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Have £3k to invest? 3 FTSE 250 dividend stocks yielding 5%+ I’d buy

Roland Head — Thu, 27 Jun 2019 13:30:31 +0000

If you’ve got spare cash to invest and would like a reliable income plus some growth, I think the FTSE 250 mid-cap index is a good place to start. Here, I’m going to look at three stocks I’d be happy to buy today.

Mine’s a pint

The last decade has been difficult for the pub business, but market conditions seem to be improving at last. For investors looking for a reliable income from this sector, I think the best choices could be Greene King (LSE: GNK).

This £1.8bn businesss is the biggest listed pub operator in the UK, so it enjoys significant economies of scale. That’s important in an environment where costs, especially wages, are rising.

Greene King’s latest results suggest its performance has stabilised and may start to improve. Sales rose by 1.8% to £2,216.9m during the year to 28 April, while adjusted pre-tax profit was 1.6% higher at £246.9m. The dividend was left unchanged at 33.2p per share.

One potential risk is the group’s net debt of £1,943.3m. This figure fell by £89m last year but still remains high. However, the company is working to reduce this. Shareholders also have some protection thanks to a £3bn portfolio of freehold properties.

GNK shares trade on about 9.5 times forecast earnings and offer a dividend yield of 5.7%. Although I expect future growth to be slow, I see this as a good starting point for a long-term income investment.

Get the bus home

The transportation sector is seeing big changes in technology, but I’m confident that we’ll continue to need public transport which can carry large numbers of people safely and efficiently.

My top choice in this sector is Go-Ahead Group (LSE: GOG), in which I own shares. This company has a strong history of generating attractive returns and paying generous dividends. Go-Ahead’s dividend has not been cut since its stock market listing in 1994. During that time, the payout has risen from 4.8p per share to 102p.

Alongside its UK bus and rail services, the business is now expanding abroad, with services in Germany, Ireland and Singapore. I hope to see further continued, conservative expansion that will support further dividend growth.

GOG shares aren’t quite as cheap as they were a few months ago, but the stock’s forecast price/earnings ratio of 11 and 5.2% dividend yield still look fair to me.

This could be safer than houses

Demand for new housing still seems strong in the UK. But, in my view, housebuilders carry a lot of cyclical and political risk at the moment. So I’m more interested in investing in brick makers, who benefit from strong housing demand but also sell into commercial construction markets.

The largest brick producer in the UK is Ibstock (LSE: IBST), which has 19 factories, 23 quarries and also makes certain concrete products. The company has been running flat out in recent years and continues to report demand for bricks in the UK exceeds supply, meaning imports are required.

Although Ibstock would be exposed to a serious slump in demand, I’d expect sales of imports to fall before demand for UK bricks weakened too much. In the meantime, the business is performing well.

Strong cash generation has enabled the group repay debt and maintain generous dividends. IBST stock currently offers a forecast yield of 5.6%. In my view, this could be a decent long-term buy.

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Down 29%, a beaten-down FTSE 250 bargain I’m predicting can rebound!

Roland Head owns shares of Go-Ahead Group. The Motley Fool UK has recommended Ibstock. 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.

Forget 1.5% from a Cash ISA. I’d earn 5% from these FTSE 250 dividend stocks

Roland Head — Mon, 29 Apr 2019 06:56:48 +0000

With Cash ISA rates topping out at about 1.5% for easy access accounts, it’s not hard to find shares that provide a much higher level of income.

To give you an idea of what’s possible, I’ve chosen three FTSE 250 dividend stocks with 5% yields that I’d be happy to buy for my income portfolio.

Profit from renewable energy

Utility stocks are unpopular at the moment. The big firms are losing customers and face the risk that a Labour government might try to renationalise them.

In my view, there are safer choices for investors who want to invest in renewables. One of my top picks — a stock I own myself — is The Renewables Infrastructure Group (LSE: TRIG). This is essentially a financial company that invests in renewable energy, mostly UK wind farms.

The company’s policy is to pay quarterly dividends using the cash it receives from its assets. At the time of writing, the shares boast a forecast yield of 5.4%. According to the firm, the biggest single risk to its performance would be a major shortfall in electricity output. Given the geographical spread of the group’s assets, this seems a fairly low risk to me. I’m happy to hold and rate the shares as a buy for income.

I’m on the bus

Britain’s fragmented rail network has proved troublesome for the private companies who run rail franchises. But operating buses seems to be much simpler and more profitable.

Southern Rail owner Go-Ahead Group (LSE: GOG) is a good example of this. The firm’s bus operations generated 67% of its operating profit last year, with rail providing the remainder. Although management hasn’t given up on UK rail, the firm isn’t putting all its eggs in one basket.

International operations are expected to deliver 15%-20% of operating profit by 2022, reducing Go-Ahead’s dependence on the UK market.

I also expect demand for public transport to continue to increase as our cities become larger and more densely populated. In my view, Go-Ahead is a great way to play this trend.

The firm generates plenty of spare cash and hasn’t cut its dividend since listing on the stock market in 1994. That’s 25 years of unbroken dividends, during which time the payout has increased from 4.8p per share to 102p per share.

At current levels, the shares offer a forecast yield of 5.3%. I’d be a buyer at this level.

Safer than houses

The big housebuilders offer some very tempting dividend yields at the moment. But in my view they carry a lot of political and cyclical risk. Although the UK certainly needs more houses, any change to market conditions could hit builders’ profits.

I think that brickmaker Ibstock (LSE: IBST) could be a safer way to profit from the demand for new housing. This £1bn firm has been investing in new capacity to meet demand, which has seen its existing plants running flat out for extended periods.

It’s a surprisingly profitable business, in part because no builder likes to import bricks if it can buy them locally. Bricks are heavy and bulky and have high transport costs — so this should be one business that doesn’t suffer from cheap overseas competition.

Ibstock’s accounts for 2018 show good cash generation and a healthy 25% operating profit margin. Looking ahead, the stock trades on 13 times forecast earnings, with a 5.1% yield. I’d buy.

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Roland Head owns shares of Go-Ahead Group and THE RENEWABLES INFRASTRUCTURE GROUP LIMITED ORD NPV. 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.

3 FTSE 250 dividend stocks that have doubled and still have room to grow

Roland Head — Thu, 07 Mar 2019 13:12:57 +0000

If you want to make money in stocks, many investors believe the best approach is to focus on proven success stories.

Today, I’m going to look at three profitable, growing companies from the FTSE 250. Each has doubled (or more) in under 10 years and offers a growing dividend. I believe all three are likely to continue growing.

Sales top £1bn for first time

Food-to-go bakery chain Greggs (LSE: GRG) needs no introduction. The firm’s new vegan sausage roll has contributed to an impressive 9.6% increase in like-for-like sales during the first six weeks of 2019. Growth like this helps explain why the Greggs share price has doubled since November 2016.

Thursday’s full-year results suggest that the firm is maintaining its strong record of growth. Total sales rose by 7.2% to £1,029.3m last year, while pre-tax profit climbed 15% to £82.6m.

The shareholder dividend will rise by 10.5% to 35.7p for 2018. With the shares trading at record levels, this payout only gives the stock a 2% dividend yield. This highlights a risk for investors — Greggs looks expensive to me, trading on 23 times 2019 forecast earnings.

Chief executive Roger Whiteside expects the business to continue expanding and I share this view. I think Greggs is a very good business, but the shares look fully priced to me. I’d hold at current levels and look to buy on any future dips.

An unstoppable growth business?

The market for self-storage in the UK’s towns and cities appears to be growing strongly. During the three months to 31 January, FTSE 250 firm Safestore Holdings (LSE: SAFE) said its occupancy increased by 2.2%, despite average prices also rising by 2.2%.

The figures suggest that last year’s strong progress — when underlying sales and profits both rose by about 11% — may continue in 2019. The company now operates in the UK and Paris and is now letting 32% more space than it was three years ago.

The share price has reflected this growth and Safestore stock has doubled since April 2015. The shares now trade on 21 times 2019 forecast earnings, with a 2.9% dividend yield. Although this isn’t cheap, I’d view this as a fair price and rate the stock as a long-term buy.

No dividend cut for 25 years

Bus and train operator Go-Ahead Group (LSE: GOG) has faced challenges in recent years. But the group’s core attraction for investors — strong cash generation — has allowed the group to maintain its dividend despite a drop in profits. Indeed, Go-Ahead’s dividend has not been cut since its flotation in 1994, 25 years ago.

The firm’s shares have doubled over the last 10 years, during which shareholders have received a total dividend of about 880p, or about 43% of the current market-cap.

The secret to the firm’s financial success seems to be that operating public transport can generate attractive returns on capital invested. Go-Ahead Group generated a return on capital employed of 19% last year, well above the 15% threshold I use to screen for highly profitable companies.

Profit forecasts for the current year were upgraded following February’s half-year results and the shares have now climbed by 35% so far in 2019. However, they remain well below 2015 highs of 2,600p+. Trading on 12 times forecast earnings and with a 5% dividend yield, I believe the shares remain good value and continue to deserve a buy rating.

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Roland Head owns shares of Go-Ahead Group. 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.

Have £1k to invest? easyJet is a FTSE 100 dividend stock I’d buy today

Peter Stephens — Thu, 21 Feb 2019 10:57:20 +0000

While the FTSE 100’s dividend yield of 4.4% is relatively high, it’s possible to generate an even greater income return at present. One stock which offers a higher yield is easyJet (LSE: EZJ). The company’s share price fall of 23% over the last year means it now has a dividend yield of 5.4%.

Of course, the prospects for the airline industry remain uncertain. However, easyJet appears to offer strong growth at a reasonable price. Therefore, it could be worth buying alongside another income share which reported encouraging progress on Thursday.

Improving performance

The company in question is integrated public transport specialist Go-Ahead (LSE: GOG). Its results for the first half of the year showed it’s making good progress in winning new bus and rail contracts, as well as growing its core business. Operating profit for the period was ahead of expectations, with guidance for the full year increased as a result of strong performance from its rail segment.

The company has continued to gain momentum in its international expansion. It’s also investing in innovative projects in order to keep up with changing customer tastes. For example, demand for its responsive transport operation in Oxford, PickMeUp, has grown to 20,000 registered users and is becoming increasingly popular.

With Go-Ahead having a dividend yield of 5.2%, it could offer income investing potential. Dividends are covered 1.6 times by profit, which suggests there’s a healthy level of headroom. And with the company’s shares trading on a price-to-earnings (P/E) ratio of around 12, there could also be a value investing opportunity on offer.

Resilient performance

As mentioned, the easyJet share price has experienced a challenging year. Fears surrounding the wider airline industry have caused investors to become increasingly risk averse. Given the number of companies operating in the sector that have experienced financial challenges in recent months, those fears aren’t unfounded. Indeed, declining consumer confidence and greater competition have caused fares to come under pressure, which has squeezed profitability for a number of industry operators.

easyJet, though, could benefit from such a scenario in the long run. Its strong position in both a competitive and financial sense could mean it’s able to increase market share as smaller, less profitable rivals ultimately fail. While it may mean reduced profitability for the business in the near term, it could help to propel its dividend higher in the coming years.

With the airline’s dividend currently being covered twice by net profit, it seems to be affordable even during a challenging period for the industry. Since the stock has a price-to-earnings growth (PEG) ratio of just 0.6, it could also deliver impressive capital growth alongside its high income return. As such, now could be a good time to buy in for income and value investors alike.

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Peter Stephens owns shares of easyJet. 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.

Two FTSE 250 6% dividend stocks I’d buy and forget today

Roland Head — Sat, 19 Jan 2019 13:00:52 +0000

When it comes to dividend investing, a 6% yield is often the perfect balance between high yield and risk. As a rule of thumb, yields above this level are more likely to be cut.

Most of my own portfolio is invested in high-yield stocks, and today I want to take a look at one of my recent purchases and at another 6%-yielder that’s on my radar.

I plan to hold forever

This is one stock I hope I won’t ever need to sell. Go-Ahead Group (LSE: GOG) operates buses and trains in the UK and in overseas markets including Australia, Germany, and Singapore.

In the UK, the group’s operations include 5,000 buses carrying over 2m passengers each day. Through its Govia Thameslink Railway and Southeastern franchises, it also carries roughly 30% of UK rail passengers every day.

One particular appeal of this business for me was its very strong and consistent free cash flow. This is used to fund a generous dividend which hasn’t been cut since the group’s flotation in 1995.

I may buy more

Although Go-Ahead seems unlikely to ever become a standout growth stock, its expansion overseas does provide an opportunity for growth. In the meantime, the firm’s large share of the UK market convinces me that its revenue should be fairly stable over the coming years.

After a difficult few years, performance has stabilised and the shares have started to edge higher. Forecasts for 2018/19 suggest the company will report earnings of 160p per share. This puts the stock on a modest forecast P/E of 10.6.

Analysts expect a dividend of 102p for the full year, giving the stock a well-covered yield of 6%. I may buy more in the coming weeks.

A better choice than house-builders?

The outlook for the UK property market is unavoidably tied up with Brexit, causing considerable uncertainty. But, as my colleague Royston Wild recently explained, the reality is that however Brexit pans out, the UK will still have a housing shortage.

In my opinion, this is one reason to consider investing in FTSE 250 firm Ibstock (LSE: IBST), which makes bricks and concrete products. This business is in the middle of a series of changes that I think should leave it strongly positioned for the future.

Firstly, the company has sold several pieces of surplus land this year, generating a one-off gain of £9.5m. Ibstock has also sold its US business, Glen-Gery, for a total of $110m. This is expected to generate a $95m cash inflow which will be used to repay a significant chunk of the group’s debt.

Back home, Ibstock’s brick factories are undergoing a period of enhanced maintenance after running at maximum capacity for a number of years. This could be a short-term headwind to sales growth, but should result in more reliable and profitable long-term performance.

A complete package

In my view, the changes under way at Ibstock this year should leave the group with well-invested factories, a strong balance sheet, and the capacity for growth. Although the outlook for the UK construction market is a little unclear at this time, as a long-term investment I think the shares look good value.

Analysts’ forecasts for 2018/19 put the stock on a forecast price/earnings ratio of 12 for 2019, with a prospective dividend yield of about 6%. I’d be happy to buy at this level.

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Down 29%, a beaten-down FTSE 250 bargain I’m predicting can rebound!

Is the Genel share price a bargain or should I buy this FTSE 250 turnaround stock?

Peter Stephens — Thu, 29 Nov 2018 10:58:53 +0000

It’s been a difficult two months for shares in oil and gas companies such as Genel (LSE: GENL). The oil producer has recorded a decline in its share price of over 25% since the start of October, with a falling oil price being at least partly responsible. And with the price of black gold showing little sign of mounting a comeback, further uncertainty could be ahead for the stock and its sector peers.

However, could this therefore be the perfect time to buy the company? Or does a FTSE 250 share which reported upbeat news on Thursday offer stronger recovery potential?

Low valuation

The company in question is transport business Go-Ahead (LSE: GOG). It released a trading update for the period from 1 July to 28 November 2018, with it on track to meet expectations for the full year. It has recorded growth in passenger volumes, as well as revenues for the regional bus division. Its London bus operations have continued to generate strong Quality Incentive Contract income through the delivery of good service performance.

In rail, the company has seen a significant improvement in the operational performance of GTR, while Southeastern has continued to perform relatively well. In fact, it has consistently been the best-performing large train franchise in the UK. A new rail contract in Norway and the start of bus operations in Dublin have helped to boost the company’s international performance.

Following a share price fall of 18% since April, Go-Ahead has a price-to-earnings (P/E) ratio of around 9.7. This suggests that the stock could offer a margin of safety and may be able to deliver a successful turnaround over the long run.

Uncertain future

As mentioned, the oil price has experienced a significant decline in the last couple of months. After rising from $30 per barrel at the start of 2016 to reach $86 per barrel at the start of October 2018, it has experienced a hugely disappointing period that has seen it sink to $58 per barrel. Investors appear to have been expecting a sharp reduction in supply which is unlikely to now appear after the US granted waivers to sanctions for eight countries which import oil from Iran.

As such, the fall in the oil price could realistically continue in the coming months, since the waiver lasts for six months. This could put Genel’s share price under even more pressure, and may mean that investors experience continued paper losses.

Clearly, in such a situation it is hugely challenging to find the bottom of the company’s share price fall. At the present time, Genel has a P/E ratio of around 5. This suggests that it offers a margin of safety. Looking ahead, there is scope for declining levels of profitability over the next couple of years, since the company’s financial prospects are dependent upon the oil price. But with what seems to be a low valuation, it could be of interest for less risk-averse investors.

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Peter Stephens 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.