On Thursday, Watchstone released its first-half results, and it’s no surprise that the losses are continuing. Revenues dipped to £19.7m from £22.9m, resulting in a bigger EBITDA loss of £2.1m (from £1.7m), and a jump in the pre-tax loss to £3.5m from just £0.01m a year previously.

The firm’s healthcare business was said to be growing, with revenues up by a modest 2.6%, though foreign exchange translated that into a 1.3% sterling fall. The other part of the business, Ingenie, “continues to face very difficult market conditions,” with revenue dropping to £4.8m from £7.7m.

Loads of money

What I find most interesting about Watchstone is its cash position. The firm had cash and term deposits of £58.4m at 30 June, plus an additional £50.2m in escrow pending the outcome of legal action by Slater & Gordon related to the sale of the old Quindell’s Professional Services Division.

That total, of £108.6m, dwarfs the company’s current market capitalisation of £46m, which makes for a very unusual company valuation — one which certainly makes it more than a bit tricky to value the underlying businesses.

Are investors holding the shares in the hope of owning around £2.40 in cash for every £1 invested, in the event that the legal action by Slater & Gordon fails? Given that the action alleges “breach of warranty and/or fraudulent misrepresentation for a total amount of up to £637m plus interest in damages” (which Watchstone “denies … in the strongest terms“), that’s perhaps a risky strategy.

Continuing growth

A first-half trading update from Harvey Nash Group (LSE: HVN) gave its shares a modest morning boost, on top of a doubling over the past two years. 

The technology recruitment and outsourcing specialist has been growing its earnings steadily, and last year’s EPS rise of 29% helped support a progressive dividend policy too. The January 2018 yield came in at 4.9%, and while the subsequent share price gains have dropped the forecast 2019 yield to 3.4%, that would be thrice covered and looks very solid to me.

The first half of the year brought in £527m in revenue, up from £422m, “largely due to increases in contract recruitment, managed services and IT outsourcing as a result of both organic growth and acquisitions” with permanent recruitment essentially flat.

In line

That translated to a rise in gross profit from £46.5m to £51.7m, with the company telling us that “trading remains in line with the Board’s expectations for the full year.” But what does this all mean?

For me it means a good long-term income and growth prospect, with the shares on an attractive valuation. In addition to that tasty and growing dividend, we’re looking at forward P/E multiples of only around 9.5. 

I imagine some investors are wary about the lack of sparkle in permanent recruitment, and the currently sluggish economy will surely weigh heavily on that — especially with the possible Brexit effect still pretty much an unknown. But I’m seeing an attractive prospect here. 

The post £1,000 to invest? Here are two small-cap growth stocks to consider 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.

Built for all markets 

LSL’s diversified business model has helped the company ride out the peaks and troughs of the property market. Indeed, today the firm announced that revenue for the year to December 2017 expanded 1% year-on-year and underlying operating profit rose 8% thanks to “strong growth” in financial services income of 16%, “continued growth of recurring income” with lettings up 4% year-on-year and profit growth of 8% at the surveying division.

However, despite the steady growth at these divisions, residential sales exchange income declined 9%, and the estate agency division only reported total revenue growth of 2% for the period. The company owns a total of 12 estate agency brands including Your Move, which is the largest UK single brand estate agent measured by the number of branches. 

Still, while there are weak points in the results, overall, the group is growing against a backdrop of “subdued market conditions.“

Following these figures, management has decided to increase the firm’s dividend payout to investors for the year to 11.3p per share, up from last year’s 10.3p. This is “at the upper end” the board’s policy to return 30% to 40% of group underlying operating profit before interest and tax and gives a dividend yield of 4.2% at current prices. 

And as well as this attractive dividend yield, shares in LSL trade at a deeply discounted valuation of 8.3 times 2017 earnings based on today’s reported basic earnings per share figure of 32.6. Using the adjusted figure, the shares are trading at a 2017 multiple of 9.6 rising to 10.3 for 2018, based on current City numbers. 

So overall, if you’re after a market-beating dividend yield, from a well-diversified, cheap property business, LSL looks to me to be a good pick. 

Cash-rich dividend stock 

Another dirt-cheap income stock I like the look of is recruiter Harvey Nash Group (LSE: HVN). 

Shares in this company currently trade at a forward P/E of 8.2, which looks too cheap to pass up. That said, as my Foolish colleague Roland Head pointed out at the beginning of this year, investors are concerned about Harvey’s outlook with Brexit on the horizon as 40% of the firm’s income comes from the UK and Ireland. First-half earnings did little to offset these concerns as, although revenue rose by 9.2% to £425m, excluding exchange rate effects, underlying pre-tax profit was only 1.8% higher. 

Nonetheless, as an income play, there’s plenty to like about this business. At the time of writing the stock supports a dividend yield of 5.2% and the payout is covered 2.5 times by earnings per share, so there’s plenty of headroom for further growth, or flexibility if earnings start to fall. 

On a cash flow basis, the distribution also looks secure. Last year, the dividend cost Harvey £2.9m, which was just 20% of free cash flow from operations (£14m). Put simply, it looks as if the dividend is here to stay. 

The post 2 dirt-cheap dividend shares I’d buy with £2,000 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.

Companies that regularly raise their dividend payouts often trade at premium valuations. However, today I’m profiling a company that has raised its dividend for the last 10 years, yet trades on a forward P/E ratio of just 8.2. Sound interesting? Read on to find out more.

Harvey Nash

The company is recruitment specialist Harvey Nash (LSE: HVN). With a market cap of just £65m, it certainly packs a punch for its size. The firm specialises in technology and digital recruitment, employing 9,000 freelancers across 39 offices in the UK, Europe, the US and Asia. Management has a clear strategy to grow the business and its vision is to be Europe’s market-leading technology and digital talent provider. Could this be a good way to play the technology boom?

The company has grown its top line at a compound annual growth rate (CAGR) of a healthy 8% over the last five years and City analysts forecast a further 11% growth this year. The dividend has been increased from 2.66p to 4.09p per share in that time, a strong CAGR of 9%. The recruiter has made several key earnings-enhancing acquisitions in recent months, as well as undertaking a transformation programme in order to streamline the business and reduce costs, and this should provide further momentum going forward.

Today’s interim numbers look solid. For the six months ended 31 July, revenue rose 12.6% and profit before tax increased 16.8%. The company generated a 24.9% increase in earnings per share and hiked the interim dividend 5%. Performance in the UK was described as “robust in a weaker market,” while results in Asia improved, and European growth was strong. Chief Executive Albert Ellis commented: “We enter the second half of the year on track, well positioned to capitalise further on market opportunities as they arise and confident about the outlook for the remainder of the year.”

Investors should note that recruitment is a cyclical business and that as a small-cap stock, Harvey Nash’s share price can be volatile. Indeed, over the last 2.5 years, the stock has fluctuated between 50p and 120p. However, on a forward looking P/E ratio of 8.2 and dividend yield of 4.7%, I like the long-term risk/reward profile here.

A large-cap alternative

Those who prefer to stick with larger companies, might be more interested in Pagegroup (LSE: PAGE). With 140 global offices, 6,200 staff worldwide, and a market cap of £1.6bn, it is a key player in the global recruitment market. The recruiter’s objective is to expand into less developed recruitment markets, where growth is higher and competition is limited.

Being a larger company, it’s no surprise that Pagegroup’s recent growth has been a little slower than that of Harvey Nash. The company has generated five-year sales growth of 3.3%, with most of the growth over the period coming last year. Similarly, while it also has a solid history of dividend increases, the payout has only been lifted from 10p to 12p over the last five years, a CAGR of 3.7%. The current yield is 2.5%.

Is Pagegroup’s share price any less volatile as a larger company? Not necessarily. After trading as high at 530p in mid-2015, the share price fell to 260p last year after the Brexit vote, roughly the same 50% fall that Harvey Nash experienced. With that in mind, I’d probably prefer to invest in Harvey Nash for its digital exposure and high yield, over its larger peer Pagegroup.

The post This dividend growth stock is trading at an unbelievable valuation appeared first on The Twelfth Magpie.

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

Even though other recruitment services firms may be fretting about the threat Brexit poses to their business models, Harvey Nash’s management is not going to let these concerns slow growth. In a trading update issued today, ahead of the company’s annual general meeting, chairman Julie Baddeley said that the company is actively considering a number of acquisitions to help generate growth, especially in the market for technology digital talent. 

Management expects to make several purchases before the year is over subject to “stringent financial hurdles”.

The pre-AGM statement also notes that the group is performing in line with management expectations for the fiscal year so far despite the geopolitical headwinds including the UK general election. A key measure of contract work in progress is “comfortably ahead of last year”. Considering this statement, it looks as if the firm is on track to meet City expectations for the fiscal year ending 31 January 2018. 

The City is expecting the company to report earnings per share growth of 3% for the financial year, taking pre-tax profit to £9.1m, up from £8.5m last year and earnings per share to 9.1p giving a P/E ratio of 8.8 at current levels. As well as this low valuation, shares in Harvey Nash also support a highly attractive dividend yield of 5.3%. The per share payout of 4.3p is covered more than twice by EPS and analysts are expecting payout growth of 7% next year, giving a dividend yield of 5.7% at current prices.

Committed to the dividend 

Harvey Nash isn’t the only cheap dividend stock around at the moment, larger transport business Stagecoach (LSE: SGC) also looks to be an undervalued income play.

Yesterday’s results from Stagecoach showed just how committed management is to the company’s dividend payout to investors. For the year to 29 April, revenue rose by around 2%, but earnings per share declined from 17.1p to 5.5p thanks to some exceptional charges. 

However, management confirmed that the company’s dividend payout for the year would rise by 4.4% to 11.9p, which is equal to a yield of 6.4% at the time of writing.

After a tough 2016 financial year, City analysts expect Stagecoach’s outlook to improve for the year ending 30 April 2018. As last year’s exceptional charges are not supposed to be repeated, analysts have pencilled-in earnings per share for the year of 21.2p. For the period a dividend payout of 12.2p is expected, giving a dividend yield of 6.6% at current prices. These forecasts also indicate that the dividend payout for the next financial year will be covered 1.7 times by earnings per share. Further, after recent declines shares in Stagecoach currently trade at a forward P/E of 9.9. If it’s income at a reasonable price that you’re after, Stagecoach could be a great buy.

The post Why I think you can rely on these 2 income stars to boost your retirement returns appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended Stagecoach. 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.