Today, I’m going to take a look at three of these high-yield champions and explain why I think they’re great at current prices.

High risk 

My first high-yield FTSE 250 pick is Ukrainian iron ore miner Ferrexpo (LSE: FXPO). This isn’t one for the faint-hearted. It’s currently without a CEO after Kostyantin Zhevago stepped aside to resolve issues at one of his other firms earlier this week. The company has also been hit by corruption allegations and corporate governance concerns. 

Still, despite these issues, Ferrexpo’s underlying business is throwing off cash. Between 2016 and 2018, the group reported free cash flow from operations of $690m. Of this, $150m was paid out to investors via dividends, and $335m was used to pay down debt.

City analysts are expecting this trend to continue. They’re forecasting a net profit of $468m, implying the stock is currently dealing at a forward P/E of 2.1. Analysts also believe Ferrexpo will distribute around 30% of its earnings to investors with dividends, giving a yield of 13.6% on the current share price.

All in all, I think Ferrexpo’s low valuation and high dividend yield more than make up for the risks surrounding the business.

Property bargain 

Newriver REIT (LSE: NRR) is also a dirt-cheap FTSE 250 dividend bargain. With its extensive exposure to commercial property, investors have been giving Newriver a wide berth recently. However, despite these investor concerns, the business has managed to outperform expectations.

At the beginning of September, the group announced it had agreed £58m of property sales in its portfolio on terms 1.2% above book value, on average. 

This seems to suggest the market has oversold shares in Newriver. Indeed, at the time of writing, shares in the real estate investment trust are changing hands at a price to book value of 0.8. Recently-agreed property deals suggest the multiple should be closer to 1. These figures indicate the stock could rise by more than 20% from current levels when confidence returns to the commercial property market. 

As well as the capital growth potential, investors can also look forward to a dividend yield of 10.6%, provided by income from Newriver’s diversified commercial property portfolio.

Construction giant

My final FTSE 250 income play is construction group Galliford Try (LSE: GFRD). After five years of growth, Galliford’s earnings slumped in its 2019 financial year, following the collapse of its joint venture partner Carillion. 

The costs of this collapse have forced the company to restructure itself and reconsider how much money is paid out to shareholders every year. The dividend was cut in 2018 and reduced further in 2019.

City analysts believe Galliford’s earnings will decline further in its current financial year, but growth is expected to return in fiscal 2021. Analysts are also forecasting a dividend increase, although I’m not so optimistic on this front. I would rather see management take a conservative line and prioritise balance sheet strength over shareholder payouts. 

Still, at current levels, the dividend yield is highly attractive. The stock supports a yield of 7.8%, and the distribution is covered twice by earnings per share. 

The post Looking for income? I’d buy these FTSE 250 dividend stocks yielding 10% 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.

Bullish investors appear to be betting that the firm’s problems — which have seen the shares halve over the last two years — are now over. If this view is correct, then these shares, which yield 10%, could be a real bargain.

I’ve been taking a fresh look at Galliford to find out more.

What’s new?

Today’s trading update from Galliford covered the year ended 30 June. Chief executive Graham Prothero is confident that pre-tax profits will be in line with expectations. Based on forecasts for earnings of 130.4p per share, this prices the stock at just five times earnings.

There was no comment on the dividend, which suggests to me that the broker forecast figure of 65.6p per share is probably realistic. That gives a 10% yield at the last-seen share price of 656p.

Trading is said to be stable across the group. In housebuilding, the average sale price was down by 4.3% to £351,000 as management targets mid-range houses away from central London. But the year-end order backlog was up by 10% to 2,564 units, which suggests to me that demand is healthy.

Would I buy?

The main problem area for Galliford has been its construction division. This has been restructured, but in my view the main area of concern remains — construction work generally carries high costs, low profit margins and the risk of unexpected complications.

For example, shareholders are waiting to learn about the cost of a “significant claim” on the now-completed Aberdeen ring road project. Cost estimates have risen for Galliford’s Queensferry Crossing joint venture.

As a result of these problems and others, Galliford expects to report £40m of exceptional costs for 2018/19. I estimate that including these costs in the firm’s profit calculations could reduce earnings by as much as 25%.

Although the firm’s housebuilding business appears to be performing well, so too are others. I’d rather buy a housebuilder that doesn’t have a construction business attached to it.

I don’t think this is an undervalued gem. I’d suggest that Galliford’s 10% dividend yield represents the risk attached to these shares. I’d rate GFRD as a hold, at best.

Happy holidays

One company that will be hoping for a trouble-free summer is FTSE 100 travel group TUI (LSE: TUI), which owns a number of European package tour and cruise ship businesses.

The company has been hit by the grounding of Boeing 737 MAX aircraft and by weaker pricing and rising costs on holiday bookings. Profit margins are down and the company expects adjusted profits to fall by as much as 26% this year, depending on when the 737 MAX returns to the skies.

The shares have fallen by more than 50% over the last 12 months, leaving TUI stock offering a tempting forecast yield of 6.6% for the current year. However, I think it’s too soon to get involved here.

TUI isn’t the only company in this sector reporting tough trading. Although broker forecasts suggest that profits will bounce back next year, I think it’s a big risk to price in such a strong recovery so quickly. I plan to watch from the sidelines for now. I’ll only get interested if trading improves, or if the shares get cheaper.

The post Can this 10% yielding FTSE 250 stock make you a million? 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.

Only last month, shares in Galliford were under pressure after the FTSE 250 company announced it would shrink its construction division, meaning that annual pre-tax profit for the year to June would range £30m-£40m, lower than analysts’ expectations.

Management decided to take this action after running into issues with two large construction projects, the Queensferry Crossing road bridge in Scotland, and the Aberdeen bypass, both of which have been hit by delays and significant cost overruns.

To try and move on from these problems, Galliford is cutting 350 personnel from its construction business across the UK, hoping to save £15m per annum in the process. This will, according to management’s update, put the group firmly on track to meet its operating profit margin target of 2% by 2020.

Aside from the construction business, the rest of Galliford — mainly homebuilding and regeneration — seems to be operating in line with management’s expectations. 

Moving ahead

So, does this mean it’s now safe to buy back into Galliford and that 12.2% dividend yield? I think it could be worth taking a chance.

Investors have been quick to write off the company over the past 12-24 months as problems have mounted at its construction division. But I’m impressed with how management has handled the situation — raising capital and cutting costs quickly, rather than waiting until it’s too late. It helps that two out of the group’s three primary operating divisions are still generating a healthy level of income for the firm.

With this being the case, I’m cautiously optimistic on Galliford’s outlook. And if the operating performance improves, there could be significant upside for the stock from here. Right now, the shares are trading at a deeply discounted 4.1 times forward earnings, a discount of around 100% to the rest of the UK construction sector.

Undervalued income 

Another undervalued construction group that I think might be worth adding to your portfolio is homebuilder Persimmon (LSE: PSN). Right now, shares in this business are dealing at a forward P/E of 7.2 and yield 11.5%. 

It seems investors are giving the business a wide berth because its reputation is falling apart. Persimmon is frequently accused of selling poor quality homes, and excessive management bonuses have only compounded the firm’s issues. So far, these concerns haven’t dented profitability, however.

The UK still has a chronic housing shortage, and Persimmon, as one of the largest homebuilders in the country, is needed to meet the ever-growing demand. That’s why I think it could be worth adding a few shares in the business to your portfolio.

Demand for the company’s product is still rising, and the current valuation leaves plenty of room for upside potential if sentiment towards the enterprise improves. There’s also that market-beating dividend yield on offer while you wait.

The post Is this FTSE 100 stock’s 11.5% yield too good to be true? 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.

Construction time again

The housebuilding and construction sector was one of the hardest hit after the 2016 referendum. It has partly recovered, as house prices have shown plenty of resilience.

Today’s ONS figures show growth of 2.5% in the last year, below the glory days of double-digit growth, but respectable given current worries. Despite this, investors remain nervous. Many housebuilding stocks are trading at massive discounts, while offering investors yields as high as 10% in some cases. This could be a massive buying opportunity as sentiment is likely to surge if we get some clarity on Brexit.

Nice Try

FTSE 250 construction group and housebuilder Galliford Try (LSE: GFRD) has a crazy forecast yield of 10.2% a year. That’s more than 5.5 times the current consumer price inflation rate of 1.8%, and six or seven times what you would get on easy access.

The group’s stock is up 7.5% today after it posted a 4% rise in pre-exceptional pre-tax profits to a record £84.2m, as it built more houses. Its Linden Homes and Partnerships & Regeneration ops built a total of 3,069 homes, up from 2,878 last year.

High income

Net debt fell from £85m to £40m during the first half of the year, while average net debt fell from £203m to £126m. Chief executive Peter Truscott hailed “a strong financial and operational performance”, adding that the group is well capitalised with average net debt below previous guidance. Galliford declared an interim dividend of 23p, down from last year’s first-half payment of 28p, in line with its policy of keeping cover at 2. This suggests to me that the dividend is secure, despite its large size.

Truscott said current political uncertainty is hitting consumer and business confidence, and Linden Homes could take a hit if the UK leaves the EU without a deal, due to a potential severe decline in consumer confidence and economic activity. Galliford is preparing for any supply chain disruption while “noting that it is impractical to try to insulate our business entirely”. Trading at just 5.1 times forward earnings, the risk is in the price.

Taylor made

FTSE 100 housebuilder Taylor Wimpey (LSE: TW) has also been through a rough patch, its stock down 10% over the past year. That leaves it trading at around 7.9 times earnings, though, which suggests another bargain to me. I’m not the only one, Peter Stephens says it has a strong balance sheet with a net cash position, which should sustain dividend growth.

The stock currently yields an almighty 11%, although cover is relatively thin at 1.1 times earnings, so it does need to keep the cash flowing to fund it. One piece of good news is that the Help to Buy scheme has been extended to 2023, underpinning first-time buyer demand.

The housing market needs a happy Brexit, if there is any such thing. If the cloud is lifted, Galliford Try and Taylor Wimpey could fly. Westminster will decide that. You could take a chance and buy now. Just know the risks.

The post I reckon these 2 bargain 10% high-yield stocks could soar on a Brexit deal appeared first on The Twelfth Magpie.

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harveyj 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.

Things were better outside the capital, but credit specialists Totally Money could only find 10 postcode areas in the UK with rental yields above 8%.

For new landlords, I believe that real returns are likely to be very much lower than this. Totally Money’s theoretical yields were calculated ‘gross’, by comparing rents with property prices. They didn’t include the cost of mortgage interest, repairs, insurance, or empty periods between tenants.

In my opinion, anyone buying a house to rent today will be lucky to make more than 5% per year. I think there are much better options elsewhere.

How to earn 10% from housing

FTSE 250 group Galliford Try (LSE: GFRD) is an unusual mix of construction firm and house-builder. Shares in this hybrid firm have dipped by about 45% over the last two years, as the company has fallen dramatically out of favour.

This collapse is partly due to general concerns about the outlook for the construction and housing sectors. But Galliford’s slump has been made worse by some company-specific problems which followed the failure of Carillion.

As a result, Galliford shares now trade on just 5.3 times 2019 forecast earnings and offer a 10% dividend yield.

This must be too risky?

You might think that this extreme valuation is a sign of problems ahead. Normally, I would agree with you. But in this case I think the market sell-off has probably gone too far. The shares appear to be priced for a disaster, but there’s no sign of this at the moment.

The group has recently won two major road-building contracts which form part of an £8bn framework awarded by Highways England. Meanwhile, the performance of its house-building division, Linden Homes, is said to have been in line with expectations in 2018.

Other house-builders are also reporting stable performances with a strong outlook. In my view, Galliford’s 10% dividend yield could make the stock a more profitable investment than buy-to-let at the moment.

Another way to profit from buy-to-let

If you own one or two buy-to-let properties, your risks are highly concentrated. One-off costs like boiler repairs or new kitchen appliances can put a big dent in your rental income.

An alternative way to invest in the rental sector is through Paragon Banking Group (LSE: PAG). This lender specialises in buy-to-let mortgages, which accounted for 72% of new lending during the final three months of 2018.

Paragon’s performance has been consistent and profitable in recent years. The firm’s return on tangible equity — a key measure of banking profitability — rose to 16.1% last year, while underlying pre-tax profit rose by 7.8% to £156.5m.

One attraction is that the group is able to fund an increasing amount of its lending using customer deposits made into its savings bank. Deposits are generally much cheaper than any form of borrowing for a mortgage lender, so by doing this Paragon can remain competitive and enjoy decent profit margins.

This lender has been in business since 1985, so it’s survived several boom and bust cycles already. This gives me confidence in the long-term outlook for the business. With a well-covered dividend yield of 5.2%, this is a stock I’d consider buying.

The post Forget buy-to-let. I’d rather collect 10%+ from this FTSE 250 dividend stock 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.

Different approach 

In the car insurance industry, Hastings stands out for its differentiated approach. The business makes the most of technology to serve its customers, which means lower costs overall and bigger profits for investors. 

Indeed, according to my research, the company’s operating profit margin is one of the best in the business, coming in at 27% for 2017 compared to the UK insurance industry median of just 9.3%.

Management has adopted a policy of returning most of the excess cash the company generates to investors. This means fat dividends. City analysts believe the group will return a total of 13.9p per share to investors for the 2018 financial year, which gives a dividend yield of 6.9%. With earnings expected to jump around 14% year-on-year, analysts are forecasting an even fatter distribution for 2019 of 14.9p per share, giving a dividend yield of 7.4% at the current price.

Usually, such a high dividend yield indicates that the market does not believe the payout is sustainable, so why are the shares trading at such a significant discount?

Undervalued? 

It seems to me that investors are worried about the group’s outlook. Back in October, management warned that the market for UK car insurance was becoming increasingly competitive, which was interpreted as a revenue warning. However, management also stated that the company would maintain its “disciplined pricing strategy in the ongoing competitive market,” which tells me that the firm’s fat profit margins are here to stay. This seems to be the right strategy. Chasing growth at any cost is never a good idea in my mind, particularly in the insurance industry.

With this being the case, I think now could be a great time to be greedy when others are fearful and snap up shares in Hastings.

Another income stock I think it’s worth considering today is Galliford Try (LSE: GFRD).

Rough year 

It is fair to say that this company had a rough 2018, after the collapse of outsourcer Carillion forced management to raise funds from investors. Now, the uncertainty of Brexit is haunting the stock.

At the current level, and based on City forecasts, the shares are trading at a forward P/E of 5.3 and support a dividend yield of 10.1%. In my opinion, this valuation is too good to pass up. 

Even though there is still plenty of uncertainty overhanging the business, and the broader UK construction industry, the shares are trading at a discount of around 33% to the wider homebuilding sector, implying a possible upside of 47% when the uncertainty is lifted. Add in the 10% dividend yield, and investors could be looking at a potential upside of nearly 60% over the next 12 months if Brexit is resolved and investor confidence returns.

So, even though the outlook for the company is unclear, I think there is a wide margin of safety here which more than compensates for the extra risk.

The post Two FTSE 250 stocks with 7%+ yields I think could explode in 2019 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.

Indeed, today the company, which provides services to help retirees manage their finances, reported a 40% year-on-year increase in retirement product sales for the nine months to the end of September. This includes a 32% increase in so-called lifetime mortgage (LTM) sales, which are facing scrutiny from regulators. 

Regulators are worried that the sales of these products present a risk to the financial system because of the way they are structured. They let a homeowner borrow money against the value of their house as a form of annuity. Capital is only due for repayment when the homeowner dies. The company that sold the LTM can then sell the home to recoup the funds. These products are particularly lucrative for providers, but they have a sting. If the house used for security falls in value, the provider has to take a loss. 

Regulators are worried that in the event of a housing market downturn, losses on these products could spiral, sending shockwaves across the financial sector as companies try to balance the books. As a result, it had been speculated that Just would be forced to raise nearly £500m to protect its balance sheet — indicating a rights issue equivalent to roughly half the group’s market cap. 

While we still don’t know what action regulators will require Just and its peers to take, a recent announcement revealed the implementation date for the final proposals would not be before 31 December 2019. This should give Just “greater flexibility to execute any necessary capital management actions.” 

With some of the uncertainty surrounding LTM products now lifted, I think Just could be an interesting ‘buy’ after recent declines. With the shares changing hands for just 5.6 times forward earnings and 0.5 times book value, there’s already plenty of bad news baked into the stock and a wide margin of safety for investors. 

Still Trying

At the beginning of this month, I picked out homebuilder Galliford Try (LSE: GFRD) as my top stock for October. While the shares have struggled to gain traction after my recommendation, I’m still optimistic about the outlook for the group. 

Even though the outlook for the UK’s homebuilding sector is darkening (as proven by the recent profit warning from peer Crest Nicholson), I’m confident that Galliford remains a ‘buy’. The bargain-basement valuation is the main reason why I’m attracted to the business. Right now, the stock is changing hands for only 6.4 times forward earnings, which is, in my view, a steal. The rest of the homebuilding sector is trading at a median P/E of 8.1. There is also a dividend yield of 8% on offer, covered twice by earnings per share. A yield at this level usually indicates dividend stress. However, a recent fundraising has shored up the firm’s balance sheet, so I believe the risk of a dividend cut in the near term is low. 

So, if you’re looking for a cheap income stock, with exposure to the UK’s undersupplied housing market, Galliford ticks all the boxes for me. 

The post Why I believe these former market darlings could offer amazing value today 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.

It seems that caution was well placed, and though there was a small price recovery shortly afterwards, it soon reversed itself and the shares are now down 8.2% since my words. And that’s almost entirely composed of Wednesday morning’s fall after the release of a first-half pre-close update.

The firm said it expects full-year operating profit to be “flat to slightly down” on last year. And though that is in line with prior expectations and was put down to “ongoing investment to drive faster top-line growth,” it was enough to drive investors into a sell-off. Revenue is expected to come in 2%-3% ahead.

“Performing well”

Chief executive Phil Bentley told us that “the majority of our businesses are performing well and our larger contracts are delivering solid growth in volumes and profitability,” though his comment about the industry remaining “highly competitive, especially when it comes to contract renewals” surely reminds us of the need to be careful.

My biggest concern was debt, and average daily net debt is now expected to be around £40m higher than last year at £278m, with a 30 September figure of £230m to £250m. The company says it should still be working within its banking covenants, and if Mitie does get back to earnings growth then debt should become less of a problem. And currently reduced dividend yields of 2.6% could be set to resume their climb.

I’m still cautious. H1 results are due on 22 November.

Overlooked dividend

I can’t help feeling that the dividends on offer from Galliford Try (LSE: GFRD) have been overlooked by investors, quite possibly because attention had been turned towards fears of a slowdown in the construction business.

That’s led to a share price fall of 35% since August 2015’s high point, which in turn has pushed the forecast dividend yield up to 6.8%. With EPS for the full year set to drop a bit, however, the question must be whether the company can afford that level of payment, which would be a few pence down on last year.

Results for the year ended June suggest that should not be a problem, with pre-exceptional EPS up 21%. The dividend was reduced by 10%, covered twice by earnings in line with the company’s current policy. The 6.8% dividend forecast for the next full year allows for a 13% EPS fall in the current year coupled with the same cover.

Why buy?

So why buy shares with a declining earnings and dividend forecast? Well, the period after a bull run when the share price of a solid company is depressed looks like a fine time to me to be buying shares. 

There are clearly worries over a post-Brexit downturn in the construction business, but I see significantly too much fear currently built in to the share price. We’re looking at a forward P/E here of only 7.5, and that’s for a company with fairly modest average net debt of £227m (compared to pre-exceptional pre-tax profit of £188.7m).

Even if the dividend were to yield only around 5%, I still think I’d be looking at an oversold long-term bargain — though I could still see some short-term volatility.

The post Have £2,000 to invest? These 2 hidden dividend stocks could help you retire early appeared first on The Twelfth Magpie.

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Alan Oscroft 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.

First up is telecoms giant BT Group (LSE: BT-A). As a shareholder myself, I believe there are attractive gains to be made from the group’s turnaround. But I’m not sure if the dividend is safe.

I discussed my views on BT’s strategy in a recent piece, so today I want to focus on the firm’s ability to sustain its £1.5bn per year dividend habit.

Show me the money

Yes, that’s right. BT currently pays out about £1.5bn in cash each year to shareholders. Let’s find out if this generous payout is supported by the group’s profits:

BT reported exceptional costs of £741m last year, reducing its actual after-tax profit to £2bn. The dividend payout accounted for 75% of this amount, giving earnings cover of just 1.3x.

This seems low, but it might be okay for a utility stock, if it’s backed by free cash flow.

I’ve taken a look. BT’s normalised free cash flow was £3bn in 2017/18, and £2.8bn in 2016/17. That should be enough to cover the dividend and leave some left over. The only problem is that there are competing demands for this cash.

BT already has net debt of £9.6bn, along with an £11.3bn pension deficit. The company has agreed to provide another £3.25bn of pension contributions by March 2020, some of which will come from extra debt.

My verdict

I think BT’s dividend is looking a little stretched. In my view, there’s a good chance that the group’s next chief executive will cut the payout when he or she takes charge later this year.

Despite this, I continue to rate the shares as a buy. Trading on a forecast price/earnings ratio of just 8.8, I think most of the bad news is already in the price.

A 7.2% payout on property

Shares of construction and housebuilding group Galliford Try (LSE: GFRD) were up by 7% at the time of writing. Investors were celebrating news that the group’s adjusted pre-tax profit rose by 28% to £188.7m last year, after a difficult year.

Sales only rose by 10% to £2,931.6m during the 12 months to 30 June. And tight control of costs and increased standardisation in the firm’s range of houses helped to lift the group’s operating margin from 5.9% to 6.6%.

The group’s Linden Homes division actually generated an operating margin of 19.5% last year. But this margin was diluted by much lower returns from the group’s Partnerships & Regeneration business (5%) and its Construction division (0.9%).

Still a buy?

Last year’s dividend was covered twice by adjusted earnings and seems affordable to me.

The difficulty for shareholders is guessing what might come next. Housebuilders face the risk that the Help to Buy scheme could end in 2021 and that mortgage rates might start to rise. Both measures could cause sales to slow.

Prior to today’s results, analysts were forecasting a 5% cut to Galliford’s earnings and dividend in 2018/19. These figures may now be revised. But in my view, this isn’t the right time to chase this stock higher. I’d rate the shares as a hold, for now.

The post Can BT and this 7% FTSE 250 income stock afford their massive dividends? appeared first on The Twelfth Magpie.

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Roland Head owns shares of BT. 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.

Under the radar

I’m sure you’ve heard of peer-to-peer investing, an industry that has blossomed since the financial crisis. Due to its nature, it’s not entirely suitable for every investor, but the potential income available makes peer-to-peer products highly attractive.

This is where P2P Global Investments (LSE: P2P) comes in — an exciting company that flies under the radar of most investors.

Structured as an investment trust, P2P Global Investments provides investors access to a broadly diversified portfolio of opportunities generated by non-bank lending platforms. According to the company’s half-year figures, at the end of June, assets under management by the trust totalled £742m, against a market capitalisation of £625m. The discount to net asset value was 15.8% at the end of the period.

Since the report was compiled, P2P’s market value has fallen further, but I believe this offers a great opportunity. The reason why investors are avoiding the business is that the fund is currently trying to wind down a portfolio of legacy assets, which have not performed as expected. 

These assets declined to 30% of the portfolio at the end of June, compared to 48% at the beginning of the year, so the company is making good progress restructuring the portfolio.

When the run-off is complete, I reckon shares in the trust could trade back up to net asset value. Management is targeting a dividend of at least 15p per quarter in the medium term, against the existing 12p per quarter. When it hits this target, I calculate the dividend yield will be 7.7%, based on P2P’s current share price. At the current dividend rate, the shares yield a still-attractive 6.2%. So, as the company restructures its operations, investors are being paid to wait.

Much to prove 

P2P is a recovery play. But if you’re looking for an investment with a more stable outlook, I believe it’s worth considering Galliford Try (LSE: GFRD).

There is much to like about this home building and construction company. For a start, the stock supports a dividend yield of 7.1%, and trades at a forward earnings multiple of only 7.1. The dividend is covered twice by earnings per share, so it’s immediately clear that the market-beating dividend yield is sustainable.

Unfortunately, it seems that the market is still worried about the state of Galliford’s balance sheet. A few months ago, the company had to cut its dividend and raise £150m in new equity to support its balance sheet following Carillion’s collapse.

To try and reassure the market, back in July Galliford put out an update stating that trading for the year was going to plan. What’s more, management proclaimed net debt for the year that ended June 30 is expected to be below previous guidance at £227m, excluding the benefits of the £150m rights issue.

I reckon the market is waiting for the business to provide more concrete evidence of its turnaround. When it does, the shares could substantially re-rate as confidence returns. Considering the company’s latest trading update, I think investors could gain an edge by buying in now, before the rest of the market realises the opportunity.

The post 2 stocks to consider with 7% 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.