An absolutely disastrous trading update at the end of May set nerves jangling before Britons even started making preparations for the sunny season. Its share price fell a whopping 34% in a day to around 300p per share, but it’s not done dropping yet.

As if things weren’t bad enough for De La Rue, news broke on Tuesday that the Serious Fraud Office (SFO) is to launch an investigation into the business and associated individuals with regards to “suspected corruption” in South Sudan.

The news sent the shares hurtling back towards the 250p marker and to prices not seen since 2003.

Boardroom blitz

As one would expect, De La Rue — which prints currency bills in the African country — commented that “it is not possible to predict reliably what effect their outcome may have” given the early stage of investigations. What the probe does do, though, is raise the prospect of some severe financial penalties and a significant hurdle in the company’s search for a new chief executive.

As I said at the top of the piece, De La Rue had already shocked markets before the summer even kicked off, declaring a 78% pre-tax profit slump in the fiscal year to March and giving guidance that results would be “somewhat lower” next year too.

Chief executive Martin Sutherland elected to fall on his sword following this most recent profit warning, leaving a mountain to climb for his eventual successor and fresh questions over future strategy. However, the boardroom strife at De La Rue doesn’t end here.

Chairman Philip Rogerson has also announced plans to retire as part of the CEO succession process, but Crystal Amber is calling for his immediate removal at tomorrow’s upcoming AGM. The activist investor is embroiled in a very public spat with the company and its board over what it sees as the “payment of egregious bonuses for destruction of shareholder value,” and also questions the appropriateness of allowing Rogerson to oversee Sutherland’s replacement.

Too much trouble

De La Rue shares are worth just a third of what they were five years ago, and it’s hard to see how the price can recover in an increasingly cashless society. As well as battling a backdrop of intense competition, the business is facing an uncertain future as technology steadily erodes the need for its banknotes.

To illustrate this point, in Britain alone, the number of payments using physical coins and bills fell a further 16% in 2018 to some 11bn transactions, according to UK Finance. The body expects the role of cash to keep plummeting as contactless and mobile payments take over — it estimates that cash, used for 28% of transactions in the UK today, will be responsible for just one in 10 in a decade’s time.

It doesn’t matter to me that De La Rue trades on a dirt-cheap forward P/E ratio of 6.8 times. Nor am I moved by its gigantic corresponding dividend yield of 10%. The huge internal and external battles it currently faces make it a risk too far in my opinion, and I’d much rather put my hard-earned investment cash to work elsewhere.

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Royston Wild 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.

Chief executive Martin Sutherland is leaving, and the shares are down by 28% as I write.

It’s a dismal picture, but this company does have some unique capabilities and its services remain in demand. Is this a turnaround buy, or will De La Rue continue to print the wrong kind of news?

What’s gone wrong?

The company says that profits for the 2019/20 financial year are now expected to be “somewhat lower than the current year”. Such vague guidance is annoying, unless of course the board really has no idea how this year will turn out.

Problems reported today include an £18m charge for bad debt in Venezuela and “growing competitive pressure in the banknote print market”. This is expected to result in reduced volumes and lower profit margins over the coming year.

Shareholders will be relieved that the full-year dividend has been left unchanged at 25p per share, giving a 7.6% yield after today’s drop.

What happens next?

Departing boss Mr Sutherland has made some progress. But he’s also presided over the loss of the UK passport contract and failed to return the group to growth. He leaves with profits lower than they were in 2014/15 and set to fall again this year.

The firm now plans to refocus its operations into two core businesses, Currency and Authentication.

Currency means banknotes. The authentication business includes the shrinking passport business, but is increasingly focused on measures to help government and corporate customers protect against counterfeit goods and tax evasion on products such as tobacco.

Buy, sell or hold?

I’m finding it hard to put a number on what I feel DLAR shares might be worth.

The currency business is set to shrink this year to meet longer-term sustainable demand, while the profitability of the authentication division will take a big hit when the UK passport contract ends in 2020.

The risks are made worse by the firm’s £1bn pension scheme, which has a £77m deficit and will require annual payments of between £20m and £23m until at least 2028. That’s equivalent to one third of last year’s adjusted operating profit.

On balance, I’d say that the company’s technology and market share in currency should make it valuable. I could be tempted to buy at current levels, but only a small position.

A successful turnaround?

One company that appears to have successfully corrected problems with its business is ‘pet and vet’ retailer Pets at Home Group (LSE: PETS).

Recent results highlighted a 5.1% rise in like-for-like retail sales and a 6.1% rise in underlying pre-tax profits. More importantly, underlying free cash flow rose from £55.8m to £63.6m, providing good support for the dividend and reported earnings.

The shares are up by more than 55% from the record lows seen at the start of this year. Despite this, they still look fair value to me, on 13.5 times 2019 forecasts earnings and with a 4.1% dividend yield.

I’d rate PETS as a buy at current levels, but given the flat outlook for earnings this year, I wouldn’t be surprised if the stock retreated at some point this year. That could provide a better buying opportunity.

The post Cash firm De La Rue just crashed 25%: Here’s what I’d do now 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 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.

Should investors take advantage of this bumper yield, or head for the hills? Here are three reasons why I might buy Persimmon shares.

Cash-backed payouts

At the end of June, Persimmon had net cash of £1,155m. This works out at about 365p per share. That’s enough to cover this year’s 228p dividend and most of next year’s payout, even if earnings fall to zero.

I don’t’ think that’s likely to happen. Analysts’ forecasts are for earnings of 273p per share in 2018, and 278p per share in 2019. Both of these payouts provide cover for the dividend in their own right.

My view is that even if the new-build housing market starts to slow, investors are likely to receive a cash yield of about 20% from Persimmon over the next two years. This should provide some support for the group’s share price.

Negative sentiment

Persimmon’s share price has fallen by about 25% over the last year. The market is bearish, despite news that forward sales of £987m are 9% higher than at the same point last year.

It seems clear that demand for new housing is still strong. The only remaining headwind seems to be Brexit. If this can be completed without triggering a recession, I believe investor sentiment is likely to improve. Domestic stocks could perform well.

A mispriced stock

I believe Persimmon stock is mispriced. If profits are sustainable at similar levels to this year, then I think the shares are too cheap. If earnings are about to collapse, then the shares are too expensive.

There are compelling arguments in both directions. But the reality is that the group has stacks of cash, very high profit margins, and a strong pipeline of forward sales. On balance, I think the shares deserve a buy rating at this level.

A turnaround I’d buy

Another out-of-favour stock that’s on my watch list is currency and passport printer De La Rue (LSE: DLAR). This stock has fallen by about 50% over the last five years, as the group has battled with changing market conditions, and the unexpected loss of the contract to produce UK passports.

The good news is that management is fighting back and turning the business around. The group’s banknote printing business still accounts for about 80% of revenue. But De La Rue is increasing its effort to expand the more profitable identity and product-authentication divisions, where growth is expected to be much stronger.

Cheap at this price?

Results published on Tuesday show that sales rose by 5% to £257.6m during the first half of the year. Unfortunately, a greater mix of low-margin currency business, plus increased R&D spending, meant that adjusted operating profit fell by 36% to £17m.

Despite this, the board has felt able to maintain the current interim dividend of 8.3p per share. This puts the stock on track to deliver a full-year forecast payout of 25p per share. At around 450p, the stock has a prospective dividend yield of 5.5%.

This business isn’t without risk, but I can see a long-term opportunity here. De La Rue currently trades on just 10 times forecast earnings. If growth improves, I’d expect decent gains from this level. Worth considering as a turnaround buy.

The post This FTSE 100 dividend stock yields more than 10%, here are 3 reasons why I’d buy 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 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.

One potential example is retirement home builder McCarthy & Stone (LSE: MCS). Shares in this former FTSE 250 firm rose by 7% in early trade on Tuesday, after the company published details of its turnaround plan. McCarthy & Stone’s share price has now risen by 30% from the sub-100p low seen in late June, during a period when the FTSE 100 has been flat.

What’s the plan?

Today’s “business transformation strategy” has been developed by John Tonkiss. The group’s former chief operating officer has been appointed as its new chief executive and will take charge of delivering the changes required to reverse the decline in group profits.

Mr Tonkiss plans to scale back the firm’s growth ambitions and focus on maximising profit margins and return on capital employed (ROCE). He’s targeting operating margins and a ROCE of more than 15% by the end of the 2021 financial year.

For comparison, the group’s ROCE was 10% over the 12 months to 28 February. Underlying operating margin over this period was 13%.

To help achieve these goals, cost savings of more than £40m per year will be made over the period. The group also plans to reduce the amount of capital employed in the business by at least £70m over the next three years.

Alongside this, McCarthy & Stone plans to broaden its assisted living services and allow prospective residents to choose whether to rent or buy their properties.

This last change is aimed at breaking the link between the wider housing cycle and the firm’s growth. If residents can rent instead of buying, they’ll no longer need to own or sell their own homes to be able to buy a McCarthy property.

My view

These changes are all fairly logical and could work. The group seems likely to become an operator of retirement communities, rather than just a builder.

Looking ahead, this stock trades at a 10% discount to book value and on a forecast P/E of 13. Last year’s dividend of 4.3p per share will be held this year, giving the stock a prospective yield of 3.3%.

In my view, now could be a good time to buy into this turnaround story.

Printing cash

Another turnaround stock with interesting prospects is banknote and passport printer De La Rue (LSE: DLAR).

This company lost a high-profile contract to print UK passports earlier this year, but says that an increased focus on technology and modern polymer bank notes could help generate long-term growth.

Last year saw the company sell its paper banknote business for £60m. This cash paid down debt and enabled the company to enact that focus on polymer banknotes, where sales volumes doubled to 810 tonnes last year. The group now supplies 24 issuing authorities, representing “more than half” the world’s total polymer note issuers.

A long-term buy?

Analysts’ forecasts suggest that adjusted earnings will be flat this year and return to growth in the 2019/20 financial year. The stock trades on 11 times forecast earnings and offers a 5.2% yield that was covered by free cash flow last year.

Noted activist investor Crystal Amber Fund has taken a 5% stake and is agitating for change. I think the shares could be a good long-term buy at this level.

The post This dividend stock has beaten the FTSE 100 by 30% in three months. Should you keep buying? 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 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.

Out of favour

Transforming waste to energy might not be an exciting business, but for Renewi (LSE: RWI), it’s a profitable enterprise. The international firm, formed last year when UK-based Shanks group merged with a large European peer, reported “encouraging volume growth” back in July when management updated the market on trading for the second quarter.

That said, integrating two of the largest waste companies in Europe has hardly been pain-free. For the financial year to the end of March, the enlarged group reported a loss of £48m (going forward, the company will report earnings in euros).

Still, despite the shaky start, I reckon the long-term outlook for Renewi is bright. Integration savings are on track to hit €30m for the year ending 31 March 2019, which should help stabilise the business. Today, management announced the sale of its 50% stake in the anaerobic digestion facility in Cumbernauld as part of the streamlining. 

When integration is complete, Renewi can concentrate on growth. As demand for recycling services only grow, Renewi should have no problem expanding sales. 

City analysts believe the company can produce a net profit of £54m for fiscal 2019, rising to £63m for 2020. These numbers translate into earnings per share (EPS) figures of 6.5p and 7.9p, respectively, giving a forward P/E of 8 for 2020.

Such a low valuation for a company that dominates a large, specialist and expanding market like recycling is attractive in my view. And on top of the discount valuation, shares in Renewi also support a dividend yield of 4.9%, which analysts believe will grow to 5.4% by 2020.

Passport battles

Usually, banknote printer De La Rue (LSE: DLAR) operates in the background. However, the company found itself in the headlines earlier this year when it was refused a £260m contract to manufacture blue passports for the Home Office when Britain leaves the European Union.

This spate of publicity was highly unusual for a company obsessed with security. Indeed, De La Rue’s banknote and passport production facilities are reportedly some of the most secure premises in the country — as one of the world’s largest banknote producers, it’s no surprise why.

Unfortunately, the loss of the blue passport contract hasn’t been the only piece of bad news for De La Rue’s shareholders. In March, the stock cratered when management warned that operating profits would be “in the low to mid £60m range,” as much as 17% below City expectations.

The good news is, after these declines, the stock looks too cheap to pass up. Right now, De La Rue is trading at a forward P/E of just 10.7, and yields 5.3%. For one of the world’s most prominent security document and banknote producers, this seems far too cheap.

In a world where personal security, both on and offline, is only becoming more critical, De La Rue stands out. With this being the case, I reckon over the long term it is well-placed to succeed.

The post 2 stocks I’m considering with 5%+ dividend yields appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share 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.

With the company’s share price hitting record highs, should investors pile in and ride the momentum?

Expectations-beating

At £234m, group revenue was 7% higher (or 10% at constant currency) year-on-year over the four months to the end of April. 

Broken down, revenues at its Aerospace, Defence and Energy (ADE) division climbed 5% to £94m.  Although income connected to civil aerospace was impacted by lower demand in France, overall growth of energy revenues hit 24% over the reporting period (thanks to a strong performance in North America). 

Elsewhere, Bodycote’s other arm — Automotive and General Industrial (AGI) — saw a 9% increase to £149m with car and light truck revenues rising 8%, partly thanks to “strong growth in Emerging Markets“.

Pleasingly, the £1.8bn cap’s balance sheet continues to look robust with a net cash position of £45m at the end of the reporting period — £5m higher than at the end of the last calendar year. While its growth credentials mean that it’s unlikely to be a priority investment for income seekers, confirmation that management had approved a 25p per share special dividend in addition to the final payout of 12.1p per share will no doubt be welcomed by its owners. 

Looking ahead, Bodycote believes full-year revenue will now come in higher than expected and that operating profit will slightly exceed analyst predictions.

At 18 times earnings before today, however, its stock was already looking pricey relative to industry peers. So, while today’s positive numbers suggest that investors should expect to pay a premium, I’d be tempted to wait for a likely period of profit-taking to subside before moving in. 

Is the recovery on?

Another riser today was banknote designer and manufacturer De La Rue (LSE: DLAR) — a company which made headlines earlier in the year after losing the tender to produce the new, post-Brexit blue passports to Franco-Dutch competitor Gemalto.

Having grown accustomed to profit warnings, investors appeared relieved with the mid-cap’s latest set of full-year numbers.

In the 12 months to the end of March, group revenue rose 7% to slightly below £494m. As expected, adjusted operating profit fell (by 11% to £62.8m), although this rose 7% when its now-sold paper business is excluded from calculations. 

De La Rue’s goal to evolve into “a less capital-intensive, more technology-led business” appears to be going well with CEO Martin Sutherland stating that its non-printing divisions — focusing on areas such as security, product authentication and traceability — now contribute more than a third of total revenue and over 50% of operating profit. 

News that net debt had reduced by £71m to just under £50m was also cheered. It was the lowest for five years and was thanks to the Basingstoke-based business receiving £60.3m cash from the aforementioned sale. 

With the full-year dividend unchanged at 25p, the 12-month order book 6% up (to £363m) on the previous year, new strategic partnerships, and increased R&D investment, I wouldn’t be surprised if value hunters and contrarians were to begin reassessing the company.

At 12 times forecast earnings for the new financial year and continuing to register excellent returns on the capital it employs, today might just mark the beginning of a sustained recovery for De La Rue. 

The post Why I’d consider buying this FTSE 250 growth stock alongside this battered mid-cap 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 Bodycote. 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, volatile periods for stock markets can create buying opportunities. And some stocks could now be worth buying, due in part to their potential to deliver improving earnings growth in future years. With that in mind, here are two companies that could offer returns ahead of the wider index in the long term.

Turnaround potential

Reporting on Wednesday was commercial security printer and papermaker De La Rue (LSE:DLAR). The company’s trading update for the year to 31 March 2018 showed that its revenue is expected to increase by 6%, with it delivering growth across all of its product lines. It expects to deliver underlying operating profit between £60m and £65m, which includes the £4m bid costs related to the UK passport tender as well as delays in the shipment of certain contracts.

The company remains cautious about its near-term prospects. It will now not appeal against the decision by HMPO regarding the UK passport tender. It therefore expects no impact from the issue on its performance over the next 18 months.

With De La Rue forecast to post a rise in its bottom line of 13% in the next financial year, it appears to have the potential to deliver a turnaround after a period of difficulty. Since it trades on a price-to-earnings growth (PEG) ratio of 0.9, it seems to offer growth at a reasonable price. Therefore, it could beat the wider index in the long run.

Improving prospects

Also offering the potential to outperform the FTSE 100 is consumer goods company Reckitt Benckiser (LSE: RB). It has experienced a marked improvement in its financial performance during the last three years, with its bottom line rising in each year. This suggests that the company has been able to find the right strategy as it continues to refocus its business.

As part of its refreshed strategy, Reckitt Benckiser is undertaking a major restructuring. This should make it more efficient and position itself as a stronger business that is able to generate high and sustainable profit growth in the long run.

With the company forecast to post a rise in its bottom line of 5% this year and 7% next year, it may not seem to be a strong growth stock. But with it having positioned itself as a dominant player in emerging markets, Reckitt Benckiser could capitalise on the high growth rate among consumables which is forecast over the coming years. As such, while it may not be the cheapest stock in the FTSE 100, now could be the perfect time to buy it due to its improving outlook.

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Peter Stephens owns shares of Reckitt Benckiser. 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.

Although each company faces specific problems, I believe that both of these unloved growth stocks have the potential to beat the FTSE 100 over the next year.

Accounting questions

Shares of aviation services group Air Partner (LSE: AIR) fell by 20% when markets opened on Tuesday after the firm said it had found some historic accounting errors. It seems that a number of bad debts may not have been properly accounted for.

Investigations are still at a preliminary stage, but today’s statement suggests to me that past years’ profits may have been overstated. The company says that “uncollected receivables” (bad debts) were offset against pre-payments from customers, rather than being written off against profits in the appropriate financial year.

The total amount involved is said to be £3.3m, and the period affected stretches from the 2010/11 financial year until 31 January 2018. To put this into context, the firm’s annual profits have been between £2m and £5m per year during this period.

A bargain buy?

Today’s statement stresses that these accounting issues don’t have any impact on the group’s cash position and haven’t disadvantaged any of its customers or suppliers. I don’t see any reason why these issues should affect future profits or cash flow either.

However, it’s worrying that these issues have arisen in the first place, as they suggest poor accounting standards.

After today’s fall, the shares trade on a forecast P/E of 13 with a prospective yield of 4.7%. Although I don’t think there’s any need for shareholders to sell, I’m not sure the shares are cheap enough for me to buy until we know more about this issue.

Printing a profit

Shares of FTSE 250 banknote and identity document firm De La Rue (LSE: DLAR) have fallen 20% since the start of March. The main reason for this was news that the company has lost the contract to produce UK passports.

The current 10-year contract expires in July 2019 and has a value of £400m. I estimate that this is equivalent to between 5% and 10% of annual revenue each year for the company, which is expected to report sales of £505m and a net profit of £48m for the year ended 25 March.

A contrarian buy?

Press reports suggest that De La Rue plans to appeal against the decision to award the contract to French-Dutch firm Gemalto. But even if the appeal is unsuccessful, I believe the shares could be a contrarian buy at current levels.

The business remains out of favour, thanks to a £191m pension deficit and a forecast for earnings to fall by 8% in 2018/19.

But the pension deficit has fallen by almost half since September 2016 and is expected to shrink by a further £70m this year. The group’s profits have also staged a strong recovery since 2016.

Analysts have pencilled in earnings of 43.4p per share and a dividend payout of 26.9p per share for 2018/19. These figures put the stock on a forecast P/E of 11.7 with a prospective yield of 5.3%. I think the shares could be a long-term buy at this level.

The post Two 5% dividend stocks that could beat the FTSE 100 appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Roland Head 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.

Today’s performance is clearly not reason for investors to tear their hair out. But during the past three weeks the FTSE 250 business has seen its value fall 10%, and I am tipping De La Rue’s market value to keep on deteriorating.

The firm advised that revenues rose 29% during the 27 weeks to September 30, to £244.7m, with growth reported across all divisions. At its core Currency arm, sales advanced 36% year-on-year to £185.3m, while at Identity Solutions and Product Authentication & Traceability, turnover increased 3% and 20% respectively, to £39.4m and £20.2m.

As a consequence De La Rue saw adjusted operating profit improve 11% in the six months to £26.6m.

Cash concerns

But scratch a little deeper and the performance does not appear so impressive. Indeed, chief executive Martin Sutherland commented today: “The strong revenue growth in the first half, driven by high volumes of lower margin Banknote Paper and Print orders, reflects the lumpy nature of contracts. Performance in the second half is expected to be broadly in line with the same period last year.”

Even though the outlook for De La Rue’s fraud-tackling activities remains pretty bright, I remain concerned over future demand at the company’s Currency division as the world steadily moves away from cash and technology takes over.

Another cause for concern is the rising stress on the money master’s balance sheet (an increase in working capital caused net debt to balloon by £16.5m between March and September to stand at £137.4m). And the vast amounts De La Rue is having to shell out on product development to keep revenues rising threatens to keep it mired in debt and put future dividends in peril. R&D investment increased by 33% in the first six fiscal months, it said today.

City analysts are expecting De La Rue to put recent earnings turbulence to bed with bottom-line rises of 4% and 12% in the years to March 2018 and 2019 respectively.

A cheap forward P/E ratio of 13.2 times is not enough to encourage me to invest, however, given the prospect of sliding sales in future years, nor are predicted dividends of 26.9p and 30.1p per share this year and next (figures that yield a handsome 4.2% and 4.7% respectively).

Dividend hero

Instead, I reckon those seeking jumbo earnings growth and chunky dividend yields need to pay RSA Insurance (LSE: RSA) close attention.

In 2017 the insurance colossus is expected to see profits growth rise just 3%, although expansion is expected to detonate to 25% next year. These predictions make the FTSE 100 star a great value pick as well, the share carrying a forward P/E rating of just 15 times.

Moreover, these bright earnings projections are predicted to keep dividends rising at a terrific pace — last year’s 16p per share reward is anticipated to sprint to 21p in 2017 and to 29.3p in 2018, resulting in mammoth yields of 3.4% and 4.8% for these years.

RSA saw net written premiums rise 8% during July-September, to £5.1bn, it advised in late October. And thanks to its broad geographic footprint (premiums in Scandinavia and Canada jumped 8% and 16% in the third quarter), and strong position in its core UK market (premiums here rose 5% in Q3), I am backing it to deliver brilliant shareholder rewards now and in the future.

The post I’d sell this 4% yielder to buy this FTSE 100 dividend star instead appeared first on The Twelfth Magpie.

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Royston Wild 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.

Major setback

Investor sentiment towards the stock took a battering after the company reported a major setback in its closely watched ‘Mystic’ clinical trial in July. Initial results from a recent global study showed that a combination of Imfinzi, its immunotherapy drug, and tremelimumab did not meet a primary endpoint of progression-free survival compared to chemotherapy in some lung cancer patients.

The failure of its flagship lung cancer treatment means the company may struggle to meet the ambitious revenue target set by CEO Pascal Soriot at the time of Pfizer’s attempted takeover of the company back in 2014. Soriot had expected AstraZeneca to generate annual revenues of $45bn by 2023, but many analysts believe the target was predicated on the success of its ‘Mystic’ treatment.

Without major breakthroughs, the group faces falling revenues and profits amid weakening sales from older medicines and a depleting drugs pipeline. 

Not giving up

However, it’s not all doom and gloom. Soriot is not yet giving up on ‘Mystic’ — the trial will continue to assess two additional primary endpoints of overall survival, with results expected in the first half of next year. Imfinzi is also being studied in several separate trials, and the drug was recently granted “breakthrough therapy designation” by the US regulators in the hopes that it could be used by patients with non-metastatic lung cancer for whom chemotherapy had stopped working.

There’s also more to AstraZeneca’s pipeline, with new cancer drugs Lynparza and Tagrisso showing promising results.

Nevertheless, I’m still concerned about the stock’s dividend sustainability going forward as revenues continue to come under pressure against rising competition for its two best-selling blockbuster drugs, Crestor and Symbicort. As such, a turnaround in earnings may not happen quickly enough to allow the company to comfortably afford its current dividend.

AstraZeneca has kept annual dividends frozen at $2.80 per share since 2011.

A better pick?

Elsewhere, De La Rue (LSE: DLAR) seems to be on a sounder footing. The company’s recent results showed the banknote manufacturer making good progress in diversifying away from the increasingly commoditised activities of currency production.

De La Rue’s strategy to increase its presence in higher-value markets is progressing well and the company is seeing good growth in identity solutions and product authentication, two fast-growing markets in which the firm has a competitive edge in. Revenue in the year to 25 March increased by 2%, while pre-tax profits rose 6% to £58.2m.

After a big dividend cut in 2015, dividends have been kept flat at 25p per share yearly. That said, De La Rue seems to me in a better position than AstraZeneca to increase payouts once again. With expectations of bottom-line growth of 3% and 8% over the next two years, and forecast dividend cover set to rise to more than two times within two years, the firm could soon have surplus cash once big capital investments tail off.

The post This small-cap stock could be a better dividend buy than AstraZeneca plc appeared first on The Twelfth Magpie.

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Jack Tang has no position in any shares mentioned. 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.