Being keen to buy shares in a company that recently slashed its dividend sounds odd. However, that’s exactly what I’d consider doing with one FTSE 250 member right now. Let me explain.

Dividend cut!

The stock in question is online trading platform provider CMC Markets (LSE: CMCX). Earlier this month, the company stated that it would be slashing its half-year dividend by no less than 62% in light of a downturn in business. 

Admittedly, the latest set of interim results wasn’t great. Net operating income tumbled 45% to £126.7m in the six months to the end of September. At £36m, pre-tax profit was an eyebrow-raising 74% lower than in 2020.

The key point to grasp, however, is that none of this is unexpected. The reduction in market volatility seen this year, and subsequent drop in client activity, was always on the cards. A better comparison to make is between this year’s interim figures and those of two years ago. Here, we get a very different picture. Net operating revenue and pre-tax profit were up 24% and 20% on the same period in 2019.

There were other things that the market seemed to ignore, including the 10% rise in active client numbers in CMC’s non-leveraged (stockbroking) business. Already contributing 20% of net operating income, it’s this part of the company that CEO and founder (Lord) Peter Cruddas believes offers “the greatest growth potential”.

Why I’d buy this cheap dividend stock

Yes, that huge dividend cut isn’t ideal. However, what remains still looks attractive. Analysts now have the company returning 10.5p per share for the full year. That’s a yield of 4.5%. Hardly shabby and — importantly — easily covered by profit.

As a fan of founder-run companies, I also really like the fact that Lord Cruddas still owns almost 57% of the company’s stock. This should mean that his interests are aligned with those of private investors. Speaking of which, CMC’s board is now considering separating the aforementioned stockbroking and spread betting businesses for the benefit of shareholders. A review on this is expected to be completed by June 2022. A new UK investment platform is planned to launch at some point next year too. So the outlook is hardly bleak.

Last but not least, the valuation is mightily tempting. As things stand, CMC trades on a P/E of 10. That’s competitive compared to rivals and cheap as chips compared to the market as a whole.

Regulatory risks

Naturally, nothing can be guaranteed. As recent performance has shown, many investors seem to have a love/hate relationship with CMC. A drop in the share price of over 50% in the last six months shows just how quickly sentiment can reverse after a purple patch (it’s up 64% year-on-year). There’s no rule to say it won’t fall further.

Then there are the ongoing regulatory risks to consider. CMC is often required to adapt to new rules brought in to protect clients from, well, themselves. This partly explains why the valuation isn’t demanding, despite CMC Markets generating stonking returns on capital and boasting a solid balance sheet.

Ready to recover

I already hold industry peer IG Group within my portfolio. Nevertheless, I must say that CMC looks highly attractive if I can ensure I’m sufficiently diversified elsewhere.

Considering the renewed skittishness of traders over recent days, I reckon now is actually a great opportunity to snap up the stock before it’s back in favour.

The post 1 cheap dividend stock to buy now appeared first on The Twelfth Magpie.

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Paul Summers owns shares in IG Group. 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.

Passive income…on the cheap

Online trading platform CMC Markets (LSE: CMCX) is a great example of just how fickle investor sentiment can be. Prior to the Covid-19 outbreak, its stock traded for pennies rather than pounds.

Following the huge increase in online trading over multiple UK lockdowns however, the very same shares were changing hands for as much as 559p a pop by April this year. Fast forward to today and the price has more than halved from this peak, as investors have rushed to bank gains following more “subdued” market activity over the summer.

Despite this rocky ride, I think CMCX could be a great choice for passive income-seeking investors. Right now, analysts are predicting the company will return 10.6p per share to owners in the current financial year (ending 31 March). Using today’s price, that’s a 4% yield. This should also be covered well over twice by expected profit, making the payout secure (at least for now).

CMC’s stock also looks inexpensive to pick up, with the company trading at just 11 times forecast earnings. Why is this company so cheap if it’s such good quality you may ask? I suspect a lot of it is due to CMC operating in an industry that’s susceptible to regular meddling from regulators. Larger peers trade on similarly low valuations. With its purple patch likely over, traders will also be looking for other opportunities to grow their capital at a faster clip.

Not that this would bother me if generating income were my primary goal. With its solid finances, I’d be happy to add CMCX to my passive portfolio today.

Chunky 5.4% yield

A second passive income candidate that’s looking cheap to me is fund manager Polar Capital Holdings (LSE: POLR). Its shares can currently be snapped up for less than 13 times expected earnings, and yield a chunky 5.4%. That’s despite the stock rising a little over 40% in value over the last 12 months as profits at the mid-cap company have surged.

Again, there’s are a few things worth bearing in mind. In contrast to the possibility that CMC will likely see more trading from clients as market volatility increases (as it has in September), POLR might see the complete opposite as investors reduce their equity exposure. This means the Polar Capital share price could get cheaper in the months ahead. It could also mean that dividends may not rise as quickly as they have in recent years.

As a Foolish investor, all this is nothing new. I know it’s near impossible to consistently predict the market’s next move. Rather than worry, it’s best to assume that no dividend stream is ever safe and diversify accordingly. That means spreading my money around a reasonable number of stocks from various sectors.

That said, I sincerely doubt POLR will stop paying out income soon, even if dividends aren’t covered quite as well by profit. Like CMCX, it also looks to be in robust financial shape with a substantial net cash position.

The post 2 dirt-cheap passive income stocks to buy in October appeared first on The Twelfth Magpie.

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• £1,000 buys 268 shares in this dirt-cheap dividend stock that’s on fire in 2026

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Polar Capital Holdings. 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.

Subdued market

Today’s statement started well enough. Having made the most of the last financial year, CMC said that client assets under management (AuM) continued to hit “near-record levels“. The number of active clients had also remained fairly consistent over the five months to the end of August and was up “around a third” from before the whole coronavirus crisis kicked off.  

However, it was at this point that the tone shifted. According to CMC, “subdued” market activity during July and August has meant lower trading by new and existing clients. Having attracted so many people to its platform over the last year or so, CMC also reported that client income retention has been “moderately below” its 80% target.

If the recent lack of activity continues, it believes net operating income for FY22 will now come in somewhere between £250m and £280m.  

Clearly, news like this (as well as an indication that operating costs were increasing) was never going to be greeted enthusiastically by the company’s investors. But is a 25% fall truly justified? 

Has the CMC Markets share price fallen too far?

Personally, I think the fall is overdone. Having benefited so much from the incredible volatility seen in markets last year, there was always going to come a time when trading moderated. Let’s not forget that, before today, the CMC Markets share price had increased 35% in just 12 months. Nothing rises in a straight line. 

There’s also a lot still to like about this company, at least in my view. It appears to have a sound strategy for growth and an incredibly robust balance sheet. The returns on capital metric beloved of UK star fund manager Terry Smith has been high for many years. A potential 16.9p per share dividend also has this stock yielding a chunky 5.5% at its new, much lower price. Now, no income stream can be guaranteed. Even so, this does strike me as adequate compensation for what could be rough times ahead.  

On the downside, the small ‘free float’ means the share price is potentially far more volatile than that of other stocks. Today would appear to be clear evidence of that! Second, the threat of increased regulation in this industry can never be discounted. Third, there’s no shortage of competition for clients. 

Letting it settle

I’d need to be very careful before adding CMC Markets to my portfolio. After all, I already own shares in the market leader IG Group. Having too much exposure to one industry invites trouble. It can be wonderful during the good times but a potential nightmare during the bad.

That said, if I didn’t own IGG, I’d be tempted to get involved with CMC at some point. This FTSE 250 member presents as a quality operator, albeit one that has become a victim of the sudden swing in Mr Market’s mood.  

Quite where the share price goes in the near term, however, is anyone’s guess. In recent weeks, we’ve seen several previously-loved stocks tumble and continue tumbling. Avon Protection and Best of the Best spring to mind.

If I did cave in and buy, I’d wait for the dust to settle first.

The post Here’s why the CMC Markets share price (CMCX) has crashed 25% today appeared first on The Twelfth Magpie.

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Paul Summers owns shares in IG Group. The Motley Fool UK has recommended Avon Protection. 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 are many routes to riches in the market. One of the more ‘relaxed’ methods is to buy and sit on stocks paying big dividends. If these stakes can be purchased at a low price, all the better. 

Today, I’ve picked out two lesser-known dividend champions that, in addition to handing out cash to shareholders, still look great value.

Great dividend stock

Online trading provider CMC Markets (LSE: CMCX) has had a superb last year or so with volatile markets bringing a lot of new clients to its services. Net operating income was 63% higher over the 12 months to the end of March to £409.8m. Pre-tax profit rocketed 127% to £224m.  

Despite this, the shares look cheap considering CMC’s consistently high margins and returns on capital. They currently change hands for just 13 times forecast earnings.

Naturally, there will come a time when markets settle. Indeed, CMC has noted that “client trading activity has moderated from prior elevated levels” since the start of its new financial year. This may bring out a few sellers. The shares have climbed almost 400% over the last two years, after all. 

Then again, the company’s rapidly growing stockbroking arm should help make up for this. A forecast 3.8% yield easily covered by profits also makes this a great dividend stock, in my opinion.

Despite the risk of ‘buying at the top’, I’d feel comfortable adding this stock to my own portfolio now.

Ice cool income

Shares in asset manager Polar Capital (LSE: POLR) also look great value considering the mix of potential growth and income on offer.

Right now, these can be bought for 14 times forecast earnings. That looks a good deal based on fundamentals and recent trading. At the start of the month, Polar reported a 49% jump in pre-tax profit to £75.9m over the year to the end of March. A record 71% rise in Assets under Management (AuM) to just under £21bn was also announced.

However, the PEG (price/earnings to growth) comes in at 1. According to the celebrated investor Jim Slater, anything around this level or lower suggests investors are getting a lot of bang for their buck.  

Obviously, there’s no sure thing. The POLR share price could quickly lose its momentum if global markets experience another big wobble and investors take flight. Whether this is the result of a Covid variant really taking hold or some ‘unknown unknown’, we can’t say. CMC might welcome more volatility. Polar Capital, less so.

Then again, the dividends should make up for any short-term pain. The shares currently yield 4.7%. So, like CMC, I’d be a buyer today.

Receive, reinvest, repeat

Cheap dividend stocks can be appealing for older investors who want to generate income. However, we know that feeding these payouts back into the market has the potential to really grow a person’s wealth, whatever their age.

One risk is that I might not stick to this approach. Spending dividends means missing out on the benefits that compounding brings over time. If this were the case, I’d give serious consideration to asking my broker to automatically reinvest on my behalf.

As last year showed, this income is never entirely secure either. The pandemic forced many firms to slash their payouts to shore up cash. As such, spreading my money around a few dividend stocks is something I wouldn’t hesitate to do. 

The post 2 cheap dividend stocks to buy now 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 recommended Polar Capital Holdings. 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.

Six months on and my view hasn’t changed. Nor has the company’s valuation.

Lloyds share price: going nowhere?

The problem with Lloyds, and indeed all banking shares right now, is that they face so many headwinds. 

First, there’s the economic impact of the coronavirus. Back in April, I warned that a significant second wave and further economic pain could scuttle any chance of a comeback in the near term. We could be about to experience the former. The latter is already a given.

Factor in the possibility of interest rates remaining at historic lows and messy Brexit negotiations (if that’s not already a given) and the investment case remains pretty weak. Bargain hunters will point to Lloyds’ low price-to-book value and far healthier financial position compared to during the Financial Crisis. This, however, doesn’t mean the Lloyds share price can’t get cheaper.

It’s also worth pointing out that, by yesterday, the shares were the fourth most sold by investors with Hargreaves Lansdown over the last week. They were only the 13th most popular buy, based on the number of deals.

Anyone with stacks of patience might want to stick with the shares in the hope the dividend is resurrected (or we get a coronavirus vaccine). Personally, I think there are far better opportunities elsewhere. Speaking of which…

Better buy

My far-more-bullish call, online trading provider CMC Markets (LSE: CMCX) back in July 2019, has proved very rewarding so far. Had you bought its shares back then, you’d now be sitting on a gain of 280%. Even those buying back at the end of April this year would have seen their money grow 70% by yesterday’s close!

Now, let’s be clear. CMC’s dramatic rebound has been helped massively by the volatile markets we’ve experienced for much of 2020. Companies like this thrive in troubled times.

Nevertheless, CMC’s good fortune (from a business sense) doesn’t negate the fact that we should always be out to snap up quality stocks when they go on sale. Back in 2019, no one wanted a piece of the mid-cap. Based on this morning’s trading update, that was the perfect time to invest. 

Record performance

Today, CMC reported achieving a record trading performance over the first half of its financial year.

Contracts For Difference net trading revenue came in at roughly £200m in the six months to the end of September. This is far better than the £85m made over the first half of 2019. Elsewhere, net revenue from its growing stockbroking division — a key part of CMC’s diversification strategy — is expected to nearly double from £14m last year to £26m in H1 2021.

All told, management believes net operating income will be “towards the upper end of the current range of consensus,“ albeit with higher costs than previously expected.  

Shares in CMC Markets were down in early trading, suggesting that some in the market are banking some profit. After such a storming share price run, I can’t blame them. 

Then again, with the forthcoming US election being another potential catalyst for volatility and client retention “remaining strong,” I’m inclined to think the shares could still move higher.

The post My call on the Lloyds share price has been right so far. Here’s what I’d have bought instead! 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 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.

By sharp contrast, the valuations of some UK companies have bounced to such an extent that March appears as a mere blip on their respective charts. 

Here are three examples that caught my eye.

Pets at Home

Due to “exceptional levels of demand” from pet owners over the last few weeks, retailer Pets at Home (LSE: PETS) has outperformed. Underlying pre-tax profit for the full year is expected to come in “slightly above the top end of the range of current market expectations.” As such, it’s probably no surprise its share price has galloped back to where it was only a few weeks ago. 

Can this positive momentum continue? It’s a tricky one. Having already closed its grooming salons, Pets now expects lower revenue from its vet practices and stores as people only make a trip if absolutely necessary.

Given the company has reported customers “pulling forward purchases,” you have to consider the possibility many owners have already stockpiled enough food for their furry friends should the lockdown be extended.

With no guidance for the next financial year issued, it’s understandable if prospective investors are still reluctant to buy. Nevertheless, the defensive nature of its industry surely makes Pets a far safer bet than other stocks in the FTSE 250. 

CMC Markets

Online trading provider CMC Markets (LSE: CMCX) is another firm that’s seen its share price recover. Actually, that’s something of an understatement. It’s now higher than before the coronavirus pandemic struck. 

This all feels very logical, given CMC benefits from periods of market volatility. Indeed, recent numbers suggest business is booming. More clients are signing up to use its platform (or logging back in). So the small-cap now expects full-year trading revenue from its main CFD business to be around £214m. This is almost double what it generated in FY19.

Markets are likely to remain jittery for the foreseeable future. But I think those buying now could still make decent gains. Having said it would retain its policy of paying out 50% of post-tax profit to its shareholders, CMC looks a relatively safe bet for income investors too.

Bioventix

Last, but not least, we have antibody developer and supplier Bioventix (LSE: BVXP). While unrelated to the current crisis, last week’s set of interim results helped explain why its share price has now returned to levels seen in February. 

Revenue and pre-tax profit jumped 21% and 31% respectively over the six months to the end of December. In addition to this, Bioventix saw fit to raise its interim dividend by a cracking 20%, to 36p per share.

The near-term outlook was also reassuring. A reduction in some diagnostic testing might impact earnings. But Bioventix expects to continue supplying antibodies to customers in countries affected by Covid-19. This makes sense given that healthcare services have now been prioritised.

The only slight concern for me is the company’s small workforce (16 people). This could become stretched if government guidelines on how companies should operate are modified. 

The post What market crash? These 3 growth stocks have bounced back hard 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 recommended Bioventix. 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.

Among those who’ve seen a rise in demand for its services is online trading specialist IG Group (LSE: IGG). Today’s update for the three months to 29 February had a tone similar to those recently released by industry peers CMC Markets and Plus 500.  

Top performer

As expected, the company has seen a “significant increase” in clients using its platform. The number of active traders on its books has soared 21% over the period to 101,700. The last week of the quarter was particularly busy, thanks to the “exceptionally high” volatility, as the world grasped the seriousness of the coronavirus outbreak.

Given this, it’s no surprise IG’s revenue has shot up. Just under £140m was generated over the period, representing a 29% increase compared to the same quarter a year ago.

To put this in context, this was the company’s best quarterly performance since new regulations giving more protection to retail clients were introduced in Europe in 2018. It was also the third-best quarterly performance in IG’s entire history!

Having been a holder of the stock for a while, I welcome these numbers with open arms. I’m also encouraged by the possibility things might get even better in the fourth quarter. This morning, the company revealed it had already brought in £52m in revenue over the first 12 trading days of the period. 

So, are the shares a buy?

Despite falling heavily in early trading, IG’s share price has still fared better than most over the last month. A drop of 20% since mid-February is far easier to accept compared to stock performances in the travel, retail, oil and banking sectors.

Clearly, further falls can’t be ruled out. Moreover, a full recovery in the share price back to levels seen towards the end of 2018 will take time. With IG down to return 43.2p per share to its owners in the current year, I think those holding will receive sufficient compensation for being patient. As it stands, this equates to a yield of 7.7%.

Right now, I’m assuming no cuts to this payout are on the horizon. That said, it’s important to know that Australia will soon follow Europe and introduce new regulations on retail clients. On this issue, IG merely said its actions to mitigate the impact on business were “progressing as planned“. It added that no new information on when rules would be introduced had been received. 

Before markets opened this morning, IG’s stock traded on 15 times forecast earnings. Quite how much faith you place in this and the valuation of any other company at the current time is another thing entirely.

No one, including IG, has any clue how long the current trading environment will last. Predicting revenue going forward is, therefore, tricky. Nevertheless, I maintain this is a quality stock to hold for the long term.

With its counter-cyclical qualities, strong balance sheet, and those aforementioned juicy dividends, I’m likely to buy more of the stock in the current crisis.

The post Revenue rockets at this FTSE 250 dividend stock. Here’s why I’ll continue buying appeared first on The Twelfth Magpie.

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Paul Summers owns shares of IG Group Holdings. 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.

Aside from being a relatively fuss-free way of making extra cash, it’s worth highlighting that holding dividend-paying companies within a Stocks and Shares ISA also means investors aren’t taxed on what they receive. 

With this in mind, here are two companies from lower down the market that I think are great candidates for income-focused portfolios.

Simmering nicely

Strix (LSE: KETL) is a business I’ve covered many times now and one that features in my own ISA.

For those unfamiliar with the name, this is a firm that designs, manufactures and supplies kettle safety controls and water filtration products. As boring as that may sound, it’s not let investors down so far.

Since arriving on the market in August 2017, the stock has increased 42% in value. For comparison, the FTSE 100 is up just 3% over the same period. What’s more, today’s trading update suggests this outperformance is likely to continue. 

Despite Brexit and the US/China trade scrap, Strix stated that the global kettle market “remained resilient” in 2019, growing by 4.5%. As a result, the £350m cap predicts adjusted post-tax profit will be “in line with market expectations”. Due to strong cash generation, net debt is also expected to fall to around £26.3m, down significantly from almost £46m in 2017. 

Strix plans to launch 12 new products in 2020 and open a new factory in China in January 2021, suggesting further growth is on the cards. Nevertheless, it’s the dividend payouts that I think make the minnow a worthy hold. 

The company has pencilled in returning a total of 7.7p per share to holders for 2019, equating to a yield of 4% at the current share price. That’s attractive, particularly as the shares trade on just 12 times expected FY20 earnings.

Strix won’t shoot the lights out, but it should continue simmering.

Strong recovery

Another company worthy of attention from second-income seekers is trading platform provider CMC Markets (LSE: CMCX).

Having faced the considerable headwind of increased regulation in recent times — a development that has hammered its share price — today’s Q3 trading update suggests the worst might be over.

Net operating income “continued to outperform expectations” in the three months to the end of December and was attributed to the company retaining more clients compared to the first half of the financial year. Despite increased operating costs, CMC said that it now expected the former to be “ahead of the upper end of the current range of analyst forecasts” (£184.1m to £189.3m).

Having rallied strongly in recent months, the shares were trading flat this morning, suggesting that a lot of this news was already priced-in. Nevertheless, a price-to-earnings (P/E) ratio of 13 for the current year doesn’t feel excessive given the potential of its stockbroking business and white label partnerships with banks. 

Like Strix, however, it’s CMC’s dividend credentials that I’m most interested in. The small-cap is forecast to return 6.23p per share in 2019/20, giving a yield of 3.8% covered twice by profits. With the best Cash ISA paying out just 1.31% in interest, I know which I’d pick. 

The post I like these small-cap dividend stocks for passive income in a Stocks & Shares ISA appeared first on The Twelfth Magpie.

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Paul Summers owns shares of Strix Group. 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.

Go back three years and the stock commanded a price of around 270p a pop. Before this morning, the very same shares traded at 96p. That said, today’s first-quarter trading update from the small-cap suggests a recovery might finally be in sight.

As a result of the firm generating higher revenue per client and more business-to-business revenue from institutions, net operating income over the three months to the end of June was better than over the same period in 2018. According to CEO Peter Cruddas, trading activity in the company’s CFD and spread betting business “has now stabilised“, giving hope to existing holders that the worst might be over.

Although costs are expected to be slightly higher in the current year, CMC also stated that it was confident of hitting its full-year guidance on pre-tax profit.

After initially soaring, CMC’s shares were up a couple of percent by lunchtime, leaving the shares on a valuation of 13 times expected earnings and yielding 4.3% (assuming analysts are correct in estimating the company will return 4.2p per share to holders in the current financial year).

With the company keen to diversify its earnings and capitalise on its recent partnership with Australia and New Zealand Banking Group (aka ANZ), I think this could be a fair price for patient investors to pay.

Industry leader

Of course, CMC Markets isn’t the only option available to prospective investors in this space. Although there’s clearly an element of bias here (I’m already a holder of the stock), I think IG Group (LSE: IGG) — the oldest and largest player in the field — makes for an even better buy.

That’s not to say the FTSE 250 member has been immune to the problems faced by CMC. Earlier this week, the company revealed that net trading revenue had fallen 16% to £476.9m over FY19 as a result of the aforementioned increase in regulation and “less favourable” market conditions. Operating profit of £192.9m was a full 31% reduction on that achieved in the previous year. Nevertheless, I continue to think there are grounds for optimism.

IG continues to attract new clients, with 31,310 making their first trade over the 12 months to the end of May. When market volatility returns as a result of concerns over the growing possibility of a no-deal Brexit, slowing global growth or some ‘unknown unknown’, I can only see this number rising.

A likely 43.2p per share dividend for FY20 also makes IG the higher-yielding share of the two (at 7.5%), even if management has stated its intention to maintain rather than grow this payout until earnings get back on track.

This might not take that long. The company already believes it will return to revenue growth in FY20, helped in part by its two new businesses in the US and the EU. Importantly, the latter, based in Germany, ensures that IG can continue operating in all member states regardless of whether the UK crashes or saunters out of the EU in October.

On a forward price-to-earnings (P/E) ratio of a little under 14, I remain a buyer at these levels.

The post Is this battered small-cap stock now a canny contrarian buy? appeared first on The Twelfth Magpie.

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Paul Summers owns shares in IG Group. 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.

Horrible numbers

Thanks to the aforementioned introduction of stricter conditions on accepting applications, there was a 10% reduction in the number of active clients and a 6% fall in the number of trades. The value of the latter was also 13% less than the previous year.

Perhaps unsurprisingly, this led to the company reporting a 30% decrease in the amount of revenue it has generated from each client to a little over £2,000.

All told, net operating income — total revenue after commissions — fell by 30% in the year to the end of March to just under £131m. Pre-tax profit tanked by a horrible 89% to £6.3m. 

Clearly, this has meant that CMC has needed to take action. 

Dividends have been slashed with the final payout of 0.68p per share giving a full-year cash return on 2.03p. That’s 77% down on the previous year. 

The company has also taken steps to diversify its revenue streams with CEO Peter Cruddas stating that the firm is “much more balanced today than it has ever been” thanks to growth in its stockbroking division and more institutional business.

Having been rolled out as planned, its partnership with ANZ Bank generated an 81% jump in stockbroking net revenue to £15.5m.

There were a couple of other encouraging developments. Professional client numbers “remain stable” and the company’s German subsidiary — set up to counter any fallout from Brexit — is due to be operational by October, assuming CMC receives final approval from the regulators.  

Volatile stock

Despite falling 12% as trading commenced this morning, CMC’s shares are now up over 1%, highlighting just how volatile small-caps can be and more specifically, how conflicted investors are on the company’s future. 

Personally, I remain optimistic on CMC recovering in time for a couple of reasons aside from its push to become more diversified.

First, the current subdued market conditions will inevitably change. This could be due to further conflict on trade between China and the US, the growing possibility of a no-deal Brexit or an event that we simply can’t foresee. When this happens, more clients will become active and revenues at CMC should rise accordingly.

The fact that the CEO still owns a massive amount of shares also gives me confidence.

While nothing can be guaranteed, managers with sufficient ‘skin in the game’ will always be more incentivised to succeed than those who run companies just for a salary, at least in my opinion. After all, their money is on the line in exactly the same way as that of other investors. And one golden rule to remember is that no one cares about your money more than you do. 

Based on current estimates, CMC’s shares currently trade on a forward price-to-earnings (P/E) ratio of 11. Whether those estimates will need to be adjusted later down the line is another thing entirely.

As such, I’m prioritising adding to my holding in market leader and FTSE 250 member IG Group for the time being, given the 7.8% dividend yield on offer. 

The post Why I still think this battered small-cap stock will bounce back appeared first on The Twelfth Magpie.

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• FTSE 250 stock CMC’s shares have rocketed 51%! What’s going on?
• CMC Markets: a FTSE dividend star worth considering for an ISA or SIPP?
• £1,000 buys 268 shares in this dirt-cheap dividend stock that’s on fire in 2026

Paul Summers owns shares in IG Group. 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.