Halfords (LSE:HFD) shares have come under pressure in recent months. At current levels, is the Halfords share price a bargain or one for me to avoid?

Automotive and cycling retail giant

Halfords is an automotive and cycling goods retail business. It has over 100,000 employees at more than 750 locations throughout the UK, along with an online store. It claims that 90% of people in the UK are never more than 20 minutes away from one of its locations.

So what’s happening with the Halfords share price currently? Well, as I write, the shares are trading for 154p. At this time last year, the shares were trading for 402p, which is a 61% decline over a 12-month period.

I believe Halfords shares have declined due to the stock market correction. The correction has been caused by the tragic events in Ukraine but also by macroeconomic factors at play — but more on that later.

To buy or not to buy?

So what are the pros and cons of my buying this stock?

FOR: Halfords’ presence and profile is a big positive point for me personally. Its extensive footprint throughout the UK and online offering tell me it should still be able to perform well despite macroeconomic issues. In addition to this, Halfords has performed well in recent years. I do understand past performance is not a guarantee of the future, however. It has grown revenue and profit in the past three years in a row. Preliminary full-year results released last week for 2022 were positive too. Revenue and profit growth were among the headlines I noticed from the results.

AGAINST: Macroeconomic issues have placed pressure on performance and the Halfords share price. Rising inflation and raw materials costs, coupled with the supply chain crisis, have hampered many businesses and Halfords is no different. Rising costs mean passing this on to customers. Supply chain issues have resulted in fewer products to sell on the shelves.

FOR: I like the fact Halfords regularly completes acquisitions to boost its offering and grow its profile and performance. In the past fiscal year, 2022, it procured three new businesses. One of these was to boost its automotive centre presence to offer motorists more convenient and accessible locations to service their vehicles. It purchased Axle Group Holdings which has the National Tyres and Autocare brands under its umbrella.

AGAINST: The current cost of living crisis is a worry for me. Although automotive products and services are often essential to maintain vehicles, cycling goods could be considered a luxury item. This could result in Halfords seeing a material impact on sales and performance in this aspect of its business. Furthermore, the price rises mentioned earlier could mean consumers looking to make their cash go futher may seek alternative, online-only brands that may beat Halfords on price.

The Halfords share price looks too good to miss

I believe Halfords shares look attractive and I would happily add the shares to my holdings and hold them for the long term. I view the risks noted above as shorter-term issues.

The shares look good value for money on a price-to-earnings ratio of just four. The shares also pay a dividend which would boost my passive income stream and currently yield close to 5%. Dividends can be cancelled, however.

The post The Halfords share price is dirt-cheap! Should I buy or avoid the shares? appeared first on The Twelfth Magpie.

More reading

• 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?
• 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?

Jabran Khan 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.

Shares in this company have taken a hammering over the past 12 months as investors have jumped ship. The retail sector is one of the most hated on the market right now, and Halfords is no exception.

However, it seems as if the business is coping quite well in the current environment. According to a trading update for the 20 weeks to August 16, total group sales declined by 3.9% with Autocenter sales rising 2.4% and general retail sales falling 4.8%. 

Management blames poor summer weather and weaker consumer confidence for this sales performance. They believe the uncertain economic environment is also hurting demand for big-ticket items.

But while sales are coming under pressure, costs are falling. As a result, today’s trading update notes that the group’s gross profit margin across the business has improved year-on-year. Online sales are also outperforming the rest of the business. Total online sales grew 8.4% year-on-year for the 20 weeks to August 16.

Margin of safety

Considering the above, it doesn’t seem as if the outlook for Halfords is as bleak as the market is suggesting. 

Therefore, I think now could be an excellent time to buy the stock. After recent declines, it is trading at a forward P/E of just 7.5 and supports a dividend yield of 10.2%. In my opinion, these numbers give investors buying today a healthy margin of safety.

Deep value

Another dividend stock that currently offers a dividend yield of more than 10% is real estate investment trust Hammerson (LSE: HMSO). 

At the time of writing, shares in this business look severely undervalued. The stock is selling at a forward P/E of just 8.5 and a price-to-tangible-book-value of only 0.4. This implies that the value of the company’s property is worth 67% more than the current market capitalisation. 

On top of this bargain valuation shares in Hammerson support a dividend yield of 11.3%.

Retail market

Hammerson is selling at such a cheap valuation because the market is concerned about the value of its properties. Other commercial property-focused investment trusts have recently announced big write-downs on the value of their property portfolios, and there’s speculation Hammerson could be next.

I think it would be naive to suggest that the company is immune to asset write-downs. Nevertheless, I think it is unlikely its properties are worth 60% less than the current book value.

This implies that at the time of writing, there is a wide margin of safety in the stock. Even if the value of its properties are marked down by 30% (which I think is unlikely) investors buying today would still be acquiring shares in the business at below book value. Then there’s the 11.3% dividend yield to consider.

That’s why I think Hammerson could be an excellent investment at current levels.

The post 2 dividend stocks yielding 10% I’d buy for an ISA today appeared first on The Twelfth Magpie.

More reading

• 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?
• 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?

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.

Flowing in

This was made up of net inflows of $5bn and positive investment performance of $3.6bn, so Ashmore is shining on both fronts. The £3.36bn FTSE 250 group said client demand remains strong across its broad spread of investment themes, with healthy institutional inflows from existing clients.

CEO Mark Coombs said client activity levels picked up through the quarter following a slight pause at the end of 2018: “This reflects a number of ongoing positive factors including investors’ light positioning in emerging markets.” 

Its clients were also finding value after a tricky 2018, while stepping back from developing markets due to “slowing growth and political challenges.” This has left Ashmore well-positioned for continued growth, he concluded.

Emerging opportunity

Fund managers are effectively a geared play on the stock market or, in Ashmore’s case, emerging stocks. In 2017, the emerging market MSCI index surged 37.28%, and Ashmore’s share price surged too. Last year, the index fell 14.57%, with a predictable consequences. The index is up 9.92% year-to-date and Ashmore is riding higher. You get the picture.

The key is to avoid buying at the peak of the cycle when the share price is excessively valued. Possibly we could be there, with the group trading at 18.5 times forecast earnings. Recent growth has driven down the yield, now a forecast 3.7%, with cover of 1.4. Personally, I would prefer to buy Ashmore when it’s down, rather than up. Roland Head got his timing right, tipping the stock a couple of months ago. It may fit better on your watchlist than in your portfolio right now.

Cyclical stock

Fellow FTSE 250 company Halfords (LSE: HFD) has caught my attention due to its high yield and low valuation. The motoring and cycling product and service retailer now offers a forecast income stream of 7.4%, covered 1.4 times by earnings, yet trades at just 9.8 times forward earnings.

The stock has had a rotten year, falling more than 33% in the past 12 months. That’s Halfords’ punishment for delivering its fair share of disappointing news. Last May, investors had to absorb a 5% drop in underlying pre-tax profits to £71.6m, albeit largely due to £25m currency headwinds.

Motoring on

In January, it reported a 1.7% fall in like-for-like group revenues for the 14 weeks to 4 January. That was due to mild weather and weaker consumer confidence, which knocked discretionary sales of pricier adult bikes, although cycle accessories and children’s cycling held firm.

Some investors will be tempted by the group’s strong cash flows and healthy balance sheet, but you must set that against weak consumer confidence. Forecast earnings growth looks flat this financial year and only  improve slightly next, yet many of the group’s problems are surely locked into today’s dirt cheap share price. Throw in low levels of debt and Halfords could make a tempting contrarian buy for income seekers.

The post Got £2k to spend? I’d consider buying these 2 FTSE 250 stocks today appeared first on The Twelfth Magpie.

More reading

• 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?
• 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?

Harvey Jones 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 decision cost the company just over £86m, but it was the reputational cost that hurt more than anything else.

Before the problems with the franchise first emerged, the stock was changing hands for more than 400p. It slumped to 130p at the end of March last year and has since struggled to move much higher.

Making a comeback 

After the East Coast rail debacle, there’s been fears Stagecoach’s reputation with the government would never recover. However, as it turns out, these fears might have been overblown. Today, the company announced that the Department for Transport (DfT) has agreed to extend its franchise on the East Midland line. The contract extension is only until 18 August, but this is longer than analysts have been expecting. 

The company expects to earn a “modest profit” under the revenue-sharing agreement inked with the DfT.

Dividend champ

Rail is just part of the Stagecoach empire. The rest of the business is humming along nicely. Management recently agreed to sell its North American division to a private equity buyer for $207m. The proceeds of this will be used to reduce the debt which, in my opinion, will make the enterprise a much more attractive income investment. Indeed, when it comes to income, Stagecoach stands out to me as an FTSE 250 income giant.

Even though the City has pencilled a decline in earnings per share of 20% between now and 2020, the fact that the payout is covered twice by earnings per share means that even after this decline, Stagecoach’s dividend appears safe. 

The stock currently supports a dividend yield of 5% and, right now, you can buy this income for a P/E of just 7.8. That’s why I am eyeing up the company today.

Unique business 

Another unloved FTSE 250 income stock I think is worth your further research time is Halfords (LSE: HFD).

Investors rushed to sell this company after it issued a shock profit warning at the beginning of 2019. Management informed investors it now expects underlying pre-tax profit to fall around 15% year-on-year, after a rough Christmas.

At first glance, this forecast seems disappointing. But, as my Foolish colleague Roland Head recently pointed out, Halfords’ debt is low and the group’s cash generation has historically been quite strong. On top of this, management made a fresh commitment to the dividend back in September, so I’m confident that the dividend, which currently stands at 18.2p per share, is here to stay.

With this being the case, I would buy into Halfords’ current dividend yield of 7.8%. A P/E of just 9.7 makes the opportunity even more attractive, in my view.

Of course, if the retail environment gets much worse and earnings slump, there’s a chance the dividend could be cut. But I think Halfords has what it takes to weather the storm because its two key markets are motoring sales and outdoor activities which, unlike retail, don’t suffer the same vicious competition and thin profit margins. What’s more, Halfords is the market leader for both of these product lines.

The post £5k to invest? Here’s two hidden FTSE 250 income giants I’m eyeing up today appeared first on The Twelfth Magpie.

More reading

• 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?
• 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?

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.

The international sales, marketing and support services group posted a pre-close update ahead of first-half results, saying operating profit should be in line with expectations and “well ahead” of the same period last year.

At the same time, the company also revealed the acquisition of the Jam Group of Companies for $170m, a company it describes as “a market-leading North American specialist sales, marketing and services business serving the professional audio, musical instruments and consumer electronics product sectors.”

This takes the total value of DCC’s acquisitions since May’s preliminary result’s announcement to approximately £270m, and the firm appears dedicated to its path of growth through acquisition.

New placing 

The third instalment on Thursday was a proposed placing of 8.9 million new shares to institutional investors,  which represents around 10% of the company’s current issued share capital. The proceeds are to be used to further DCC’s acquisition strategy, which the firm says has “contributed to operating profit growth over 24 years at a compound annual growth rate of 14.4%.”

Would I buy DCC shares, on a forward P/E of 18.7? I’m always wary of rapid growth by acquisition and I want to see organic growth too, but DCC looks like it’s achieving that. Dividends look a bit low at around 2%, but I wouldn’t expect to see big yields from a company focused on growth.

I see DCC’s shares as decent value now, but I’m wary of what might happen should the current growth spell slow.

Another faller

Shares in Halfords Group (LSE: HFD) also dipped on Thursday, losing as much as 9% of their value in early trading before clawing back a couple of points.

The trigger was an update on the firm’s plans, which should see capital expenditure over the medium term increased from current guidance of around £40m per year to as much as £60m. The car parts and bicycle vendor says the extra will include “significant investment in our stores, garages, and digital platforms.”

Shareholders will surely be fearing that the extra £20m per year will reduce the cash available for dividends. An attraction of Halfords shares is the yields in excess of 5% currently forecast by the City, which would be around 1.6 times covered by earnings — a bit tight, I’d say.

Dividend commitment

To counter that, Halfords has made “a new commitment to preserve the ordinary dividend along with continuing to target to grow it every year.“

The company also says its debt targets remain unchanged and that it has started on a new cost efficiency drive, but says pre-tax profit for 2020 is now likely to be largely flat, where analysts had been expecting an increase of around 6%.

I’m conflicted on what to think. On the one hand, even if there won’t be a return to earnings growth by 2020 as previously hoped, planning for the longer term must be a good thing. Or is the latest news an admission that Halfords’ stores are simply getting tatty and it had misjudged what it would need to get back to growth?

With Halfords shares on a P/E of around 11, I’d sit back and wait.

The post Is the DCC share price a must-have bargain after 6% fall? appeared first on The Twelfth Magpie.

More reading

• 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?
• 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?

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.

However, today the shares have slumped by more than 13% at the time of writing, undoing all of the gains made over the past year after the firm issued a worrying update. 

Time to abandon ship? 

It announced that profit would be flat in the current year, held back by several factors. These include a lack of price rises in cycling, currency issues and a step-up in investment in the business.

For the year to the end of March, the firm produced an underlying pre-tax profit of £71.6m, down from £75.4m last year, but in line with City expectations. Turnover for the period increased 3.7% to £1.1bn. 

Put simply, Halfords profits are falling, and management does not expect the group to return to growth anytime soon. At a time when the rest of the retail industry is struggling, this is a concerning outlook. What’s more, before today’s warning, shares in the firm were trading at a relatively rich forward P/E of 14, compared to the sector average of 12. 

What worries me is that it now looks as if growth has peaked, and the business is going to struggle to return to an upward curve. Indeed, management talking about that lack of price rises in cycling looks to be a tell-tale sign that competitors are aggressively fighting for market share.

There’s no telling how much longer this environment will last or if the business will be able to compete effectively. With this being the case, I’d avoid the retailer for the time being until such time as there is concrete evidence that growth is returning. 

Out of favour 

Another former FTSE 250 growth darling I am avoiding is Metro Bank (LSE: MTRO). 

As one of the fastest growing challenger banks in the UK, shares in Metro currently command a premium valuation of 55 times forward earnings. However, over the past few months, City analysts have started to air their concerns about the state of the group’s balance sheet. Its common equity tier 1 (CET1) ratio, a key benchmark of balance sheet strength, fell from 18.1% at the start of last year to 13.6% at the end of March as management pushed ahead with targets to grow the business substantially. If the bank continues on the current course, one set of analysts is expecting the CET1 ratio to fall to 11.5% by year-end, below the firm’s own minimum of 12%. 

These numbers suggest Metro has to make one of two choices, either raise more capital or put the brakes on growth. Neither of these is favourable for investors. A capital raise would dilute existing holders, and if management lowers growth targets, the market might reconsider the lofty growth valuation it has awarded the bank. 

As it is unclear which route management will take, I believe it might be best to avoid the bank for the time being, or at least until there’s more clarity on its outlook.

The post Could these 2 FTSE 250 investments be a threat to your wealth? appeared first on The Twelfth Magpie.

More reading

• 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?
• 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?

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.

A 4% rise in revenue which gave a 7% boost to earnings per share was a little behind forecasts, but what scared investors away was the revelation that “adjusted EBITDA for 2018 is expected to be broadly flat before growth resumes from 2019 onwards.“

Moneysupermarket shares are down 20% so far in 2018, though we have seen a bit of an uptick over the past month. Does this mean the earlier promise for long-term growth is falling away, or is it just the typical pause that happens when early growth spurts start to slow? 

I go for the latter myself, and I think we’re looking at something relatively rare in a growth stock — one that was quick to turn its growth into decent dividends. Yields in the 3%-4% range are pretty respectable at this stage, especially as the annual cash payment was boosted by more than 40% between 2013 and 2017.

Acquisition

The market reacted coolly Thursday, when the company told us it “has agreed to acquire Decision Technologies Limited (‘Decision Tech’), a leading home communications and mobile phone comparison business, for £40m.“

Decision Tech has its own consumer comparison offerings, including broadbandchoices.co.uk, but it also provides comparison tools for communications services as used by Moneysavingexpert.com among others. Moneysupermarket reckons that Decision Tech “has one of the most advanced and scalable B2B comparison offerings in the UK.“

The share price barely moved as a result, but I see this as a good move. And I see the Moneysupermarket.com share price weakness as a buying opportunity.

Retail bargain

I’ve been looking at another falling stock lately, which I’m also thinking could make an attractive dividend target for this year’s ISA allowance. 

It’s the unloved Halfords (LSE: HFD), in the even-less-loved retail sector. The Halfords share price has been erratic as its EPS has bobbed up and down over the past few years, and a few false starts have left it pretty much flat overall over the past five years.

But the company has kept its dividends rising progressively, and as the share price has been stagnating so has the yield been growing. Last year provided an attractive 4.9%, and analysts have 5.5% indicated for the current year, rising to 6% by 2020.

Dependable yield?

That’s very tempting if it really is sustainable, and I don’t see any good reason to think it isn’t. Full-year results are not due until 22 May, but January’s third-quarter update looked good. We saw a 3.2% rise in revenue on the quarter, with year-to-date revenue up 3.6%. Like-for-like figures are more indicative of the underlying business, and those looked healthy too — quarterly revenue up 2.7%, and 1.9% year to date.

With the retail sector being hit by the growth of online selling, it’s reassuring to see Halfords enjoying a 13% growth in online sales. Interestingly, more than 80% of Halfords.com orders were collected in-store, reinforcing my belief that the omnichannel model is very much alive and well.

Dividend cover is a little weaker than it has been, but looking back to interim results released November, I see no cause for concern. Net debt stood at £84.8m, but that represented only 0.8 times underlying EBITDA, and doesn’t look at all stretching to me.

The post 2 FTSE 250 dividend stocks I’d buy for my ISA with £2,000 right now 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?
• How much would a portfolio of income shares need to be worth to produce £32,700 a year in retirement?
• How much would investors have to invest in this FTSE dividend giant to target £16,771 a year in passive income?
• With a 6.9% yield, is this one of the best FTSE 250 stocks for passive income?

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Moneysupermarket.com. 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.

For a start, STV’s dividend yield is currently just under 6%, around 2.9% higher than the rest of the market. After several years without a dividend, STV only returned to the ranks of the dividend universe in 2014. Previously, debt repayment had taken priority, but now it looks as if the firm is back on a stable footing.

Debt paydown

At the end of the first half of 2017, net debt had fallen to £34m, around 1.5 times earnings before interest, tax, depreciation and amortisation for the full year. 

Management is now putting an emphasis on shareholder returns. The group announced a 25% increase in its interim dividend at the half year and also went on to reveal a £2m share buyback. For full-year 2017, the proposed distribution is up 13% year-on-year. Going forward management is looking to return around 60% to 80% of the firm’s cash generation after pension deficit funding payments. This implies that STV’s beefy shareholder returns are set to continue for the foreseeable future.

Cash cow 

Retailer Halfords (LSE: HFD) is my second top dividend pick for 2018. Trading at a forward P/E of 11.7 with a dividend yield of 5.2%, the company offers both value and growth.

However, the market is becoming increasingly concerned about the firm’s outlook in today’s hostile retail environment. Over the past five years, pre-tax profit has stagnated as Halfords has tried to stave off the rise of online retailers by discounting and investing more in its store offering. This investment has slashed its operating profit margin from 11.5% to 6.7% for 2017. 

Still, the company continues to throw off cash, and even though margins are under pressure, it does not look as if the dividend is under threat. For the fiscal year to 31 March 2017, Halfords generated cash from operations of £72m compared to a total dividend distribution of £54m. What’s more, the group has a strong balance sheet. Net debt was only £86m at the end of fiscal 2017, 1.2 times annual operating cash flow and a net gearing ratio of 21%. 

With a strong balance sheet behind it and a robust cash flow, City analysts are expecting the dividend to increase by around 3% to 4% over the next few years. 

Retail problems 

My third and final dividend pick for 2018 is Hammerson (LSE: HMSO). Investors have turned their backs on Hammerson recently as it tries to merge with peer Intu. When combined, these two firms will become one of the UK’s biggest property companies with leading shopping centres including London’s Brent Cross, the Birmingham Bullring and Manchester’s Trafford Centre owned by a single company. 

At a time when online shopping is growing rapidly, at the expense of physical retail, investors are questioning the deal’s rationality, although in many ways it does make sense. It’s part of a global consolidation trend and a more substantial firm will be able to generate fatter profit margins thanks to operating synergies while offering better terms to prospective tenants than two smaller groups with less buying power. And analysis also shows it’s the ‘supermalls’ that the combined business will operate that are attracting the best tenants and the most footfall.

I’m positive on the outlook for the enlarged group and think its current 5.5% dividend looks too good to pass up. 

The post My top 3 dividend stocks yielding more than 5% appeared first on The Twelfth Magpie.

More reading

• 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?
• 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?

Rupert Hargreaves does not own any 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.

Luxury gap

Gobbetti is sharpening Burberry’s brand positioning, as he puts it: “We will establish our position firmly in luxury enabling us to deliver sustainable long-term value.” It is worth quoting more from his statement. “We will create compelling luxury leather goods and accessories to attract new customers. We will build on the strength of our apparel and re-energise it.  We will build our offer to provide a complete look for our customers, while continuing to simplify our ranges.”

The group will “rationalise non-luxury wholesale and retail doors”, in other words, close them, starting in the US. It will then work to refurbish its stores, enhance its luxury service and build on its digital success. Markets are no doubt worried about the “period of transition” as the group implements its new strategy, although Gobbetti expects the business to remain strongly cash generative.

Margin call

The market wants revenue hikes today, not a promise of “sustainable growth and higher margins over time”, but I think this looks like a buying opportunity for long-sighted investors. The strategy has been tested with success in Japan and Spain. Luxury is where the money is, after all. After rising 33% in a year Burberry has looked expensive for some time and still does at around 24 times earnings, but today it is 12% cheaper.

The strategy update has blinded markets to the good news in today’s interims: underlying profits are up 28% to £185m with earnings per share (EPS) up 32% to 21.4p, free cash more than doubling from £75m to £171m and an interim dividend hike of 5% to 11p per share. City analysts are pencilling in 2% earnings per share (EPS) growth in 2018, leaping to 14% in 2019. I would buy into that.

Off the road

Now to another familiar name having a bad day: motoring, cycling and leisure products retailer Halfords Group (LSE: HFD). Its share price is down 5% at time of writing, after publication of its interims for the 26 weeks to 29 September, which showed a 9.8% drop in underlying profit before tax to £36.8m. Like-for-like revenues did climb 1.5% to £588.7m but this was overshadowed by the 1.3% drop in its Autocentres revenues to £77.7m and other disappointing figures such as the 10.8% drop in basic underlying EPS.

Retail gross margins also fell, as expected, primarily due to adverse foreign exchange impact. There were some bright spots, such as online sales up 10.8%, free cash flow of £31.1m, up £6.9m on H1 last year, and a 3% rise in the interim dividend per share to 6p. This is just one of many companies contributing to the UK’s record £28.5bn dividend jackpot.

These are tough times for retailers, and Halford has struggled since Brexit. Today’s results will offer little comfort, but at least they did not come as a surprise. The stock is trading at the same level as five years ago and revenue, profit and EPS forecasts suggest little respite ahead. The dividend is still motoring, now a forecast 5.5%, covered 1.6 times, but approach with due care.

The post Is Burberry Group plc a falling knife worth catching now after sinking 10%? appeared first on The Twelfth Magpie.

More reading

• This FTSE 100 share pays no dividends. Could that change?

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry. 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, despite these two companies’ lacklustre capital performances I believe that, as income stocks, Essentra and Halfords should not be ignored. Here’s why. 

Growing dividend potential 

Today, Essentra announced that it had seen modest revenue growth in the third quarter after all divisions saw an improvement. This performance is impressive considering that the business has been subject to disruption by the hurricanes that have hit the US this year.

The division suffering from these storms the most is its Health & Personal Care Packaging division. Here, the division saw an “improved” revenue decline in the quarter, “notwithstanding the impact of Hurricane Maria on the two sites in Puerto Rico.“

Still, the overall trend is positive, and this was the first such period of like-for-like revenue growth since fourth quarter 2015, according to management. 

Essentra’s biggest strength is its cash generation. Even though growth has vanished over the past few years, cash flows have remained robust. During the past five years, the firm generated £341m in free cash flow from operations, excluding dividends. Of this total, £195m was distributed to investors. 

These figures indicate to me that, over the next few years, there’s scope for Essentra to double its dividend payout. Last year, the company generated £153m in cash from operations, spent £47m on CapEx, and returned £54m to shareholders. A similar performance this year leaves room to payout an extra £52m for a total of £56m. If growth returns in the years ahead, cash generation will undoubtedly improve – giving management more headroom for payout growth. 

At the time of writing the shares support a dividend yield of 3.9%. 

Unloved by the market 

Halfords currently supports a dividend yield of 5.5%, which indicates to me that the market doesn’t think much of the company. Nonetheless, the group has plenty of room to grow its dividend payout in the years ahead. 

Indeed right now, the payout is covered 1.7 times by earnings per share and analysts are already projecting a 3% payout hike next year. Looking at the group’s cash flows, it appears there’s scope of an even more significant distribution. 

2015 was the company’s most profitable year in the past five. For that year, the firm produced a pre-tax profit of £84m and a free cash flow of £120m. Dividends paid for the year cost £28m. If management can get the company back to this position, there’s plenty of headroom for additional payout increases. Even doubling the distribution, in this case, would be viable. With a gearing ratio of only 25% as well, Halfords’ balance sheet is strong enough to support higher distributions on an annual basis, or even a special payout. 

The shares are currently trading at an attractive valuation of 11.2 times forward earnings. 

The post 2 out-of-favour stocks whose dividends could double appeared first on The Twelfth Magpie.

More reading

• 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?
• 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?

Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of and has recommended Essentra. 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.