In many cases they offer wide margins of safety, as well as impressive growth potential. As such, they may deliver strong returns in the long run that improve your financial situation and allow you to retire earlier than planned.

With that in mind, here are two large-cap stocks that appear to offer bright long-term futures given their current valuations.

Hiscox

International specialist insurer Hiscox (LSE: HSX) released a trading update on Thursday for the first six months of 2019. The company has reduced its pre-tax profit guidance for the period due in part to a deterioration in the insurance market from catastrophe events in 2018. It now expects to deliver a pre-tax profit of between $150m and $170m for the first half of the year, with the majority of this being made up of investment returns that benefitted from market movements in the second quarter.

As a result of its reduced profit guidance, the company’s shares declined by around 5% following the update. With the company now having a lower level of earnings buffer to absorb the impact of catastrophe events ahead of hurricane season, its near-term prospects could be relatively uncertain.

However, with Hiscox’s retail division continuing to deliver impressive growth, it could offer long-term investment potential. The stock now trades on a price-to-earnings (P/E) ratio of around 17, which suggests that it could offer a margin of safety relative to its historic valuation range. Although the stock could experience a volatile near-term period, it has the potential to beat the FTSE 100 over the coming years.

Barratt

Housebuilder Barratt (LSE: BDEV) may also experience a challenging period over the short run. The housebuilding sector faces an uncertain outlook as a result of the political and economic risks facing the UK. For example, government policy towards the sector may change, and this could lead to a more difficult period for industry incumbents. Furthermore, weak consumer confidence may lead to reduced demand for new homes if the Brexit process encounters additional challenges.

However, investors appear to have factored in the risks facing Barratt. For example, it trades on a P/E ratio of 9.4 at the present time, which suggests that it offers a wide margin of safety. The company is also in a strong financial position, with its balance sheet having improved since the financial crisis. This could allow it to overcome a future downturn for the housing market, and emerge in a strong position relative to sector peers.

Therefore, while risks may be elevated at the present time, the potential returns from investing in Barratt could be highly attractive. As such, for long-term investors who are seeking to get rich and retire early, it could prove to be a worthwhile investment.

The post Looking to get rich and retire early? I’d buy these 2 FTSE 100 shares today appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Barratt Developments. 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.

If you haven’t yet made the most that this tax-efficient investment product has to offer, you’ve just over a month to do so. Not much time, sure, so let me give you a helping hand by suggesting two great FTSE 100 shares you should consider buying before April 6.

Profits treble!

Hiscox (LSE: HSX) is a company I’d be happy to load up on right now. It didn’t get off to the best of starts following its ascension to the Footsie in early December, but the insurance giant has fought back in February, its share price up 11% in the month to date.

And brilliant full-year results released this week suggest it can continue its recent revival. The insurance market can be best described as challenging, but Hiscox has remained remarkably resilient despite big claims bills and volatile markets. Gross premiums written boomed 15% in 2018 to $3.8bn, and pre-tax profits subsequently more than trebled year-on-year to $137.4m.

In particular, the company’s thriving retail business provides plenty of reason for celebration. It commented that “we are growing well in our chosen retail segments, and our small market shares mean the size of the opportunity in retail remains immense.” Retail revenues have detonated in recent years and its growing position in the huge US marketplace leaves plenty of sales potential in the coming years.

City analysts certainly reckon Hiscox has plenty more in the bag and are tipping a 156% earnings uplift in 2019 alone, a reading that leaves it trading at dirt-cheap levels, in this case on a sub-1 PEG reading of 0.1.

This isn’t the only cause for celebration, though. With profits powering higher, the number crunchers are anticipating more chunky dividend growth, to 44.4 US cents per share, from 41.9 cents in 2018. A subsequent yield of 2.1% might not be the biggest on the market. But it’s still a white-hot income pick in my book, given the prospect of strong and sustained dividend expansion stretching long into the future.

Stateside star

Another FTSE 100 share worth buying ahead of the upcoming ISA deadline is Experian (LSE: EXPN). It’s  making the headlines today after binning its planned merger with ClearScore on fears that the Competition and Markets Authority would block the move.

I’ve championed the credit score providers before on account off booming revenues in its North American marketplace and I was pleased, therefore, to see that January’s trading update showed improving momentum here. Organic revenues in this critical marketplace rose 12% between October and July, up from 10% in the half-year period.

City analysts are expecting earnings at the firm to rise 4% in fiscal 2019, leading to predictions of a 48 US-cent-per-share dividend, up from 44.75 cents last year.

A consequent yield of 1.8% may be healthy rather than spectacular though. With profits expected to keep booming (and by double-digit percentages in the next couple of years too), like Hiscox, I believe it’s a great income share to buy on expectation of big dividend increases in the years ahead.

The post Calling ISA investors! 2 FTSE 100 dividend growth stocks I’d buy before April’s deadline appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Experian. 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.

With that in mind, here are two FTSE 100 stocks that could generate improving investment performances in the long run.

Improving prospects

Releasing results for the 2018 financial year on Monday was insurance specialist Hiscox (LSE: HSX). Profit before tax tripled to $137.4m, recording a strong underwriting result and experiencing a busy year for claims. Gross premiums written grew by 15%, with double-digit growth recorded in all segments. Its Hiscox London Market returned to growth after three years of disciplined cycle management.

Hiscox Retail wrote over $2bn of premiums and served one million customers for the first time. The company continues to grow well within its chosen retail segments, with its small market shares meaning the size of its growth opportunity remains high.

Looking ahead, the company is forecast to report a rise in net profit of 19% in the current year. This suggests it has a sound strategy, while a price-to-earnings growth (PEG) ratio of 1 indicates it could offer good value for money compared to many of its FTSE 100 industry peers. As such, now could be an opportune moment to buy it after what has been a volatile period for its share price.

Turnaround potential

Also offering growth at a reasonable price is educational specialist Pearson (LSE: PSON). The company has experienced a challenging number of years, with its financial and operational performance having been disappointing. In response, it’s putting in place a revised strategy which includes asset disposals and a focus on digital growth.

So far, its strategy appears to be working well. Recent results showed its financial performance has the potential to improve. In the current year, it’s expected to report a rise in net profit of 12%. Even though its shares have risen sharply in the last year, the stock still offers a PEG ratio of 1.3. This indicates that there may be a margin of safety on offer.

Clearly, Pearson is in a period of intense change which may cause it to have a relatively uncertain outlook. Certainly, there are more stable stocks in the FTSE 100, while a cash ISA offers a significantly reduced risk of loss. However, with the company appearing to be well-placed to benefit from increasing demand for its products over the long run, it could generate impressive returns. As such, from a risk/return perspective, it could hold significant appeal as it delivers on its turnaround strategy.

The post Forget a cash ISA! I think these 2 FTSE 100 growth shares could be a better way to get rich appeared first on The Twelfth Magpie.

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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.

Profit warnings often come in threes. But, so far, the firm has avoided further problems and has delivered results in line with its revised guidance.

Despite this, Saga’s share price remains close to its 52-week low. Today, I’m going to ask whether the stock’s forecast dividend yield of 7.6%, and stable outlook, are enough to make the shares a turnaround buy.

Peak performance?

I’ll come back to Saga in a moment. But first I want to take a quick look at another FTSE 250 insurance firm, Hiscox (LSE: HSX).

Hiscox has two main arms. One part of its business offers specialist commercial insurance against threats such as natural disasters and cyberterrorism. The other operates a retail business providing services such as motor and home insurance.

Shares in the group are down by 6% at the time of writing, despite gross written premiums received rising by 14.3% to $3,043.1m during the first nine months of 2018.

The fall came after chief executive Bronek Masojada warned that premium growth was likely to slow during the remainder of the year. Masojada also flagged up a $125m claims bill for damage caused by recent storms in the US and Asia.

My verdict

I’ve been a fan of Hiscox for some time. But the group’s share price has continued to rise since I last covered the stock. And the stock’s 2018 forecast price/earnings ratio of 20, and dividend yield of 2%, aren’t cheap enough to tempt me to buy.

With interest rates rising, I’d be looking for an entry price of under 1,200p.

The problem with Saga

Getting back to Saga, you may be wondering why I haven’t bought the shares already. After all, a covered yield of 7.6% isn’t to be sniffed at.

One reason why I haven’t hit the buy button is that I already have two other insurance stocks in my portfolio. I don’t want my investments to be too concentrated in just one sector.

Another reason is that Saga appears to be struggling to generate any growth. Underlying pre-tax profit fell by 3.7% to £106.8m during the first half of the year. And although net debt fell by 6.7% to £429.7m, highlighting the group’s cash generation, policy numbers in its core insurance business were unchanged from the same period last year.

Can the shares return to 200p?

Chief executive Lance Batchelor expects Saga’s bottom line to benefit from lower costs and a growing number of customers purchasing multiple products. He’s also optimistic that the firm’s new cruise ship, Spirit of Discovery, will help expand its travel business.

I’m tempted by the firm’s focus on over-50s, many of whom have relatively high levels of disposable income. However, analysts expect Saga’s underlying earnings to fall by 4% to 13.2p per share this year. The total dividend is expected to be unchanged, at 9p per share.

Forecasts for 2019/20 are fairly similar. With no growth on the horizon, I’d suggest that the firm’s shares are correctly priced at about 120p.

However, if Batchelor can restart the group’s growth, then I’d expect the share price to respond well. In that scenario, a share price of 150p-200p would seem fair to me.

The post Could a 7.6% yield help the Saga share price return to 200p? 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.

That said, there are some occasions when holding more than one stock in a similar line of business isn’t necessarily a bad idea. Here’s one example that springs to mind.

Back on track

In my opinion, FTSE 100 insurance giant Aviva (LSE: AV) remains an excellent pick for both growth and income investors.  That’s despite the fiasco that enveloped the company in March after declaring it might cancel its preference shares as part of the strategy to return capital to investors.

Having drawn heavy criticism, this idea was eventually kicked into touch. At the end of April, the £22bn-cap said it would pay out roughly £14m in compensation to holders who sold out after the company’s declaration. Offering a goodwill payment was the “right thing” to do, according to CEO Mark Wilson.

While not exactly great for its reputation, the recent bounce in the share price does suggest that investors have quickly forgiven Aviva. Moreover, the attractions of owning the stock continue to pile up.

With “significant excess capital” on its books, the company recently commenced a £600m share buyback. Since it still looks undervalued at just 9 times forecast earnings, this strikes me as a sound move, as does using the remainder of its £2bn cash pile to reduce “expensive” debt and invest in bolt-on acquisitions. A dividend yield of 5.6% based on today’s share price is also well over four times what you could get from the best instant access cash ISA.

It may be more exposed to global economic wobbles than some but, so long as you’re happy to play the long game, I think Aviva could easily be a core holding for many investors. 

Future FTSE 100 stock?

Those interested in adding more than one insurance company to their portfolio may also wish to take a look at Hiscox (LSE: HSX).

At £4.3bn, the Bermuda-based business is one of the biggest companies in the FTSE 250 index. Assuming recent performance continues, it could eventually push its way into the market’s top tier.

Over the three months to the end of March, gross written premiums grew a little over 20% to $1.16bn. Most of this came from its Retail division, where premiums rose 14% (in constant currency) to just under $573m. Having taken advantage of a “hardening market“, the London Market and Re & ILS divisions also climbed 8.7% to $219.8m and a very solid 42% to $363.1m, respectively.

Despite enduring a horrible 2017 in which profits were severely impacted by hurricanes in the US and earthquakes in Mexico, Hiscox’s share price has climbed 30% over the last 12 months, leaving it trading on 20 times predicted earnings. As well as being a whole lot more expensive to buy, the dividend yield — at just over 2% — is also significantly lower than that offered by Aviva.

With a PEG ratio of just 1, however, it could be argued that the stock is still reasonably priced given that earnings are now expected to recover. This, combined with its decent balance sheet/net cash position, makes me think there are a lot worse companies out there to invest in.

The post Why I’d consider buying this high-flying FTSE 250 growth stock alongside Aviva appeared first on The Twelfth Magpie.

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Paul Summers 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.

Popular defensive sectors such as tobacco and consumer goods can be a good way to reduce the impact of cyclical swings in oil and mining stocks. But I believe it makes sense to go further than this, if you’re hoping to rely on your dividends for income.

One sector I like for long-term income is insurance. In my view it’s hard to see this business ever fading away, as individuals and companies will always have assets that need protection. And a well-run insurer can generate a lot of cash.

A buying opportunity?

The share price of insurance group Hiscox (LSE: HSX) fell sharply when markets opened this morning. At the time of writing they’ve recovered to trade around 4% down on the day.

This sell-off was triggered by a 90% fall in pre-tax profit last year, cutting earnings per share from 119.8p to just 9.3p.

This slump was caused by Hiscox setting aside $225m for disaster claims, mostly relating to US hurricane and wildfire damage last year. As a result of these claims, the group’s return on equity fell from 23% to 1.5% last year, while net asset value fell from 649.9p to 618.6p per share.

These figures may seem grim, but disaster claims are a normal part of business for the group. Hiscox remains well funded and the board was still able to increase the dividend by 5% to 29p per share, giving a yield of 2.2%.

Diversification pays off

Unlike most of its peers, Hiscox operates in both the specialist and retail insurance markets. Its retail division — which offers home and business insurance — generated 56% of the group’s gross written premiums of £2,549.3m last year. Profits from this business exceeded £100m, helping to offset losses elsewhere.

This year we may see this balance reverse. The group’s London Market business — which provides disaster insurance — expects to benefit from rising rates in the wake of so many claims. This could boost profits if claims fall to more typical levels in 2018.

With a 2018 forecast P/E of 17 and a prospective yield of 2.3%, Hiscox stock isn’t cheap. But I believe it could provide a reliable and diverse long-term income with decent growth potential.

Packing a profit

Like it or loathe it, packaging is a necessary part of modern life. Investing in one of the biggest players in this sector could be a good long-term source of income.

FTSE 100 packaging group Mondi (LSE: MNDI) is a big player in the paper and cardboard sector, producing consumer and industrial packaging. The group is expected to report sales of €7,213m for 2017, with an adjusted net profit of €714m.

Adjusted earnings are expected to have risen by 6% to €1.46 per share in 2017. Analysts have pencilled in a 7.6% dividend increase, giving a payout of €0.62 per share. This puts the stock on a 2017 forecast P/E of 14.5 with a yield of 2.9%.

Earnings growth is expected to step up to 10% in 2018, giving a forecast P/E of 13 and a twice-covered forecast yield of 3.2%.

With attractive margins, good cash flow and a strong balance sheet, I believe Mondi could be a profitable long-term buy at these levels.

The post 2 super dividend stocks I’d use to build a second income stream 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.

The reason for this is that IQE is the leading global supplier of advanced wafer products and services to the semiconductor industry and looks to be at an inflection point in its history thanks to the rise of the Internet of Things. The company’s unparalleled breadth of intellectual property and rising customer base across multiple technologies and multiple end markets give it the potential to deliver a massive acceleration of growth in the coming years. Indeed, chief executive Drew Nelson said recently: “IQE’s outlook has never looked better.”

Attractive risk-reward proposition

City analysts see modest EPS growth for the current year, an acceleration to over 20% next year and then in excess of 100% in 2019. At a share price of 140p, the current-year price-to-earnings (P/E) ratio is 43, but if the projections for 2019 are on the mark, the P/E comes down into the teens.

Some investors believe the valuation is too expensive but I think the potential for growth is of such magnitude that the shares are well worth buying at the current price. What I particularly like about the risk-reward proposition here is that it’s not a binary blue-sky bet. The company is profitable and growing, which means that even if growth doesn’t come through at the rate forecast, a de-rating of the shares appears a more likely outcome than a total collapse.

Excellent record

International specialist insurer Hiscox (LSE: HSX) is another company that’s more than doubled its earnings in five years, EPS having increased 126% since 2012. Its share price has risen 140%, largely reflecting the growth in earnings.

In a trading update released today, covering the nine months to 30 September, the company reported a 12.4% increase in gross written premiums to £2.1bn, with a strong performance across all segments. Successful and conservatively-managed, Hiscox reminded us that, in what has been an historic year for major catastrophes, “our long-held strategy of balance and diversity was built for this environment, as our retail businesses provide stability when volatility impacts the big-ticket areas.”

Management’s previous early estimates for net claims of $225m for Hurricanes Harvey and Irma have proved to be prudent, with that sum now estimated to also cover claims for Hurricane Maria. Of course, this will hit this year’s profits, but after a decade of rate reductions in this area of business, the company is seeing signs of a hardening market, which bodes well for the future.

Looking ahead to 2018, City analysts are forecasting EPS of 76.5p, giving a P/E of 18.4 at a current share price of 1,410p. Hiscox may not have the supersonic potential of IQE, but with an excellent record of earnings and dividend growth (the running yield is 2%), as well as a strong balance sheet, this is a business I’d be happy to buy a slice of.

The post IQE plc isn’t the only stock that’s doubled its earnings in 5 years 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.

Dividend growth

Lloyd’s of London insurer Hiscox (LSE: HSX) is one such example. The Bermuda-incorporated insurer is set to lift its interim dividend by a penny per share to 9.5p, in a move which brings it closer to fulfilling management’s target dividend growth of 15% this year. This gives shares in Hiscox a prospective yield of 2.4% at the current share price.

The insurer said this morning that the net premiums earned during the six months to 30 June rose by 22% to £936.6m. This helped pre-tax profits, in constant currency terms, to climb 12% against the same period last year, to £133.5m.

When foreign exchange movements were taken into account, the figures looked a lot less cheerful as statutory pre-tax profits fell by more than half to £102.6m. However, it’s important to remember that currency volatility is only a short-term issue. Long-term fundamentals remain broadly intact, with the underlying combined ratio (a key measure of underwriting profitability), up by just 1.5 percentage points, to a still impressive 89.9%.

One of the key attractions of Hiscox is its growing retail business, which once again was its standout performer. The growth in retail continues to offset much of the weakness from its specialist London insurance business. Gross written premiums there declined 8% in the first half, compared to a 27% increase from the retail segment.

That’s because the pricing environment for larger premium, catastrophe-exposed lines remains tough as rating pressure continues amid excess underwriting capacity and historically low loss ratios. On the upside however, Hiscox had minimal exposure to some high-profile losses in the industry this year, including the Grenfell Tower fire and Cyclone Debbie, which hit Australia in March.

Demographic shift

Elsewhere, newly-listed Impact Healthcare REIT (LSE: IHR) could be a great pick for investors looking for long-term exposure to the property market. As an investor in residential care homes, this REIT looks set to benefit from two ongoing tailwinds, namely an ageing population and the chronic shortage of suitable properties for caring for the elderly.

The REIT’s property portfolio currently consists of 57 residential care homes, following the acquisition of the Seed Portfolio and Saffron Court in Leicester in May and June, respectively. And as is typical for the sector, Impact Healthcare benefits from long lease terms with upwards-only annual RPI-linked rent reviews. This enables the REIT to earn steadily-growing income and gives it significant protection against a potential downturn in the property market.

Looking ahead, the company sees a strong pipeline of attractive new potential investment opportunities, which includes further acquisitions and asset management opportunities. Subject to financing, it is set to move forward with plans to expand three of its existing homes to create 92 additional beds. With no debt in place at present, Impact Healthcare surely has plenty of potential for growth.

Shares in the REIT currently trade at a 5% premium to its net asset value, with a prospective dividend yield of 5.8% this year.

The post 2 dividend stocks for the long haul 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.

The shares had already risen by 46% this year, before news of the bid emerged, but bidders Blackstone and CVC Partners clearly still see value in the stock. I think the lesson here is that private buyers will often take a longer view and be willing to pay more for a company’s future earnings than stock market investors.

Today I’m going to look at two other financial stocks. I believe both of these firms could become bid targets, despite having delivered big price gains over the last year.

Surplus cash

FTSE 250 insurance group Beazley (LSE: BEZ) has risen by 33% so far this year. The group provides a range of specialist insurance services for corporate customers and asset owners. Although companies in this sector have faced soft trading conditions in recent years, several have been taken over at attractive premiums.

It’s easy to see why. Although the gross premiums written by the company only rose by 2% to $1,149.3m during the first half of this year, pre-tax profit rose by 6% to $158.7m. The group was able to release $83.4m of “prior year reserves“. This is money that was set aside to pay out for claims last year but which has not been needed.

Much of this cash will be returned to shareholders in the form of dividends. For example, last year Beazley released $180.7m of prior year reserves and paid dividends totalling about $108m.

Today’s interim results suggest that the company is successfully defending its profit margins. Renewal rates on existing policies fell by 2%, but the group’s earnings per share rose by 17% to 20.2p. The group has also opened a new Dublin-based company to ensure that Brexit doesn’t disrupt its European operations.

Beazley stock currently trades on a forecast P/E of 15.5, with a prospective yield of 3%. This may not seem cheap, but for income investors willing to take a long view, I believe it offers good value. There’s also the possibility of a takeover bid.

A better alternative?

Rival group Hiscox (LSE: HSX) has had a more buoyant start to 2017, recording a 17.3% rise in gross written premiums during the first quarter. The group said its retail operations — selling insurance to consumers and small business — was responsible for most of the gains.

Retail growth is helping to offset declines in the group’s marine and property business, where it is seeing “single-digit rate decreases across the board”. Like Beazley, Hiscox is establishing a new EU-based company to make sure that it doesn’t lose access to European markets after Brexit.

Hiscox’s strong retail growth has encouraged investors to award the stock a higher rating. The shares currently trade on a 2017 forecast P/E of 20, falling o a P/E of 18.5 for 2018. Interestingly, the company didn’t declare a special dividend for 2016, choosing instead to retain spare cash to help fund growth.

Analysts currently expect Hiscox to pay a total dividend of 29.2p per share for 2017, giving a forecast yield of 2.1%. I’d continue to hold this stock, but would probably prefer to buy Beazley today.

The post Why these ‘overvalued’ dividend stocks could be takeover targets appeared first on The Twelfth Magpie.

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• 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?

Roland Head 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.

Finding shares that offer a mix of income potential and capital growth prospects is never easy. What makes it more difficult at the present time is the fact that the FTSE 350 has risen by 20% in the last year. Therefore, valuations are higher, margins of safety are narrower and capital gain potential is more limited. Despite this, there are numerous stocks which could be worth buying for the long term. Here are two prime examples.

Sound strategy

Reporting on Tuesday was specialist insurer Hiscox (LSE: HSX). The company’s update was rather mixed, with parts of its business performing well and others less so. However, its decision to invest heavily in retail operations seems to be paying off. Hiscox Retail reported a rise in gross written premiums of 29.7%. This was aided by strong performance in the US, Europe and in its Special Risks segment. In the UK and Ireland, Hiscox Retail reported a 13.9% rise in gross written premiums, which was a strong result given difficult operating conditions.

Progress, however, was offset to some degree by the performance of Hiscox’s London Market segment. While disappointing on a relative basis, its increase in gross written premiums was 0.4%. As such, the decision to invest in its Retail operations seems to be paying off, while a disciplined approach to its slower-growth markets should ensure they do not act as a major drag on its future financial and share price performance.

With a dividend yield of 2.5% which is covered 2.3 times by profit, Hiscox appears to be a relatively enticing income stock for the long term. Its bottom line is due to rise by 9% in the next financial year, which makes its price-to-earnings growth (PEG) ratio of 1.7 appear fair. As such, its long-term total returns could be relatively impressive even with the FTSE 350 trading at historically high levels.

Growth potential

Also offering scope for a higher dividend in future years is transaction specialist Paypoint (LSE: PAY). It currently yields 4.7% from a dividend which is covered over 1.3 times by profit. Alongside earnings growth forecasts of 6% in each of the next two financial years, this suggests an inflation-beating rate of dividend growth could be ahead for the business.

Furthermore, Paypoint continues to offer value for money even after its 22% share price gain during the course of the last year. It has a price-to-earnings (P/E) ratio of 15.8, which suggests there may be upward re-rating potential.

One catalyst to do so could be the tailwind the company is set to experience over the medium term. With the payments industry becoming increasingly digital and consumers demanding faster, more secure and easier methods of payment, there are likely to be growth opportunities for Paypoint in future years. As such, now could be the perfect time to buy it ahead of a potentially more profitable period.

The post 2 FTSE 350 income shares I’d buy with £1,000 right now appeared first on The Twelfth Magpie.

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• 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?

Peter Stephens has no position in any shares mentioned. The Motley Fool UK owns shares of PayPoint. 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.