Indeed, many FTSE 250 firms keep growing and eventually end up in the FTSE 100 index. I think the following two firms are attractive and offer some diversification between sectors.

Infrastructure

HICL Infrastructure (LSE: HICL), as its name suggests, invests in infrastructure projects and businesses. The firm’s portfolio includes public-private partnerships, regulated and demand-based infrastructure. Some 117 investments are spread across countries such as the UK, Australia, Canada, France, Ireland and the Netherlands. We are talking about things such as schools, hospitals, roads, rail and facilities for the fire and police services.

I reckon the sector is likely to be steady in the years to come and one of the main things I like about the share is the dividend yield, which is running close to 5% with the share price at 157p. The firm has a good record of raising the payment a little each year.

In May, the directors said in the annual report that despite the current political and regulatory uncertainty in the UK infrastructure market, they think the company’s business model will deliver further returns for shareholders in the coming years. Right now, you can pick up a few of the shares on a price-to-earnings (P/E) ratio around 11 and a price-to-book rating near one, which strikes me as fair value.

Engineering and manufacturing

IMI (LSE: IMI) is a specialist engineering company that designs, manufactures and services products for controlling the movement of fluids. The firm works with industrial customers in “high-growth” sectors such as energy, transportation and infrastructure. It has manufacturing facilities in more than 20 countries and operates a global service network. 

I find the dividend yield running near 4% to be attractive and the firm has a good record of raising it a little each year. There is a strong focus on quality and the directors are aiming for excellence in the execution of the company’s operations. I reckon such an approach could drive further returns for shareholders in the years to come.

This summer, a new chief executive is due to get his feet under the desk in the top office. I think a change at the head of any business can be a positive thing, often marking the start of new drive and determination in the board room, which could serve shareholders well.

With the share price at 1,032p, the P/E rating is running around 14. I don’t think the valuation is excessive given the quality of the enterprise. I’d be happy to add both of these shares to a diversified portfolio because of their dividend-paying credentials and growth potential.

The post Building a second income? 2 FTSE 250 dividend stocks I’d buy and hold today appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended IMI. 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.

At the current share price, Saga trades on a forward-looking P/E ratio of around 5. That’s certainly a low valuation. However, I’m still not tempted to touch the shares. In my view, the group has lost the trust of its customers, and I think it could take a while to turn things around. I also tend to steer clear of companies that have just cut their dividends. So I’ll be leaving Saga shares alone for now.

Positioned for growth

One FTSE 250 dividend stock that does look quite interesting to me right now is Workspace Group (LSE: WKP). It’s a real estate investment trust (REIT) which focuses on co-sharing office space for early-stage companies in London. It currently owns and operates around 65 properties in the capital, and is home to around 4,000 smaller companies.

The main reason I like the look of Workspace is that London’s start-up scene is absolutely booming right now. For example, last year alone nearly 220,000 new businesses were registered in the capital. As start-ups grow, they need access to office space and meeting rooms, and this is where Workspace comes in. It offers leases on flexible terms, as well as all the features that start-ups are looking for such as access to super-fast internet, cafes, and co-working space, meaning it is well placed to benefit as London’s start-up scene continues to advance.

Workspace shares have been dragged down by Brexit uncertainty recently and I think this has created a buying opportunity. Trading on a forward P/E of around 19 and offering a prospective dividend yield of 4.2%, I see considerable long-term investment appeal here.

Excellent dividend track record

Another under-the-radar dividend stock within the FTSE 250 that has piqued my interest is HICL Infrastructure (LSE: HICL). This is an investment company that focuses on infrastructure and currently has nearly 120 investments in projects such as roads, railways, hospitals and schools across the UK, Australia, Canada, France, Ireland, and the Netherlands.

What appeals to me about HICL is the stock’s dividend yield and excellent dividend growth track record. The yield is a high 5%, which is no doubt attractive in today’s low-interest-rate environment, and since paying a maiden dividend in 2007, the group has increased its payout for 12 consecutive years which is a fantastic achievement. Moreover, the company recently reaffirmed its dividend targets of 8.25p per share for next year and 8.45p for the year after, meaning further dividend growth looks likely.

HICL shares currently trade on a forward-looking P/E ratio of just 11, which to my mind is a very reasonable valuation. With the company recently telling investors that the board and investment manager are “confident in the outlook” I see the shares as a ‘buy’.

The post Saga shares? I’d rather buy these FTSE 250 dividend growth stocks 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.

One popular share research website that I use likes to label companies displaying attractive value, quality and momentum indicators as super stocks, and right now HICL falls into that category.

Attractive-looking figures

There’s a lot to like. For example, with the share price close to 159p, the dividend yield sits close to 5%. Over the past five years, we’ve seen the dividend grow by around 16%, which shows steady if unspectacular progress. But over the same period, the shares have risen about 17%. Combining dividend income with capital appreciation from the rising share price adds up to a reasonable total return for shareholders.

Meanwhile, the forward-looking price-to-earnings ratio sits just below 11 for the trading year to March 2020, and the price-to-tangible-book value is close to one. I don’t believe the company is over-valued by the share price. And I think the infrastructure sector, in general, can be fertile ground for HICL to find cash-generating investments with defensive qualities.

The firm has around 117 investments spread across countries such as the UK, Australia, Canada, France, Ireland and the Netherlands. Investee companies and projects include underlying assets such as schools, hospitals, roads, rail and facilities for the fire and police services.

Nipping and tucking

Today’s results reveal that the firm’s net asset value rose 5% over the period and the directors increased the total dividend for the year by just over 5%. HICL doesn’t just buy and hold investments indefinitely. The company will buy and sell to maximise overall returns and describes making five “value-accretive” investments during the year that were “partially” funded by making two disposals aimed at taking advantage of “favourable market conditions.”

In a snapshot of the kind of activity that goes on in the portfolio, HICL says in the report that £29m of “value enhancements” occurred during the year, including reaching milestones in the construction of the A9 road and Breda Court, which are both in the Netherlands, and Irish Primary Care Centres in the Republic of Ireland.

The company has just switched from being domiciled in Guernsey to the UK. Looking forward, the directors think the firm is “well positioned” to trade through the potential economic effects of Britain’s exit from the European Union because of its “increasingly diversified portfolio, good inflation correlation and relative insensitivity to changes in the UK GDP growth rate.”

On top of that, HICL has a “healthy, diverse” acquisition pipeline and the directors are “confident” about the outlook for the company. I think the infrastructure sector is an attractive place to invest right now and would be inclined to invest in the shares of HICL with an investment horizon of at least five years in mind.

The post Why today’s news from this FTSE 250 super stock keeps me keen appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in 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.

Here’s a heads-up on three such super stocks I’d be happy to buy right now – two from the FTSE 100 and one from the FTSE 250.

Infrastructure investment

HICL Infrastructure (LSE: HICL) focuses on investing in companies and projects around the theme of infrastructure, as the name suggests. The firm’s market capitalisation close to £2.9bn puts it in the FTSE 250, but the business is growing. Right now, it has around 117 investments in countries such as the United Kingdom, Australia, Canada, France, Ireland and the Netherlands.

Examples of the kind of investment the firm makes include schools, hospitals, roads, rail and facilities for the fire and police services, which is all good everyday stuff capable of generating steady returns for HICL. With the share price close to 160p, the dividend yield is running just above 5%, the price-to-earnings (P/E) rating is around 12, and the shares trade around tangible book value. I think the firm has the makings of a decent long-term hold for me.

Software

International software company Micro Focus International (LSE: MCRO) describes itself as an “infrastructure software company with global scale” and claims to be the seventh largest software company in the world. The share price tumbled last year following a profit warning after the firm experienced difficulty digesting its big acquisition of Hewlett Packard Enterprises’ software business. However, operations appear to have steadied from their wobbles and the share price is bouncing back.

At the recent 1,875p, the share price throws up a forward-looking P/E rating of just under 10 for the current trading year and the anticipated dividend yield is a little under 5%. Despite the come-back, I think the company still displays good value and holding the shares could work out well for me over the long haul.

Private equity and infrastructure investment

3i Group (LSE: III) buys, improves and then sells smaller companies and also makes infrastructure investments, mainly focused on the geographies of northern Europe and North America. Last Thursday’s full-year results report from the FTSE 100 firm revealed another period of decent returns

The outlook is positive, with the company saying in the report it’s positioned with significant “growth potential combined with good defensive characteristics.” The directors are “confident” that the firm’s strategy of using a “disciplined but opportunistic” approach to business will deliver “superior” ongoing returns for shareholders.

I like the tone of the language in the report, especially the use of the word ‘confident’ rather than the wishy-washy ‘convinced’ we often see in director-speak. I think the outlook statement works well with a low valuation to make a convincing case for me to invest here. At the recent share price close to 1,087p, the P/E rating runs at just over eight and the dividend yield is close to 3%.

The post 3 cheap FTSE 350 big-dividend-paying super stocks I’d buy today appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Micro Focus. 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 FTSE 250 contains a number of companies most of us have never heard of. They operate behind the scenes of industry and commerce but are still sizeable, important businesses.

Today, I want to look at two such companies in that index, both of which I think have impressive and overlooked income qualities.

Protecting you from disaster

Specialist insurance group Beazley (LSE: BEZ) isn’t a company who will insure your car. But if you own large assets that need protection from risks including natural disasters, cyber-attacks, and terrorism, then Beazley might be able to help.

Pre-tax profit fell 55% to $76m at the £3bn firm last year, as its policies paid out claims for US hurricane damage, Californian wildfires, and Japanese typhoons. However, I’m pleased to see the group has remained profitable despite those high level of claims last year.

The good news is that higher levels of claims tend to support price rises which, in turn, support future profit growth. That certainly seems to be true here. The rates charged on policy renewals rose by 3% in 2018, compared to a 1% fall in 2017.

Dividends + growth

Beazley is also continuing to expand, most notably in the US. Gross premiums written — the value of all insurance sold by the firm — rose by 12% to $2,615m last year. The US business underwrote more than $1bn of premiums for the first time.

The company’s dividend will rise by 5% to 11.7p per share this year, giving a useful 2.2% yield. Because of the high level of claims, no special dividend will be paid. However, these payouts provide a useful boost in quieter years. For example in 2016, shareholders received a special dividend of 10p per share on top of the ordinary payout.

In my view, insurance dividends such as these are a good way to diversify your portfolio. After today’s figures, I’d continue to rate Beazley as a long-term buy for income and growth.

The ultimate long-term income?

Another dividend stock I rate highly is HICL Infrastructure (LSE: HICL). This investment portfolio invests in projects such as roads, schools, hospitals and utility businesses in the UK and other developed markets.

It’s set up to deliver reliable long-term cash flows, most of which are returned to shareholders in the form of dividends.

At the time of writing, HICL’s stock was trading at 165p, slightly above its net asset value of 156p per share. This suggests the stock is fully priced, but the shares still offer an attractive forecast dividend yield of 4.9% for 2019.

The structure of the group’s investments means that the income they provide tends to rise with inflation. This has been reflected in HICL’s dividends, which have risen by an average of 2.4% per year since 2013.

In my opinion, this is an excellent buy-and-hold stock for investors wanting a reliable income from long-term assets.

The post £3k to invest? 2 ‘hidden’ FTSE 250 dividend giants I’d buy and hold for 10 years 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.

However, I have doubts about the sustainability of the dividends of many of these mega-yielders. I’m much more interested in seeking out opportunities to buy into strong businesses, with decent yields and good prospects of delivering dividend growth long into the future. Here are three companies I reckon fit the bill and that I’d be happy to buy a slice of today.

Long-life assets

HICL Infrastructure (LSE: HICL) is an investor in infrastructure assets, such as schools, hospitals, libraries, barracks, roads and rail. It has more than 100 projects in its portfolio, providing it with long-term, stable and predictable cash flows, often with good inflation correlation. Its latest half-year results showed 64% of income coming from the UK, 16% from Europe, 16% from North America and 4% from Australia.

Since listing on the stock market in 2006, the company’s annual dividend has increased 32%. In the half-year results, the board said it’s on target to deliver an 8.05p dividend for its current financial year ending 31 March 2019. This would be a 5.1% uplift on last year and give a yield of around 5% at the current share price. I’m not concerned by the rise of rhetoric about nationalisation of infrastructure assets in UK political circles, because I’m confident that if HICL were to lose any of its assets, it would have to be fairly compensated.

Inflation-smashing dividends

National Express (LSE: NEX) is another FTSE 250 stock I’m keen on right now. This long-established transport provider will be well known to UK readers, but what you may not know is that more than 80% of its operating profit comes from overseas. In addition to the UK, it provides bus and coach services in North America, Spain and Morocco, as well as rail services in Germany.

As my colleague Alan Oscroft commented, covering its latest solid trading update, the company has been “paying attractive dividends for years, [and]its annual rises have been coming in way ahead of inflation too.” City analysts are forecasting another inflation-smashing rise for the current year — namely, a 10% increase to 14.86p, giving a yield of around 4%. A further hefty uplift in the payout is pencilled in for 2019, raising the yield to 4.4%.

Healthy returns

My third FTSE 250 dividend pick for 2019 and beyond is Primary Health Properties (LSE: PHP). This company invests in the freehold or long leasehold of modern purpose-built healthcare facilities in the UK and Ireland. Its portfolio consists of over 300 facilities. The majority are GP surgeries, and other properties are let to NHS organisations, pharmacies and dentists. With most of its rental income coming directly or indirectly from a government body, and subject to upward-only or indexed rent reviews, this is a low-risk, long-term and non-cyclical business.

The company has delivered 21 successive years of dividend growth, and City analysts expect this to continue with a 2.9% increase this year to 5.4p, and a similar rise in 2019. At the current share price, this gives a yield of a little under, rising to a little over, 5%.

The post My top FTSE 250 dividend picks for 2019 and beyond appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Primary Health Properties. 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.

Today, I’m going to look at three FTSE 250 stocks which fit this description. Each firm offers a dividend yield of at least 5%.

Water and waste

Arguably, nothing is more fundamental to modern life than the supply and management of water, waste and recycling. Western society could not function without these services. My favourite stock in this sector is Pennon Group (LSE: PNN), which owns South West Water and recycling and waste management firm Viridor.

I like the group’s twin focus on water and waste. The regulated income provided by South West Water should be regular and highly predictable. Alongside this, I believe waste management and recycling offer opportunities for growth. This potentially allows Pennon shareholders to enjoy the best of both worlds.

Tuesday’s half-year accounts suggested that this formula is still working well. Revenue rose by 3.1% to £746.7m during the period, while pre-tax profit was 2.9% higher, at £133.6m. A lower tax bill helped boost post-tax profit, lifting earnings per share by 17.4% to 25.6p.

Shareholders will be rewarded with a 7.3% dividend increase, which puts the stock on track to deliver a yield of almost 5.5% for 2018/19. In my view, Pennon shares rate as an income buy.

Global infrastructure

If you want exposure to a wider range of infrastructure projects in the UK and overseas, HICL Infrastructure Company (LSE: HICL) might be a better choice. This £2.9bn market cap firm invests about 71% of its cash in the UK, with the remainder spread across the EU, North American and Australia.

Projects include hospitals, schools, roads, wind farms and water treatment facilities. The average asset life is 30 years, providing good long-term visibility for income. The fund’s net asset value per share was 156.4p at the end of September, broadly in line with HICL’s share price.

Many of the firm’s projects provide contracted income streams that rise each year with inflation. This is reflected in HICL’s dividend, which has kept pace with inflation for a number of years.

The stock offers a forecast yield of 5% for the current year. Trading on 12 times forecast earnings and at 1x book value, I think the price is fair. I’d be happy to buy at this level.

A cash machine?

My final choice is a company that owns long-term financial assets which generate fairly predictable cash flows. Phoenix Group Holdings (LSE: PHNX) is an insurance firm which specialises in buying up closed books of life assurance policies from other insurers, and running them to completion.

The group recently took a step up in size when it acquired the life assurance business of Standard Life Aberdeen for £2.9bn. This deal is expected to generate an extra £5.5bn of cash flow, including £1bn between 2018 and 2022.

Management expects this improved cash generation to support continued dividend growth. Analysts’ forecasts suggest a payout of 46p per share this year, giving Phoenix stock a forecast dividend yield of 7.6%.

For investors who want to receive the majority of their shareholder returns in the form of cash income, I believe Phoenix could be a good long-term buy.

The post Have £3,000 to invest? Three FTSE 250 dividend stocks I’d buy today and hold forever 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 recommended Pennon Group and Standard Life Aberdeen. 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.

Keeping that in mind, I reckon would-be investors should instead consider an emerging alternative investment class — infrastructure. In a volatile environment where yields are under pressure and capital growth is scarce, infrastructure investments can offer an attractive combination of both dependable income and inflation-linked growth.

Investment trusts

Infrastructure investment trusts have proved extremely popular with investors in recent years, and that attraction has certainly continued into 2018. Market sentiment towards many infrastructure investment trusts has picked up strongly in the second half of the year, following a slight dip in confidence within the sector in the immediate aftermath of Carillion’s collapse.

For example, the HICL Infrastructure Company (LSE: HICL) saw its share price gain by nearly a fifth to 159p a share, from a 52-week low of 133p on 9 April. With the rise, shares in the infrastructure company currently earn investors a prospective dividend yield of 5.0%, on its target dividend per share of 8.05p for the full year.

The company, which invests in a mix of public-private partnership (PPP) infrastructure projects, earns stable cashflows from essential physical assets, such as hospitals, schools, roads and utility facilities.

Carillion’s liquidation

Carillion’s liquidation had hit HICL harder than most, as the facilities manager and construction contractor was its biggest counterparty, involved in 15 of its 115 PPP projects. The company booked a 2.2% reduction in its net asset value (NAV) earlier this year, but has since made solid progress resolving the consequences of the Carillion’s collapse.

Commercial terms have been agreed with long-term replacement facilities management subcontractors on six projects, with negotiations on a further three projects progressing. Overall indicative pricing on the replacement subcontracts was in line with its expectations and, as such, no further impact to its NAV is expected at this stage.

Meanwhile, shares in HICL are trading at a considerably smaller premium to its NAV than in the past. Although the shares have trended considerably higher over the past few months, its premium to NAV is just 6%, which is just over half its five-year average historical premium of 11%.

Infrastructure debt

Another trust to consider is GCP Infrastructure Investments (LSE: GCP). Unlike HICL, GCP Infra doesn’t invest in equity stakes in infrastructure projects, but instead in the debt issued by infrastructure projects.

As a buyer of debt, as opposed to equity, this investment trust offers a potentially less risky way to get exposure to the infrastructure asset class. Firstly, there’s substantially less operational risk involved, since equity holders, being the residual claimants of a company’s assets, usually take the first hit from any impact on profits. Meanwhile, the income earned from loans-to-infrastructure projects is generally still secured by public sector-backed cash flows. And, where possible, investments are structured to benefit from partial inflation protection.

Trading at a 10% premium to its NAV, GCP Infra currently offers a prospective dividend yield of 6.1%. With that, it’s not trying to shoot the lights out — but just to deliver a steadily increasing dividend, with low risk, some inflation protection, and low correlation against other asset classes.

The post Forget buy-to-let! These infrastructure investments yield up to 6.1% appeared first on The Twelfth Magpie.

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Jack Tang 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.

From premium to discount

HICL ended the year with investments in 116 infrastructure projects, up from 114 at the previous year-end. Investments in public private partnership (PPP) projects — for example, schools and hospitals — represented 74% of the portfolio by value. Demand-based assets (e.g. toll roads) accounted for 18% and regulated assets (e.g. water) for 8%. Geographical diversification was of the order of: UK (80%), Eurozone (10%), North America (7%) and Australia (3%).

The shares are trading at 144p, a tad lower on the day, and considerably lower than their all-time high of 184p, achieved less than two years ago. Over that period, NAV per share has increased from 142.2p to 149.6p and the annual dividend from 7.43p to 7.85p. As such, the shares have moved from a 29% premium to NAV to a 4% discount and the dividend yield has increased from 4% to 5.5%.

Too pessimistic

I believe market sentiment has become overly pessimistic about the PPP sector, notably as a result of the collapse of Carillion. As far as HICL is concerned, despite Carillion being the group’s largest facilities management counterparty (10 projects and 14% of the portfolio by value), the hit as at 31 March was a reduction in NAV representing just 2%. This shows the value of HICL’s diversification and the company and its co-investors appear to be well advanced in transitioning the 10 projects to new long-term facilities management subcontractors.

HICL notes that in the current environment, the outlook for private investment in new UK infrastructure projects is muted. However, longer term, I believe the value of private capital in UK infrastructure investment will prevail. And with HICL continuing to see opportunities in Europe and North America, I rate the stock a ‘buy’ at its current depressed price.

Strong recovery in prospect

Insurer Lancashire(LSE: LRE) is another FTSE 250 firm that I hold in high regard but that has also been out of favour with investors recently. It’s current share price of 614p compares with a 52-week high of 760p. The company has a history of paying out almost all of its profits in dividends to shareholders and despite the recent weakness of the shares, it’s delivered a 10-year total shareholder return of over 15% per annum.

Lancashire was hit by heavy catastrophe losses from hurricanes and wildfires last year. However, good insurers take such occasional but inevitable setbacks in their stride. Lancashire has done so, and first-quarter results released earlier this month show the company is taking full advantage of a more favourable underwriting environment.

City analysts are forecasting earnings per share this year of $0.63 (47.4p at current exchange rates) and a dividend of $0.45 (33.8p). At the current share price, the price-to-earnings ratio of 13 and dividend yield of 5.5% represent great value in my book. As with HICL, Lancashire is a FTSE 250 stock I’d happily buy today alongside some select FTSE 100 dividend champions.

The post Why I’d buy these FTSE 250 stocks with 5.5% yields appeared first on The Twelfth Magpie.

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G A Chester 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.

I believe the market has overreacted in the case of this trio of companies and that now could be a great opportunity to buy a slice of what I view as very attractive businesses for long-term investors.

Discount prices

The shares of HICL, INPP and JLIF are 20%, 12% and 19% below their 52-week highs and down 11%, 7% and 9% from the day before Carillion went into liquidation on 15 January. The table below shows net asset value (NAV) and dividend data for the three firms.

As you can see, HICL and JLIF are now trading at discounts to NAV and INPP at a small premium. All three companies offer generous dividend yields, based on their trailing 12-month payouts. All three have also issued updates since Carillion’s collapse. How do these bear on their valuations?

The Carillion factor

HICL: Carillion provided facilities management (FM) to 10 (14% by value) of the 116 projects HICL is invested in. It was not the contractor on any of HICL’s current construction projects, but there are five projects where Carillion was the original construction contractor and, at the time of the liquidation, held responsibility for latent defect risk. Based on current information, HICL estimates the adverse impact of the Carillion factor to be 2.8p of NAV per share (1.8%).

INPP: Carillion provided FM to 3% by value of the 127 projects INPP is invested in. It currently anticipates the adverse impact to be a negligible 0.01p of NAV per share.

JLIF: Carillion provided facilities management to nine (8.5% by value) of the 63 projects HICL is invested in. It was not the contractor on any of JLIF’s current construction projects but there is one project where Carillion was the original construction contractor and held responsibility for latent defect risk. Based on current information, JLIF estimates an adverse impact on NAV of £3m, which I calculate as 0.3p a share per share (1.8%).

Storm in a teacup?

All three companies had been aware of the issues affecting the construction and FM  giant for some time and had made contingency plans in the event of liquidation, which they’re now implementing. Principally, this concerns the appointment of replacement facilities managers.

HICL faces the biggest impact on its NAV (albeit not very big at all) and I’m encouraged by two factors to think we’re looking at something of a storm in a teacup. HICL has said: “The Board is confident that this analysis does not change the dividend guidance that the Company has published for the current financial year and the two subsequent financial years.” The other encouraging thing is that last Friday two directors and two senior managers bought shares totalling about £250,000.

With all three companies’ shares trading well down from their 52-week highs and sporting generous dividend yields, I believe now could be a good time to buy.

The post The fall of Carillion has created a buying opportunity in these 3 stocks appeared first on The Twelfth Magpie.

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G A Chester 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.