Since the Taylor Wimpey (LSE: TW) share price has fallen by 13% in the last year, it could now offer good value for money. Alongside another cheap share which released an update on Thursday, it could be worth buying for the long term, in my opinion.

Robust performance

The company in question is food producer Dairy Crest (LSE: DCG). Its third quarter trading update showed its key brands have delivered strong volume and revenue growth. Combined, its four brands generated sales growth of 10%, with revenue up 6% over the first nine months of the year. Its brands have also continued to gain market share, with product innovation helping to maintain their relevance at a time when consumer tastes are shifting at a rapid pace.

With Dairy Crest expected to post a rise in earnings of 5% in the next financial year, it appears to have a bright future. Although there are risks surrounding consumer confidence and the potential impact of Brexit on the company’s supply chain, its valuation suggests it offers a margin of safety. The stock has a P/E ratio of 13, which indicates that it may also offer good value for money, as well as long-term growth potential.

Recovery prospects

The short-term future for Taylor Wimpey and other UK house-builders continues to be uncertain. Political risk is high at the present time due to Brexit, although it does not seem to be dampening demand for new homes. Recent updates from the company have suggested demand has been robust, which provides yet more evidence that this significantly exceeds the supply of new homes. This situation is likely to continue for many years, with population growth due to be higher than the completion rate of new homes.

Taylor Wimpey may therefore be able to generate growing net profit over a long-term time period. Since it has a strong balance sheet with a net cash position, this may mean it’s able to raise dividends at a fast pace. It already has a yield of over 10%, which suggests it may be a highly appealing income stock.

A P/E ratio of 7.5 also shows that its share price fall may have been overdone. Certainly, the impact of Brexit on all industries in the UK is tough to predict, and there may be unforeseen challenges ahead. But from a long-term investment perspective, the stock’s margin of safety indicates that it may help individuals to generate a nest egg in order to overcome the inadequacies of the State Pension.

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Peter Stephens owns shares of Taylor Wimpey. 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, there are other dividend stocks that could help you to enjoy a prosperous retirement. Reporting on Tuesday was a high-yielding share that could offer a wide margin of safety, and may help to boost the income from a state pension.

Improving performance

That company is chilled dairy foods firm Dairy Crest (LSE: DCG). The performance of the business in the first quarter of the year has been in line with expectations, and shows that it is on track to meet guidance for the full year.

Combined sales of the company’s four key brands was 6% up on the previous year. This was boosted by the ongoing performance of its two largest brands, Cathedral City and Clover, which each delivered revenue growth of 10%. The performance of the spreads portfolio was also strong, while its Functional Ingredients business is becoming more established and is seeing its customer base grow.

With Dairy Crest having a dividend yield of around 5% from a payout that is covered 1.5 times by profit, its income prospects appear to be positive. Furthermore, a price-to-earnings (P/E) ratio of around 14 suggests that there could be a margin of safety on offer. As such, now could be the perfect time to buy the stock as it appears to offer a mix of value and income potential at the present time.

Turnaround prospects

As mentioned, AstraZeneca’s financial performance is expected to improve dramatically over the medium term. It has been hit hard by patent losses on key blockbuster drugs in the last few years, and this has caused its bottom line to come under severe pressure. Now, though, the stock is expected to report a rise in earnings of 12% next year, which could help to boost investor sentiment.

With AstraZeneca forecast to grow its dividend by less than 1% next year, it may seem as though growth here could be limited after what has been a tough period for the company. However, with dividends covered 1.4 times by profit, there could be relatively high rises in shareholder payouts over the medium term. In fact, it would be unsurprising for them to rise at a similar pace to profit growth, given the financial strength of the business.

While there’s still some way to go before the stock has successfully stepped away its patent cliff edge, it seems to be heading towards that goal. While the past few years have been tough on its investors, the pharma stock now seems to have a bright future. It could therefore offer an impressive income outlook over the long term.

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Peter Stephens owns shares of AstraZeneca. The Motley Fool UK has recommended AstraZeneca. 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.

The shares are trading up 1.6% at 616p, as I’m writing, putting the FTSE 250 firm on a forward price-to-earnings (P/E) ratio of 16.4, with a prospective dividend yield of 3.7%. This valuation looks quite attractive for a company in the defensive food producers sector but I see greater attraction in a similarly rated stock in another defensive sector.

At a share price of 4,700p, AstraZeneca (LSE: AZN) trades on a forward P/E of 16.8, with a prospective dividend yield of 4.4%. If I needed to free-up funds to invest in the FTSE 100 pharma giant, I’d be willing to sacrifice Dairy Crest.

Revenues and profits

AstraZeneca’s revenue has fallen from $28bn to $23bn over the last five years, as patent expiries on some of its top-selling products have taken a toll. Meanwhile, Dairy Crest’s revenue has declined more modestly from £430m to £417m (after stripping out its Dairies operation, which it sold in 2015).

Top-line growth is essential for profit growth in the long run and the good news is that Dairy Crest’s revenue is forecast to begin increasing from this year and AstraZeneca’s from next year. Even if the pharma group falls short of chief executive Pascal Soriot’s ambitious target of $45bn in annual revenues by 2023 — as its strong pipeline of new drugs begins to bear fruit — I expect it to comfortably outpace the top-line growth of Dairy Crest.

The vast majority of Dairy Crest’s revenues come from the mature UK market but it’s diversification into supplying ingredients for infant formula — a high-growth, high-margin global market — should help profits move higher. Nevertheless, I reckon AstraZeneca’s cost-base restructuring of the last few years should lead to superior profit advances as its top-line growth kicks in.

Dividends and debt

Dairy Crest has increased its dividend — if rather unspectacularly — from 20.7p to 22.5p over the last five years. However, its net debt has increased from £60m to £249m during the period, giving sky-high gearing of 346%. Furthermore, despite its defensive qualities, it rebased its dividend 25% lower back in 2009.

By contrast, AstraZeneca has managed to maintain its dividend at 280 cents over the past five years of protracted pressure on revenues and profits. Its net debt has also risen (from $1.4bn to $10.7bn) but gearing is a far more comfortable 72%.

If my top- and bottom-line growth expectations for AstraZeneca are on the mark, it should be capable of providing a superior dividend return in due course, particularly from a current starting yield of 4.4% versus Dairy Crest’s 3.7%

Other qualities

Finally, Dairy Crest not only has far more limited geographical diversification than AstraZeneca, but also higher customer-concentration risk. Almost half its revenue comes from just three customers.

This contrasts with its larger and more diversified food producer peer Unilever, which has no single customer accounting for 10% or more of its revenue. And like Unilever, AstraZeneca has a wide diversity of customers and suppliers across different geographic areas. Only one wholesaler accounts for greater than 10% of its product sales.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended AstraZeneca. 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.

Overpriced growth story

Reporting on Tuesday was bakery and on-the-go food retailer Greggs (LSE: GRG). Its performance in the first half of the year has been encouraging, with the company on track to meet expectations for the full year. Its sales increased by 7.3% as it recorded company-managed shop like-for-like (LFL) sales growth of 3.4%. This was driven by strong growth across a number of business areas including its Balanced Choice meal ranges and hot food choices.

The company’s store opening programme continues, with 19 shops closed in the first half of the year and 61 new shops opened. It expects around 100 net new shops for the full year. It has also rolled out a new central forecasting and replenishment system ahead of schedule, which could make the business more efficient in future.

Looking ahead, Greggs is forecast to post a flat bottom line this year, followed by growth of 7% next year. Despite this somewhat modest growth outlook, it trades on a price-to-earnings (P/E) ratio of 17.9. This suggests it may be overpriced given the uncertain outlook for UK retailers as rising inflation puts pressure on disposable incomes. Therefore, it seems to be a stock to avoid given its lack of a margin of safety.

Lack of growth

Also trading on a high valuation given its growth outlook is Dairy Crest (LSE: DCG). It is expected to report a rise in its bottom line of 5% in each of the next two financial years. This is a lower figure than the expected growth rate of the wider index, which would usually mean a lower valuation would be applied by the market. However, in this case the stock has a P/E ratio of 15.8. When combined with its growth rate, this gives a price-to-earnings growth (PEG) ratio of over three, which suggests a share price fall could be on the cards.

Of course, Dairy Crest has income appeal at the present time. It currently yields 3.8% from a dividend which is covered 1.7 times by profit. With inflation moving higher, this could create additional demand for the company’s shares and help to support its stock price. However, with a number of stocks in the FTSE 350 having 4%+ yields and offering lower valuations as well as similar growth outlooks, the relative appeal of Dairy Crest may be somewhat limited. As such, it may be better to avoid it until a higher valuation can be more easily justified.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Country living

Dairy Crest owns some of the best known brands in the UK dairy sector, notably Country Life and Clover, and Britain’s favourite cheese, the now ubiquitous Cathedral City. What it doesn’t actually sell is milk, having completed the sale of its dairies operations to Germany’s Muller for £80m in 2015.

Chief executive Mark Allen is keen to push into the lucrative global baby milk formula market instead, using added value dairy ingredients such as whey butter, a by-product of its spreads and cheese operations. The company hopes to make progress in China, where local product contamination scandals and the easing of the one-child rule should boost the infant formula market. Offloading milk made sense, with the company losing £143m over four years, primarily due to plunging prices.

Crest of a wave

Dairy Crest’s first 12 months without dairies showed 5% growth in adjusted profit before tax to £60.6m in the year to 31 March. Revenue fell 1% to £416.6m, while profit before tax tumbled 11% to £40.3m. Allen called it “a robust performance in a tough market” with key brands performing well as he looks to build a simple, lean and responsive business of around 1,200 employees.

Growth prospects look solid and steady, with earnings per share (EPS) growth expected to remain at 3% in 2017, then climb to 5% in 2018, justifying its forecast valuation of 16.7 times earnings. The anticipated yield of 4.2% adds income to the growth story. It is covered 1.6 times and nicely supported by the strong levels of cash generated from operations, which totalled £32.8m in 2017. Dairy Crest isn’t the most exciting stock on the FTSE 250 but remains a good bread and butter portfolio holding.

Digital growth story

IT infrastructure services specialist Computacenter (LSE: CCC) is a very different beast. For a start, it has delivered far more exciting share price growth, rising 187% over the past five years. It continues to perform strongly with first-quarter group revenue up 16%, or 9% on a constant currency basis. UK revenues did fall 1%, handily offset by an increase of 6% in French revenues, and 23% in Germany.

It is benefitting from the trend to digitalise workplace operations, which has boosted its professional services and supply chain businesses in particular. This has helped offset the squeeze as customers battle to reduce their long-term support costs. However, this £1bn FTSE 250 company has the strength to turn this to its advantage, and even use it as an opportunity to take market share from rivals who cannot compete so well on costs.

Germany calling

Analysts foresee a slowdown in EPS growth, down from 15% in 2016 to a forecast 4% in 2017, and 1% in 2018. A forecast valuation of 14.4 times earnings reflects this moderation. The forecast yield of 2.6% disappoints in these circumstances, even if it is nicely covered 2.6 times. 

Barclays recently hiked its profit forecast for Computacenter by 5%-6%, largely based on increased expectations of German demand, and suggested that investors could even benefit from a possible cash return. Certainly the company could improve on last year’s 2% dividend hike to 16.3p. 

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

But it’s that combination of a fallen share price and progressive dividends that make me think Royal Mail is an attractive buy for long-term income right now.

Full-year results released Thursday show a 25% rise in pre-tax profit to £335m, and a forecast-beating 7% rise in earnings per share to 44.1p. That enabled the company to lift its dividend by 4% to 23p, and what’s nice about it is the dividend is staying ahead of inflation which is nudging 3% these days. Oh, and that’s a tasty yield of 5.3% on yesterday’s close, and appears adequately covered by earnings.

Parcels abound

Although the increasing demise of the written word has led to a 6% drop in letters carried over the year, online shopping has helped compensate, with Royal Mail enjoying a 3% rise in parcel volumes. And though the parcels business is competitive, Royal Mail still carries around 50% of the UK’s volume these days.

It’s not just UK deliveries either, with the company’s General Logistics Systems (which serves 41 European countries and seven US states) seeing a 9% rise in revenue — it accounts for 22% of revenues now.

The shares ticked up a couple of percent this morning, but we’re still looking at a forward P/E of a modest 11 (and that’s before any upwards re-rating of forecasts, which I think is likely). 

The market has punished Royal Mail shares over the past 12 months. But I reckon the market is wrong, and I’m seeing a nice opportunity to snag a healthy dividend stream for the long term.

Cows mean cash

Wallace isn’t the only one who likes a bit of cheese — according to the British Cheese Board, as a nation we consume around 700,000 tonnes of the stuff per year. And Dairy Crest Group (LSE: DCG) gets a fair chunk of that market with its popular Cathedral City cheddar.

The Dairy Crest share price dropped a little in morning trading Thursday, after earnings per share came in slightly behind forecasts at 35.6p per share, in the first year since the company disposed of its actual dairies to concentrate on its consumer brands.

Adjusted pre-tax profit was up 5% to £60.6m, with volumes from Cathedral City, and also from the firm’s Country Life, Clover and Frylight brands all climbing. (Incidentally, Dairy Crest also makes Utterly Butterly, so it’s not restricted to dairy products.)

Chief executive Mark Allen spoke of the company’s industry-leading margins and its focus on building brand strength, and reckons Dairy Crest is “well positioned to deliver profitable, sustainable growth and stronger cash generation, underpinning our commitment to growing our dividends and reducing debt.”

The full-year dividend was lifted by 2% to 22.5p, for a yield of 3.7%, and I think that’s pretty respectable with cover by earnings of 1.6 times. An increase in net debt of £20.8m to £249.8m does concern me a little, but it was down to one-offs and the company’s strong cash generation should enable it to reduce that in the medium term.

I see Dairy Crest as a company that should provide steady cash for decades to come.

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Strong dividend cover

Shares in Dairy Crest Group (LSE: DCG) don’t come cheap, as the producer of Cathedral City, Clover and Frylight trades at a price-to-earnings ratio of 16.4. The dairy foods company is highly rated by investors due to the stock’s solid history of annual dividend increases and its attractive near-term earnings growth prospects.

Investors can also take confidence from Dairy Crest’s improving profitability. Adjusted earnings per share advanced 19% during the six months to 30 December, as the company benefitted from Cathedral City’s new brand packaging and steady progress made in the infant formula market. The group has made big investments over recent years to manufacture demineralised whey, a key ingredient for infant formula, and its good to see the company beginning to get production and sales underway, just as prices are now starting to rise.

Dairy Crest is due to announce its full-year results in May, with City analysts expecting adjusted EPS to gain 4% this year. As such, dividend cover for the stock is expected to rise above 1.6 times this year, making Dairy Crest a reliable dividend stock for income chasers. Moreover, with capital expenditures expected to fall back after big investments over the past few years, the company is forecast to generate considerable free cash flow, giving the company plenty of room to grow dividends further.

With a current dividend yield of 3.9%, Dairy Crest also yields considerably more than the sector average of 1.9%.

Steady cash flows

Closed-book life insurer Chesnara (LSE: CSN) is a great example of why strong cash generation is vital for a stable progressive dividend policy. That’s because although life insurers suffer from volatile earnings due to the variable nature of investment returns and the timing of customer claims, steady cash flows at Chesnara have enabled the company to grow its dividend in each of the last 12 years.

Investors should also note that despite the low interest rate environment, its cash generation has remained robust. The company has continued to generate more cash than is needed to fund its annual dividends organically and is expected to continue to create value for shareholders by making further acquisitions. Its acquisition of Legal and General Nederland, announced in November 2016, is expected to add around £56m to its Economic Value (EcV) this year.

Currently, Chesnara pays a dividend of 19.49p a share, which gives shareholders a tempting dividend yield of 5%. The insurer also trades at a modest 3% discount to its EcV — that’s the present value of future profits from existing policies plus the net assets of its non-insurance business, which makes it a key measure of the insurer’s intrinsic value. It’s also a conservative measure of the insurer’s underlying value, as it assumes Chesnara makes no further accretive acquisitions in the future.

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Respectable performance

Today’s update from Dairy Crest (LSE: DCG) is in line with expectations, with the producer of Cathedral City, Clover and Frylight expected to meet guidance for the full year. In the first nine months of the year the combined volumes of those three products, plus Country Life, were in line with the same period of last year. However, their long-term performance could improve. The company is investing in brand building and innovation, with new packaging launches and advertising campaigns having the potential to boost their sales.

In fact, in the current year the company’s earnings are due to increase by 5%. This is expected to be followed by further growth of 8% in the next financial year and 6% the year after. While respectable, it’s roughly the same level as the wider market’s growth rate. Therefore, Dairy Crest seems to be something of a solid performer, rather than a spectacular growth play.

Valuation

The company’s growth rate would be attractive if its valuation included a wide margin of safety. However, the outlook for the UK economy is highly uncertain and consumer demand for non-essential items could come under pressure. Dairy Crest trades at a premium to its historic valuation, which indicates that its share price could fall over the medium term.

For example, the company’s current price-to-earnings (P/E) ratio is 17.3. This is higher than its average P/E ratio over the last five years of 13.8. Since its earnings are expected to grow at a similar rate to those of the wider index over the medium term, it’s difficult to justify such a high P/E ratio. If the company was to trade on its historic average, it would equate to a drop in its share price of 20%. This could take place over the next couple of years – especially if sales grow less than expected as Brexit fears hit consumer spending.

Sector peer

Of course, not all stocks within the food production space trade on premium valuations. For example, convenience food manufacturer Greencore (LSE: GNC) is expected to record a rise in its earnings of 10% in the next financial year. Trading on a P/E ratio of 15.8, its price-to-earnings growth (PEG) ratio stands at 1.6. This indicates there’s significant upside potential on offer, with a wide margin of safety protecting investors against share price falls in case earnings disappoint.

Compared to the growth rate and valuation of Dairy Crest, Greencore offers more growth and a lower price. As such, it appears to be a more prudent buy.

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The scenario of market enthusiasm post-IPO, followed by disappointment if there’s a setback, isn’t uncommon with new companies on AIM. However, fundamentally sound businesses come through in the long run. Six years on from flotation, I reckon DP Poland is now looking an interesting proposition for investors.

Long growth runway

In half-year results announced this morning, management said store opening momentum continues to build, with six stores opened in the year-to-date, taking the total to 29 stores. Strong like-for-like performance of existing stores (+28%), plus the contribution of new stores saw total retail sales (corporate and sub-franchised locations) up by 57% from H1 2015.

A rapidly growing store estate requires considerable investment in property and people, and DP Poland will be lossmaking for some years yet as a result of this upfront investment. This is a normal situation for a franchise rollout from scratch. In time, costs reduce as a percentage of sales and the company starts generating profits.

Generally speaking, I’m not too enamoured of lossmaking businesses. However, Domino’s Pizza has proven itself to be a highly successful brand in many countries and the indications are that Poland will be no different. The company’s annualised revenues are currently under £6m, and with Poland’s population of 38.5m there a long growth runway ahead based on Domino’s revenue per capita in more mature markets.

On this basis, I don’t see a current valuation of 11 times sales at a share price of 50p as prohibitive for long-term investors.

Market-beating growth

In contrast to DP Poland, Dairy Crest (LSE: DCG) is a long-established and profitable food business. The company, which completed a transformational sale of its dairies operations at the back-end of last year, is now focused on food products, led by its four key brands of Cathedral City cheese, Country Life butter, Clover spread and Frylight cooking spray.

In a trading update released this morning, the company said it expects to report a “good performance” for the first half of the year, and that the outlook for the full year remains unchanged.

Country Life, Clover and Frylight are showing strong volume growth and increasing market share. Management expects a small volume decline from Cathedral City but an improved margin as it has chosen to discount less than competitors to maintain the brand’s premium positioning during the period.

Management reckons that as “a strong branded and added value business, Dairy Crest is well placed to deal with inflationary pressures.” City analysts agree and have pencilled-in earnings growth of 13% for the company’s financial year ending March 2017.

Dairy Crest’s price-to-earnings ratio is 16.4 at a current share price of 640p, and the forecast dividend gives a yield of 3.6%. This is a highly focused business relative to a global diversified brands giant such as Unilever. But focusing on a few things and doing them very well isn’t a bad strategy and can deliver market-beating growth. Dairy Crest looks set to do that, and I reckon the earnings multiple and dividend yield represent decent value.

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This growth is at least partly due to higher passenger numbers in the air sector, with its UK performance being robust. However, in Europe SSP’s performance was mixed, with good performance in Spain offset by a weak France and Belgium resulting from industrial action and geopolitical events. Outside of Europe, North America continued to perform well, while China is still experiencing a slowdown in passenger growth.

Looking ahead, SSP is forecast to increase its earnings by 14% this year and by a further 12% next year. This has the potential to boost investor sentiment and with SSP trading on a price-to-earnings growth (PEG) ratio of just 1.5, its shares seem to offer good value for money given their geographic diversity and sound business model.

Rich valuation

Also reporting today was Dairy Crest (LSE: DCG). The company’s start to the financial year has been as expected, with it successfully relaunching Cathedral City cheese with new packaging and branding.

Dairy Crest’s butters, spreads and oils business is also progressing well. The benefits of its investment in infant formula ingredients are also starting to come through, with improved operational efficiencies at its demineralised whey and GOS production facilities.

Dairy Crest is expected to record a rise in earnings of 12% this year and a further 5% next year. Despite its 14% share price fall since the start of the year, it still trades on a rather rich valuation. For example, its PEG ratio is 2.8 and this indicates that there’s a lack of a safety margin. As such, and while Dairy Crest is performing well as a business, there may be better options elsewhere for investors.

Meanwhile, Evraz (LSE: EVR) has also released news today. The steel, mining and vanadium company recorded a fall in production across all of its units in the first half of the year. For example, steel production dropped by 7.6%, while production of steel products fell 8%. This was due to a planned maintenance shutdown at one of Evraz’s furnaces in Russia. Similarly, coking coal production also declined versus the prior year, falling by 21% although it was still higher in the second quarter than in the first quarter of the current year.

With Evraz trading on a price-to-earnings (P/E) ratio of just 8.4, its shares are relatively cheap. However, its earnings are due to fall by 13% next year so while Evraz may be a sound long-term buy, it would be unsurprising for its shares to come under a degree of pressure in the near term.

The post Should you buy these 3 shares after today’s updates? appeared first on The Twelfth Magpie.

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