Penny stocks have a reputation for being very risky investments. While some companies go on to thrive (like ASOS), many others go nowhere. Some go bust. 

This isn’t to say there aren’t a few winners out there, particularly after the year we’ve had on the markets. Here are three one-time penny stocks now requiring me to dig a bit deeper in my pockets.

Trading “materially ahead”

Market minnow Epwin (LSE: EPWN) manufacturers extrusions, moldings and fabricated low-maintenance building products. That may sound deadly dull, but I don’t think those buying the stock a year ago will be complaining. The share price has climbed nearly 70% since then. 

Back in July’s trading update, the company said revenue over the first half of 2021 had been 69% up on 2020. That’s not altogether surprising considering how bad things were last year. However, the £157.8m logged was also 13% ahead of 2019’s figure. Accordingly, management now expects full-year adjusted pre-tax profit to be “materially ahead” of previous expectations. 

However, there are still risks ahead. Supply chain issues and inflation are impacting a lot of businesses right now and Epwin’s no exception. So far, it’s been able to navigate these headwinds, but things could get worse before they get better.

Then again, the shares are still trading at a reasonable valuation price of 17 times forecast earnings for me to consider buying now. A 2.9% dividend yield easily covered by profit is another positive for me. 

Robust demand 

SigmaRoc (LSE: SRC) is another former penny stock whose shares are now trading (just) over a pound. Like Epwin, the construction materials company has clearly benefited from the revival in property over the last year. Its share price is up almost 140% since August 2020. 

Bar a prolonged market stumble, I can see this momentum continuing. Back in May, the company announced that trading had been “ahead of internal expectations“, thanks to strong private-sector demand and some large-scale infrastructure projects commencing. Since management will always be closer to the business than analysts, I take this as a buy indicator when looking for stocks for my own portfolio.

SigmaRoc has also been on an acquisition spree, buying three businesses in Belgium. More recently, it’s announced a reverse takeover of limestone developer Nordkalk for approximately €470 million. 

Half-year numbers are due on 6 September. In the meantime, the shares trade on a valuation of 19 times forecast earnings. One potential downside however, is the lack of dividends. 

Former penny stock

A final former penny stock worth mentioning is Sirius Real Estate (LSE: SRE). The company is a leading owner and operator of offices, business parks and industrial complexes in Germany.  The FTSE 250 member has also proven itself to be a great investment. The shares are up 63% over the last year. 

Of all three one-time penny stocks mentioned, SRE is probably the one I’d prioritise buying due to its arguably more diversified earnings stream. That said, it’s also the most richly valued, potentially making it riskier. A valuation of 24 times forecast earnings suggests quite a lot of good news might be priced in.

Having said this, I do wonder if there could be more upside ahead as people gradually return to their offices. Sirius seems confident, having recently snapped up four business park assets and one land parcel for around €85m. The shares also yield 2.9% this year, according to analyst projections. 

The post 3 former penny stocks now trading for over a pound! 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 ASOS. 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, it’s not the only dividend growth stock that could be worth buying. A relatively small and risky stock that reported on Wednesday may offer high total return potential over the long run.

Resilient performance

The company in question is Epwin Group (LSE: EPWN). The manufacturer of low-maintenance building products delivered a robust performance in its half-year trading update despite challenging trading conditions. Revenue during the period was better than expected, falling from £149.9m in the first half of the previous year to £142.4m. It was hit by adverse weather conditions, as well as the loss of its two largest customers in the second half of 2017.

Looking ahead, Epwin is expected to deliver adjusted pre-tax profit for the current year in line with expectations. It anticipates a seasonally busier second half of the year, although market conditions are due to remain lacklustre in the near term.

The company’s dividend yield currently stands at 6.8%. Its dividend payments are expected to be covered twice by profit in the current year, which suggests they’re sustainable at their current level. Since the stock trades on a price-to-earnings growth (PEG) ratio of 0.6, it appears to offer a wide margin of safety. That could mean its total return is high over the medium term.

Growth potential

The dividend potential of Diageo remains highly appealing. The stock may have a dividend yield of just 2.5% at the present time, which is 1.3% lower than the FTSE 100’s dividend yield. However, there seems to be significant scope for rapid growth over the next few years.

The main reason is the company’s exposure to fast-growing markets. For example, it has a strong foothold in China, where the size of the middle-class is expected to grow significantly in future years. Higher disposable incomes and an increasingly consumer-focused outlook for emerging economies could mean that the company is well-placed to deliver impressive earnings growth over the long run. And with it having exposure to relatively stable markets across the developed world, it seems to offer an appealing mix of growth potential and resilient financial prospects.

Diageo’s dividend could also be set to rise rapidly due to its dividend cover. Its shareholder payouts are currently covered 1.8 times by profit, which suggests that dividends could grow at a faster pace than profit without becoming unaffordable. As such, the stock seems to offer an encouraging income outlook, which could have a very positive impact on your retirement savings.

The post Have £1,000 to invest? FTSE 100 dividend growth stock Diageo could help you retire early appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Diageo. The Motley Fool UK has recommended Diageo. 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, this FTSE 100 utility has a history of adapting well to external factors. So much so that it’s built a long record of delivering value to shareholders through annual dividend increases. Indeed, its dividend record is unrivalled by any of its blue-chip peers across the whole utilities sector. As such, I believe the current share price represents an excellent buying opportunity.

Good compensation for uncertainty

In a trading update in January, SSE said it expects to deliver earnings per share (EPS) in the range of 116p-120p for its financial year to 31 March (results scheduled for release on 25 May). It also said it expects to report “an annual increase in the full-year dividend that at least keeps pace with RPI inflation.” The consensus among City analysts is for a 3.4% increase to 94.4p. At the current share price, the price-to-earnings (P/E) ratio, based on the mid-point of management’s EPS guidance, is 10.9 and the dividend yield, based on the consensus forecast, is 7.3%.

SSE expects to demerge its GB household energy supply and services business by the last quarter of 2018, or the first quarter of 2019. While the board has said it remains “committed to remunerating shareholders’ investment through the payment of dividends,” it has also said it will set out its future dividend policy in its demerger circular, which is expected to be published in June. So there’s some uncertainty here. But in my view, it’s more than compensated for by the historically cheap P/E and huge yield.

Resilient performance

Epwin (LSE: EPWN) is a leading manufacturer of low maintenance building products, supplying mainly the Repair, Maintenance and Improvement (RMI) market, but also new build and social housing. I like the long-term growth drivers in the RMI market, but conditions are challenging at present. Input costs have risen due to the weakness of sterling and Brexit uncertainty has subdued activity. Furthermore, Epwin’s two largest customers went into administration last year.

Despite the challenges, the company today reported what it called “a resilient performance” in 2017. Adjusted EPS came in at 13.47p, 10% lower than 2016, and the company highlighted “continued strong cash generation.” In the half-year results in September, management said cash generation gave it confidence in “our ability to offer an attractive dividend to shareholders.” 

Today, it increased the full-year payout by 1.4% to 6.69p, giving a yield of 8.6% at a current share price of 78p, down 1.9% on the day.

Generous valuation

However, the board has announced a new dividend policy for future years, namely, “a progressive dividend that is approximately twice covered by adjusted after tax profits.” This would imply a 5.3p dividend (6.8% yield) for 2018, based on a consensus EPS forecast of 10.6p (P/E of 7.4).

Epwin’s primary market remains challenging, but a cost reduction programme and a robust balance sheet to support ongoing investment in products, acquisitions and organic growth suggest to me that the prospective P/E and yield are far too generous. As such, I rate the stock a ‘buy’.

The post One high-yield stock I’d buy alongside 7.3% yielder SSE appeared first on The Twelfth Magpie.

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

The market’s often right but now and again it gets it wrong. Today, I’m looking at two companies sporting yields in excess of 9%. Are these yields dangerous … or too good to ignore?

Expectations

Shares of low-maintenance building products manufacturer Epwin (LSE: EPWN) are down less than 3% as I’m writing, despite the company saying in its first-half results this morning that it expects the full-year performance to be “slightly below current market expectations.”

Furthermore, it said it also now expects the performance for 2018 to be “lower than the market expectation for the current financial year.” The analyst consensus ahead of today’s results had been for a return to modest growth in 2018. So why has the market not trashed the share price?

Trading

Epwin had already notified the market of the potential loss of two customers (10% of revenue) for reasons entirely out of the company’s hands. So, that was largely priced-in.

On the wider front, it said that trading conditions in its key repair, maintenance and improvement area “remain subdued” but that management is “confident of the long-term growth drivers” in the market. It also said that the newbuild market “continues to be strong” and that there are “indications of improved demand” in social housing. Meanwhile, it’s already begun adjusting its cost base, which should mitigate some of the pressure on margins from higher input costs due to the weakness of sterling.

An attractive dividend?

The board upped the interim dividend by 1.4% today, making the trailing payout 6.63p and giving a running yield of 9.5% at a current share price of 70p. It said: “We are confident in continuing our record of strong cash generation and our ability to offer an attractive dividend to shareholders.”

I note that even if 2018 earnings came in 50% lower than the analyst consensus ahead of today’s results, the dividend would still be covered. I see this £100m AIM stock as one with recovery potential that might manage to maintain its dividend in the absence of a serious deterioration in trading. As such, I rate it a higher-risk buy.

Another attractive dividend?

Specialist distributor Connect (LSE: CNCT) is another company seeing mixed trading conditions across its businesses in “more challenging market conditions.” The recent sale of its Education & Care business looks a good move, as it will enable the group to focus on opportunities and synergies in its News & Media, Parcel Freight and Books divisions.

In its half-year results in April, the board increased the interim dividend by 3.3%, making the trailing payout 9.6p and giving a running yield of 9.3% at a current share price of 103.5p. Management said the uplift in the interim dividend “reflects confidence in the ongoing strength of the group.”

I see this £256m FTSE SmallCap stock as another with recovery potential that could provide the bonus of a maintained dividend. So, as with Epwin, I rate Connect as a higher-risk buy.

The post Are these 9% yields too dangerous… or too good to ignore? appeared first on The Twelfth Magpie.

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

Solid progress

Reporting on Thursday was vertically integrated manufacturer of low maintenance building products Epwin Group (LSE: EPWN). Its progress in 2016 was relatively solid despite higher input costs. It has been able to mitigate these following the weakening of sterling, and in the meantime has reported a rise in pre-tax profit of 23.7%. This was boosted by a rise in revenue of 14.5%, while an improvement in the underlying operating profit margin of 80 basis points also enhanced profitability.

With a dividend yield of 6.4%, Epwin is one of the highest-yielding stocks around. Its dividends are covered 2.2 times by profit, which indicates they are sustainable and could rise long term. Certainly, the outlook following the EU referendum is uncertain for its sector. However, with the company trading on a price-to-earnings (P/E) ratio of 7.2, its shares appear to offer a sufficiently wide margin of safety to merit investment.

Looking ahead, earnings growth of 6-7% per annum is forecast in each of the next two years. This shows that as well as income potential, Epwin could prove to be a relatively strong growth stock, too. Its acquisition programme seems to be a sound strategy, while its plans for operational improvements could help to push dividends higher, medium term.

Improving performance

Also offering a relatively high yield is XLMedia (LSE: XLM). It has a yield of 5.7% from a dividend which is covered 1.7 times by profit. This shows that the current payout ratio is sustainable and could even increase at a faster pace than profit over the medium term. Clearly, as a growth company, a relatively large proportion of profit will need to be reinvested, but a dividend coverage ratio, which is slightly lower, could easily be justified.

With XLMedia forecast to record a rise in its bottom line of 9-10% per annum over the next two years, dividend growth is likely to easily beat inflation. The company’s current strategy appears to be working well and its publishing business in particular seems to be growing at a fast pace. It is also enjoying some success at diversifying away from the gambling sector and towards a wider range of industries. Likewise, its largest customer now accounts for 7% of revenues. This reduces its risk profile and could mean its dividend is more robust.

With a P/E ratio of 10.2, XLMedia seems to offer excellent value for money given its outlook. While it is a relatively small company and therefore comes with a degree of risk due to its size, it could prove to be a strong income play over the medium term.

The post 2 of the hottest dividend stocks that money can buy appeared first on The Twelfth Magpie.

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• 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?
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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.

Market conditions during the 12 months to 30 June were very favourable for Galliford. But the UK’s Brexit vote means many investors are more interested in trading conditions since the EU referendum.

Galliford said this morning that its Linden Homes housebuilding business had seen a short-term dip in interest following the referendum, following which sales rates and prices returned to growth.

However, what’s interesting about Galliford is that it has three divisions. Galliford also partners with housing associations to build new affordable and rented developments. The group believes that the prospects for this business are “excellent”. I’d imagine that the high demand for affordable homes means that this sector could do well even if the housing market slows.

Galliford’s construction arm also has the potential to perform well in a housing downturn. Public sector and regulated businesses such as utilities account for 90% of its £3.5bn order book. With infrastructure spending expected to rise under the current government, Galliford believes its construction business has a “strong and reliable outlook”.

Is Galliford a buy? The shares trade on a forecast P/E of just 7.5 for the year ahead. Galliford is targeting dividend cover of 1.6 times next year, which implies a dividend of about 93p. This would give a yield of 7.7% at today’s share price.

I believe Galliford’s diversity could make it a safer buy than conventional housebuilders in the current market.

Will spending backlog boost profits?

AIM-listed Epwin Group (LSE: EPWN) makes home maintenance products such as doors, windows and guttering. Pre-tax profit rose by 37% to £10.4m during the six months to 30 June, while the group’s underlying operating margin rose by 1.8% to 8.2%.

Net debt rose from £14.4m to £29.9m thanks to an acquisition and investment in a new window range. I’m not too concerned by this yet, but given the uncertain market I’d expect Epwin to focus on reducing debt before making any further acquisitions.

One of this stock’s main attractions is its dividend. Epwin’s interim payout rose by 3.8% to 2.2p today. Consensus forecasts suggest that a full-year payout of 6.58p is expected for 2016, giving a prospective yield of 6.2%.

Epwin’s fortunes are obviously tied to those of the housing market. However, the group’s business is fairly diverse: it sells into both the new build and the repair and maintenance markets, to both retail and trade customers.

The company’s view is that there’s a significant backlog of underinvestment in the UK’s housing stock that should support future trading. My concern is that while I agree a lot of older housing needs updating, many property owners may be unwilling or unable to spend this money.

The market appears to share my cautious view: Epwin shares have risen by 3% today, but trade on a 2016 forecast P/E of just 8. Based on today’s results, I’d rate the shares as a hold.

The post Are these 6% yields a buy after today’s results? appeared first on The Twelfth Magpie.

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

Of course, it would be easy given the performance of the oil price for companies operating within the sector to think short term. In other words, to focus on survival rather than long-term growth. However, Premier Oil (LSE: PMO) appears to be putting itself in a position where it can record stronger growth and emerge from the current crisis in a better position relative to its peers through the acquisition of Eon’s North Sea assets as well as a strategy where it,s seeking to become increasingly efficient.

Although Premier Oil is forecast to record a pre-tax loss of £125m combined over the next two years, it seems to be in a good position to record much better performance in the medium term. Therefore, for less risk-averse investors, now could be a buying opportunity.

Share price rises ahead?

Similarly, Benchmark Holdings (LSE: BMK) could prove to be an excellent turnaround play. Although the food and farming development specialist has been in the red for each of the last two years, it’s expected to move into profit in the current year. This has the potential to cause a step-change in investor sentiment, with Benchmark Holdings’ share price having the scope to rise following its 40% decline since the turn of the year.

Looking ahead to next year, Benchmark Holdings is forecast to more than double its pre-tax profit. And with it trading on a price-to-earnings growth (PEG) ratio of only 0.2, there seems to be significant scope for an upward rerating.

Income appeal

Meanwhile, Epwin’s (LSE: EPWN) share price continues to disappoint. The supplier of low-maintenance, sustainable and energy-efficient products to the new build and social housing sectors has recorded a share price fall of 9% in the last year. However, this could change moving forward, since Epwin is expected to report an improved financial performance in the current year.

In fact, Epwin’s bottom line is due to rise by 21% this year, followed by further growth of 5% next year. When this is combined with its price-to-earnings (P/E) ratio of just 8.8, it indicates that there’s major upward rerating potential. And with Epwin yielding 5.4% from a dividend that’s covered 2.1 times by profit, it continues to offer clear income appeal for long-term investors.

The post Are Premier Oil plc, Benchmark Holdings plc and Epwin Group plc 3 ‘screaming buys’? 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?

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