks, making it more likely that investors will seek solace in things that are negatively correlated with equities.

On top of all this, you have growing tension between China and US and the forthcoming election across the pond.

With these hurdles and no definite vaccine in sight, demand for the shiny stuff is unlikely to fall away any time soon.

How to play the gold rush

There are plenty of ways for Foolish investors to get involved. That said, the most appropriate option will depend on your financial goals, investment horizon and risk tolerance. 

Perhaps the least ‘dangerous’ way of tapping into gold’s popularity is via a fund that tracks its price. The iShares Physical Gold ETC is one of the most popular options available. 

For those looking for bigger gains, a diversified fund specialising in gold miners could be the way to go. The iShares Gold Producers UCITS ETF is one I hold.

For the brave…

If you really want to a leveraged play on the gold price however, you’ll need to buy single company stocks. You could buy a large, established miner like Polymetal or Centamin. You could also look for promising minnows.

A quick glance at the share price graph of a company like Greatland Gold shows just how profitable the latter strategy can sometimes be. Those who invested around the time that I first wrote about the company last August would have made a killing. Its shares are up 700% since then!

With recent talk of “exceptional” results from its ongoing drilling programme in Western Africa, IronRidge Resources could be next to jump. So too could be Hummingbird Resources, which has operations in Mali and Liberia. It wouldn’t surprise me if either were bid for at some point. 

As always, those tempted to invest in stocks like these need to be aware of what they’re getting into. Expect regular double-digit percentage share price moves in both directions due to their lack of liquidity. A large bid-offer spread (the difference between what you can buy and sell a stock for) means you’ll also need to make a decent gain after buying just to get back to break-even. 

Mining stocks are also no place for impatient investors. Many don’t make it into production because of the costs involved. For those that can sit on their hands, however, the wait could be worth it. 

The post The gold price is on a tear. I think those buying now could still strike it rich appeared first on The Twelfth Magpie.

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• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Paul Summers owns shares in iShares Physical Gold ETC and iShares Gold Producers UCITS ETF. 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.

Here are three that investors can’t stop buying. 

Top UK stock

Like nearly all stocks, IT specialist Computacenter (LSE: CCC) was hit hard by the market crash in March. Since then however, the share price has doubled. When you consider just how bullish last week’s trading statement was, it’s not hard to see why.

As a result of people needing to work from home during lockdown, Computacenter said it has seen huge demand for equipment and services. Adjusted pre-tax profit in the first six months of 2020 was consequently “substantially ahead” of that achieved over the same period in 2019.

Looking ahead, the firm now believes that adjusted profits in H2 will be “much improved” on the forecast given in April and that 2020 will turn out to be “a year of material progress“.

Of course, the usual caveats apply: no investment is ever ‘safe’ and there’s the possibility that a lot of this good news is already priced in.

Then again, concerns over a second coronavirus wave could force the share price even higher. Regardless, the growing trend of companies allowing their employees to work from home more often can surely only be a good thing for Computacenter.

At 21 times forecast earnings, this UK stock isn’t cheap. Nevertheless, I think there’s potential for more gains ahead. 

Gold price beneficiary

Back in May, I suggested that £2bn cap gold miner Centamin (LSE: CEY) could be a good hedge against a looming recession. After all, gold has historically been a great store of value in troubled times. 

Since then, of course, the precious metal’s price has rocketed to a record high. Centamin has followed suit, rising 20%. If you’d bought this UK stock in the dark days of March, you’d have pretty much doubled your capital. 

I suspect this momentum will continue for a while yet. This is especially likely if the US Federal Reserve orders another bout of money-printing. Such a move further increases the risk of inflation — something gold helps to protect investors from. 

Centamin’s shares currently trade on 16 times forecast earnings. Considering the precarious state of the global economy and the company is debt-free and still paying dividends, that still doesn’t feel excessive.

In demand

A final UK stock that investors can’t get enough of is online wine-seller Naked Wines (LSE:WINE). Again, the share price has almost doubled since mid-March. That’s a seriously good result considering most small-cap companies haven’t rallied as strongly as those in the FTSE 350. 

Then again, this shouldn’t come as a complete surprise. Like Computacenter, Naked Wines has been a huge beneficiary of people spending more time at home. Last week’s trading update revealed a 67% jump in total sales in June compared to the same month in 2019. For Q1 as a whole, sales were 77% higher.

With numbers like these, it’s becoming increasingly difficult to challenge management’s belief that Naked is “ideally positioned to be a long-term winner from the inflection in consumer demand for online wine”. 

As the potential for more local lockdowns in the UK grows, Naked’s purple patch could well be extended.  

The post Looking to protect your portfolio from coronavirus? I’d buy these 3 UK stocks appeared first on The Twelfth Magpie.

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Paul Summers 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.

This being the case, I think it’s more essential than ever that investors ensure they hold a properly diversified portfolio. Today, I’m looking at two FTSE 250 stocks from very different sectors that could help provide the recession protection they’re looking for.

“Exceptionally strong” trading

This morning’s trading update from general merchandiser B&M European Value (LSE: BME) goes some way to explaining why its share price has already recovered to pre-crisis levels. 

The company experienced a great end to its financial year thanks to what it describes as an “exceptionally strong” performance in Grocery in March. Like-for-like revenues rose 6.6% over the 13 weeks to 28 March as the great stockpiling rush ensued. 

The trend has continued into the new financial year with like-for-like revenues soaring 22.7% in the first eight weeks. Although people were making fewer trips to the stores, they were spending a lot more than normal. DIY and gardening-related items were particularly sought after. This makes sense given the lovely weather we’ve been experiencing and the fact that rival retailers were shut. Even so, revenue was still up a very healthy 10.3% if these categories are excluded.

All this has come at a cost, of course. The need to enforce social distancing and decision to pay higher wages to its workers during the pandemic means that operating costs have been higher than usual. 

There’s also no getting away from the fact that the bounce in sales will likely prove temporary as things get back to ‘normal’ (whatever that looks like). The uncertainty over whether the coronavirus has been defeated or not makes providing guidance on trading rather tricky as well.

Nevertheless, I suspect B&M will fare better than most retailers during a recession as consumers become increasingly careful with their cash, even when it comes to staple goods. This makes the company a fairly defensive pick, in my opinion.

Sure, some of today’s good news already looks priced-in to the shares. At less than 17 times earnings, however, the valuation isn’t excessive. 

Recession-proof

Another way of diversifying a portfolio in preparation for a hard recession is to get some exposure to gold. The precious metal is regarded as a safe haven in troubled times due to its tendency to be negatively correlated with global markets. It’s also a hedge against inflation and a weakening US dollar.

FTSE 250 African-focused explorer Centamin (LSE: CEY) looks a good play on this. The £2bn cap miner has a presence in Egypt, Burkina Faso and Cote D’Ivoire. It began producing from its main asset — the Sukari Gold Mine — 11 years ago. 

Is an investment in Centamin devoid of risk? Of course not. The gold price can be volatile. Any drop also tends to be magnified in the stocks of those mining for it.

At 15 times forecast earnings based on current projections, however, the valuation still looks decent to me. The company has zero debt on its balance sheet and almost $350m in cash. At $172.9m, post-tax profit also came in 13% higher in 2019 than in the previous year. I’d buy it as a recession looms.

The post Recession fears? I think these FTSE 250 stocks could offer protection appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of B&M European Value. 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.

Good as gold

I’ve always been a bit sceptical about gold as an investment, because it doesn’t pay any interest and has few industrial uses, but there is no arguing with those numbers. You probably should have some exposure to it in your portfolio, especially as it gives you downside protection when markets are falling.

You could simply track the price by investing in a physical gold exchange traded fund (ETF), but if you want a bit more excitement – and risk – you can buy individual gold miners.

Centamin

FTSE 250 listed Centamin (LSE: CEY) is up 30% in the last six months, and 95% over five years, as investors are drawn to a solidly run company that offers direct exposure to gold.

Centamin has also been doing well on its own terms, with first-half production up 8% to 234,096 ounces year-on-year. It also posted EBITDA earnings of $117m, which was 4% better than analysts expected.

Its average realised gold price was $1,305 per ounce, almost double its cash cost of production of just $692. That looks like a handsome margin to me, while $35.7m of free cash flow in the six months to 30 June will help to fund its generous dividends, with the group serving up around $500m in total since 2014. Centamin currently offers a generous forecast yield of 5.3%. It could make a nice portfolio diversifier.

Better still, the £1.13bn group boasts a “strong and flexible balance sheet” with no debt, no hedging and cash and liquid assets of $326.6m. Operating margins are a healthy 25%. However, after recent growth, the gold price is having a slight correction. If the US-China trade war is settled, and markets recover, gold could correct a little. This is worrying as Centamin looks a little expensive trading at 22 times forward earnings.

Trans Siberian Gold

If you want to buckle up for some really exciting gold price action, then book a ride with Trans Siberian Gold (LSE: TSG), the “low cost, high grade” Russia-focused gold miner. Its share price almost quadrupled this year to peak at 132p, although this has reversed in recent weeks, and it currently trades at 103p.

Last month, it posted record first-half revenues of $30m, up 8.7% year-on-year, and a 169.7% rise in profit before tax to $8.5m. Management also finalised the purchase of the licence for the high-calibre Rodnikova deposit, and completed a $7.6m share buyback.

With a market cap of just £88m, we are still talking of a stock-market minnow here. Its growth has been dramatic but you cannot be expecting it to keep racing away at the same breakneck pace.

When people talk about gold being a store of value, they aren’t talking about stocks like these. However, if you are happy to take on a bit of risk with a corner of your portfolio, then Trans Siberian Gold may well be worth further investigation. G.A. Chester reckons its ambition to become a premier mid-tier gold producer looks credible.

The post Want to invest in gold? I reckon these 2 stocks may continue to shine appeared first on The Twelfth Magpie.

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Harvey Jones 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.

Of course, in some cases they may face an uncertain future. This could mean that they display heightened share price volatility versus their larger peers.

But with these two mid-cap shares having high yields, significant growth catalysts and fair valuations, now could be a good time to buy them for the long term.

Centamin

Gold miner Centamin (LSE: CEY) released an encouraging production update last week. The company is on track to meet its production guidance for the current year, which could lead to improving investor sentiment.

While the gold price may exhibit further volatility in the coming months, it could provide a store of wealth for investors who are cautious about the prospects for the world economy. Since the global trade war is ramping up and interest rates in the US could fall before they rise, the gold price may enjoy a tailwind over the medium term as investors increasingly seek defensive assets.

With Centamin currently having a dividend yield of around 5.5%, the stock could have increasing income appeal. Its dividend is covered 1.3 times by profit, while it has no debt, a strong cash position and the potential to deliver robust production over the long run. As such, for investors who are seeking to diversify their portfolios and gain exposure to the precious metals sector, it could prove to be a worthwhile purchase in the long run.

Bovis

Also offering a mix of dividend and growth potential is FTSE 250-listed housebuilder Bovis (LSE: BVS). The company is making progress in improving the quality of its homes, with customer feedback being increasingly positive according to recent updates. This could help to rebuild the company’s reputation after the customer redress issues of recent years.

Of course, the housebuilding sector could experience a period of uncertainty. While demand for new homes is robust at the present time, a change in the Help to Buy scheme and interest rate rises may lead to increasing difficulty in getting on to the property ladder for first-time buyers.

However, with Bovis currently trading on a price-to-earnings (P/E) ratio of 9.4, it seems to offer a wide margin of safety relative to many of its index peers. Furthermore, its dividend yield of 9.8% for the current year suggests that it may offer a relatively impressive income return as its financial performance improves.

As such, for investors who are able to overcome short-term risks from an uncertain period for the UK economy, Bovis may offer an enticing long-term income outlook. Its current management team seems to have the right strategy to deliver growth, while potentially avoiding the customer service issues experienced in previous years.

The post Have £1,000 to invest in the FTSE 250? Here are 2 dividend stocks I’d buy in an ISA today appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Centamin. 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, there’s a long road ahead, and I can still see a number of risks for shareholders. I think it will be at least five years before the mine turns a profit. Until then, the SXX share price is likely to remain volatile.

In my opinion, there are better opportunities for investors elsewhere in today’s market. Here, I’m going to look at two stocks I think are of more immediate interest.

Ahead of expectations

I’m staying with the mining theme for my first pick. For investors who’ve bought at the right times, Egypt-based Centamin (LSE: CEY) has delivered attractive returns. I think we may be seeing another such buying opportunity.

During the first quarter of the year, the company reported a better-than-expected set of mining results. Gold production at the Sukari mine was 116,183 ounces during the period, ahead of forecasts for 105,000oz-115,000oz. Costs were at the lower end of the firm’s previous guidance and the grade — or gold content — of the ore extracted from the firm’s underground mine improved.

A turning point?

Back in February, I flagged up risks at Centamin, pointing out costs had risen and gold production had fallen for a number of years. However, news flow since then has generally been positive and the price of gold has risen significantly.

Centamin should benefit directly from the higher price of gold, as the company doesn’t hedge any of its output. This is made possible by a solid financial position — at the end of March, the company had cash and liquid assets of $332m and no debt.

The shares don’t look cheap, on 19 times forecast earnings. But the dividend yield of 4.6% should be backed by surplus cash and the company is due to release guidance for 2020 and 2021 in the next few weeks. If positive, this could provide further support for the shares. I’d view Centamin as a speculative buy.

A great comeback story?

Superdry (LSE: SDRY) interim boss Julian Dunkerton is back in the hot seat at the fashion retailer he co-founded in 2003. I think the problems he faces can be explained with a simple comparison:

That’s right. The company’s sales have risen by 80% since 2015, but underlying profits have fallen by 34%. Profit margins have collapsed.

This suggests to me Superdry’s product ranges have lost their appeal, resulting in heavy discounting. Dunkerton certainly believes the management team who took over following his departure are largely to blame for the company’s problems.

One of the business’s previous hallmarks was that discounting was limited. Dunkerton plans to return to this with fresh design and a constant flow of new products, which he believes will support full-price sales and a premium brand message.

I could fill some space here with a discussion of the group’s finances. But to be honest, I don’t see much point. If Dunkerton can deliver his promise to return the company’s profit margins to 10%+ in three years, then I believe the shares are very cheap at the current price. If he fails, then further problems seem likely.

The post The Sirius Minerals share price? I’d buy this FTSE 250 dividend growth stock first 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 recommended Superdry. 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.

Now I’m not its biggest fan as an investment as it doesn’t generate any cash flows or income. That said, having a tiny bit of exposure within your investment portfolio (~5%) as a hedge against uncertainty isn’t the worst idea. If stock markets were to crash, your related investments may provide an element of protection.

But what’s the best way to get exposure to gold? Are companies in the FTSE 100 and the FTSE 250 that mine the yellow metal, such as Antofagasta, Fresnillo, Polymetal, and Centamin, a good way to profit from price movements?

Gold stocks

Having invested in a number of related miners pre-Global Financial Crisis (GFC) – when the gold price was soaring — and losing a LOT of money during the period, I would generally advise investors to steer clear of gold mining stocks. In my opinion, they’re not a good way to profit from movements in the price of gold, nor are they a good long-term investment.

Highly volatile

The first thing you need to understand about such stocks is that they’re essentially a leveraged play on the price of gold. So when the price is moving higher, they can perform very well. However, if the price crashes, gold stocks can be hit hard, meaning they’re quite risky.

A great example of this is Centamin, which mines gold in Egypt. In 2008, the gold price fell from around $1,000 to $712 – a decline of just under 30%. However, over this same period, Centamin shares fell from around 78p to just 22p, representing a decline of over 70%. So, be aware that gold stocks can be highly volatile.

Many moving parts

The other main issue you need to understand about gold companies is there are a lot of moving parts. To be highly profitable, everything needs to click.

For example, a gold company needs to have finance in place. Its mine needs to be operational. Setbacks such as broken equipment or staff strikes need to be minimised. The weather also needs to be good.

Ultimately, there are many different factors that can take their toll on success, and that means you could actually miss out on profiting from gold price gains if the company can’t get its act together. When you invest in gold stocks, there’s no guarantee that you will actually profit even if the price rises.

For this reason, I think you’re better off buying gold bullion (bars or coins), or a gold exchange-traded fund (ETF) if you’re looking to profit from related price movements.

A poor long-term investment

Finally, like all mining companies, gold companies have very little control over the prices they receive for their products. This means that profits can fluctuate significantly which, in turn, means that dividend payouts can fluctuate. From a long-term investment point of view, that’s certainly not ideal.

If you’re looking to grow your wealth, I think you’re much better off investing in companies that are able to generate relatively consistent profits.

The post The gold price is soaring. So are FTSE 100 and FTSE 250 gold stocks a good bet? appeared first on The Twelfth Magpie.

More reading

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• Up 446% in 12 months! What’s next for the Ceres Power share price?
• 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
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Fresnillo. 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.

Down the mine

Gold miner Centamin owns a global Tier 1 mine in Egypt, and has a strong balance sheet, with cash of $332m and no debt. Its profits can be fairly volatile year to year, because they’re very much geared to the price of gold. The dividend also dances to a disjunct melody, as you can see in the summary of payouts for the last five years below.

City analysts are forecasting no advance in earnings or dividends for the current year, putting Centamin on a price-to-earnings (P/E) ratio of 25, with a dividend yield of 3.7%.

However, the price of gold (and Centamin’s shares) have rallied in recent weeks. With there being good reasons for the strengthening of gold to persist, I think we could see some upgrades to Centamin’s earnings and dividend forecasts.

Either way, though, I see the company as a good choice for investors seeking both some exposure to gold and an overall decent, if annually variable, income.

Down the runway

While Centamin’s profits are directly impacted by the price of gold, easyJet’s are indirectly impacted by the price of oil. This, together with other things outside the budget airline’s control (such as the weather), makes for variable annual profits — and dividends, as you can see below.

City analysts are forecasting a hefty drop in earnings and dividends for the current year, with the latter pencilled in at 44p. At a share price of 865p, the forward P/E is 10.2, and the prospective dividend yield is 5.1%.

The valuation looks highly attractive to my eye. Brexit uncertainty and competition concerns are weighing on investor sentiment, but I’m expecting easyJet — helped by what it describes as its “sector leading balance sheet strength” — to prove resilient through this period, and deliver strong returns in due course for shares buyers at the current level.

Down the pub

In contrast to Centamin and easyJet, brewer and pubs group Greene King had long been cherished by investors for a steadily rising annual dividend. However, as you can see below, the sequence of increases stopped last year, with the board maintaining the payout at the same level as the prior year.

City analysts are expecting no advance in earnings or dividends when Greene King releases its latest annual results on Thursday, giving a P/E of 9.2, and yield of 5.7% at a share price of 580p.

There’s been some speculation management could actually reduce the dividend this year, because the company carries quite a hefty debt burden. I’ve expressed concern about the debt before, but with the shares now trading significantly lower, the valuation is looking increasingly tempting in what I consider to be an attractive sector for investors.

The post Why I’d still buy these 3 FTSE 250 stocks that could cut their dividends appeared first on The Twelfth Magpie.

More reading

• Could now be the time to buy great UK shares at bargain prices?
• easyJet shares are up 40% in a month. Here’s why
• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?
• At £5, could the easyJet share price still be a long-term bargain?

G A Chester 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.