Cash from cash

The electronics payment sector is very competitive, but there’s plenty of growth likely for those who make a success of it. PayPoint (LSE: PAY) is one, and its installation in many thousands of retail outlets for paying household bills and the like has given it a bit of a headstart.

Adjusted earnings per share have been growing steadily, and the company is now in a transition phase after deciding to dispose of its mobile and online payments business and concentrate on its retailer operations. That will leave it with surplus capital, which chairman Nick Wiles has said will be returned to shareholders over the next five years (although special dividends might be deferred should attractive potential acquisitions show up).

The result is that the company’s progressive dividend policy is expected to provide an overall 6.5% yield for the year to March 2017, rising to 6.7% the following year — and that’s with the 963p shares on a P/E of 15 this year, dropping to 14.3 next. Who says you can’t have both growth and dividends?

Support services recovery?

Shares in support services and construction group Interserve (LSE: IRV) have slumped by 57% over the past 12 months. The firm’s acquisition of Initial last year has ramped up its debt position, and a trading update in May warned us to expect a £70m one-off cost in the first half from a contract that’s gone bad. For a company that recorded pre-tax profit of only £79.5m in 2015, it’s a significant hit.

The price fall has left the 281p shares on a forward P/E of only around 4, and has pushed the predicted dividend yield up to 9%! I think it’s very likely that the dividend will be cut this year, and such fear is surely behind the low valuation.

But markets almost always overreact to such fears as there’s still room for a sizeable dividend cut while leaving a reasonable yield this year. The problem is a one-off, and Interserve’s progressive dividend policy should see cash handouts remaining strong in the coming years. Expect some volatility, but definitely one to consider for the long term.

The death of paper

The fall in demand for print products like newspapers and magazines has taken its toll on Trinity Mirror (LSE: TNI) shares, which are down 58% since last November to 76p, and have lost 36% since the Brexit vote on 23 June. But have the pessimists gone too far?

The company’s July trading update told us the board “anticipates that our interim results will be in line with our expectations with continued strong cash generation over the period enabling a further fall in net debt“. That debt did stand at £92.9m at the end of December, which is a lot for a company with a market cap of £212m.

But does it really justify a forward P/E multiple as low as just a little over two when the long-term FTSE average is around 14? I don’t think so, especially with a 7.7% dividend yield forecast for this year followed by 8.3% next, which would be well covered by predicted earnings. Trinity Mirror is priced to go bust, but I can’t see that happening.

The post Are these the best small-cap dividends on offer? appeared first on The Twelfth Magpie.

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

Down but upbeat

Look at Redrow (LSE: RDW), whose shares have bizarrely dropped 5.6% to 398p on the day the homebuilder released upbeat first-half results. With revenue up 8% to £603m, a half-year record, earnings per share gained 15% and the interim dividend was doubled to 4p per share. This came after legal completions rose by 18%, and the firm’s gross margin perked up to 24.2%.

So what’s the growth picture? Well, before today analysts were forecasting a 13% EPS rise for the full year to June 2016, which would put the shares on a PEG ratio of 0.6 — lower is better, and growth investors typically look for 0.7 or less. But with chairman Steve Morgan telling us that “demand for new homes remains robust” and that he’s “confident this will be another strong year of growth for Redrow“, I could see that 15% first-half gain carrying on through.

That would drop the PEG a fraction and put the shares on a P/E of only 7.8 — and that’s just got to be cheap!

Top property site?

Casting a growth eye on property website operator Zoopla (LSE: ZPLA) throws up a PEG ratio of 0.7 for the year to September 2016. Although the share price was pushed up in the first half of 2015, the later loss of sentiment has brought us a 24% fall since the end of June, to today’s 205p. Although we’re looking at a prospective P/E of 19.5, which is ahead of the FTSE’s long-term average of around 14, EPS forecasts make that seem not too stretching at all.

Zoopla recorded a 29% rise in EPS in 2015, and there’s the same again currently being predicted for this year. UK interest rates will be remaining low for longer than many of us expected and we might not even see a rise until 2017 now, the UK economy is gathering strength, and the housing market remains buoyant — and I can see another couple of strong growth years for Zoopla.

Online payments

The online payments business is risky, as we’ve seen with the sad decline of Monitise in the past couple of years. But things are looking very different for Paysafe (LSE: PAYS), formerly known as Optimal Payments, whose shares are up 61% over the past 12 months, to 342p. The recent FTSE retreat has pushed the price down, mind, and we’ve seen a 14% fall since 4 February. So does that give us a cheaper growth opportunity?

A fourth quarter update told us that revenue and earnings will be ahead of market expectations — and the markets had a 29% EPS rise penciled in. There’s a further 40% lift to EPS forecast for 2016, and that would put the shares on a distinctively average P/E of 14.5 and a PEG of just 0.4.

And if that doesn’t look like a decent growth opportunity, then I don’t know what does.

The post 3 Great Growth Picks For 2016: Redrow plc, Zoopla Property Group PLC, Paysafe Group Plc? appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• 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?

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