Last year’s dividend was raised by 5.2%, after an 8.2% hike the year before, and forecasts suggest a further 4.9% uplift this year followed by 6.5% for the year to March 2019.

That would be very attractive even with relatively low current yields, but Hogg Robinson is way ahead of that too, with forecasts suggesting yields of 3.5% this year and 3.8% next.

The firm, which describes itself as a “global B2B services company specialising in travel, payments and expense management,” revealed first-half results on Thursday which were pretty much in line with expectations.

New growth strategy

With revenue down 1% (5% at constant exchange rates) and underlying pre-tax profit down 7% (10% at CER), underlying earnings per share dropped 6% — but that was put down mainly to the rollover impact of some client losses and sales slowdown, together with “planned investment in strategic priorities.“

The interim dividend was lifted by 6%, while net debt dropped by £0.9m to £30.1m — and I’m not really bothered by a debt figure of that level for a company with a market cap of £250m.

Chief executive David Radcliffe called it “early and positive results from our new strategy for growth, the first phase of which has seen us invest in the future of our business,” adding that the firm has enjoyed “a pleasing number of new blue-chip client wins.“

We’re looking at a forward P/E of 11.3 this year, dropping to 9.3 next year when EPS is predicted to grow by 21%, and that looks like bargain territory to me.

Faster rises

There’s an even more impressive dividend progression on show from Grainger (LSE: GRI), the UK’s largest listed residential landlord — though it’s currently offering more modest yields.

Grainger paid out 2.04p per share in dividends in 2013, and just three three years later the annual payment had more that doubled to 4.5p (and that was covered four times by earnings). Forecasts indicate further rises of 9.1% this year and a whopping 15% next year.

Granted that would provide a yield of only around 2%, largely because the share price has soared by 150% over the past five years, but it’s setting the scene for an income stream which could compound nicely in the coming years.

Expansion

The firm’s latest news is of a private rented sector acquisition after it exchanged contracts to forward fund and acquire Gilder’s Yard in Birmingham, which comprises 156 new purpose-built rental homes, for approximately £28m. Grainger expects to earn a gross yield of 7% over cost once the development is stabilised.

That comes after the £30.5m acquisition of a 139-home rental development in Milton Keynes, and a build-to-rent project of 375 homes in Salford for £80m, both in August.

At the interim stage at 31 March, net debt stood at £791m, but a loan-to-value ratio of 36% means I’m happy enough with that, and a reduction in cost of debt to 3.6% (from 3.9% six months previously) is satisfying.

Net rental income in the period grew by 11%, with pre-tax profit up 13%, and I see the firm’s strategy of cost-effective expansion as very attractive for a long-term investment. I see a serious cash cow in the making.

The post 2 inflation-busting dividend stocks I’d buy today 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.

Emerging growth

Today’s full-year results are encouraging. In constant currency exchange rate terms, underlying operating profit lifted by 2%, profit before tax rose 4% and earnings per share shot up 8%. The directors underlined this positive outcome with a 5% hike in the dividend.

Embedded within these results is the performance of Fraedom, the company’s spritely FinTech operation. Within that division, in constant currency terms, revenue ballooned by 12.9% and adjusted underlying operating profit shot up 22%.

This growing business now accounts for 16.6% of overall operating profits for Hogg Robinson Group, and if the rate of growth continues, it won’t be long before Fraedom becomes a significant profit and share-price driver for the company.

The directors explain in today’s report that Fraedom’s two routes to market are partner firms — which are usually banks — and direct clients. Banks use the firm’s technology to build and brand payment and expense products to offer to their own business customers, and direct clients buy the technology to implement expense solutions for their businesses.

Re-energising the core business.

As exciting as growth in the Fraedom division might be, it’s clear that the directors are making strong moves to boost growth in the firm’s core business travel management division too.

Hogg Robinson typically delivers corporate travel arrangements for businesses, takes care of moving crews and engineers to rigs and remote locations in the oil and gas industry, and deals with travel arrangements for governments. In the full-year results statement, chief executive David Radcliffe tells us that a re-focused growth strategy is delivering to expectations with “real gains in terms of improved efficiency, lower operating costs and an enhanced service to our clients and end customers.”

Things aren’t easy though. The trading environment is characterised by continuing macroeconomic and geopolitical uncertainty, and aggressive competitor pricing activity keeps the firm on its toes. However, Mr Radcliffe remains confident in the ongoing growth prospects of both HRG – the travel management business — and of Fraedom. He said in today’s report: “We have a clear strategy and a defined route to accelerate and improve performance, underpinned by our technology.” 

In an indication of Hogg Robinson’s ongoing commitment to its core operating division, the firm also announced today the acquisition of Germany-focused digital travel innovator eWings.com, which the firm describes as “a next-generation travel management company.”

Is this firm too cheap?

Despite all the positives, Hogg Robinson trades on a modest-looking valuation. Today’s 70p share price throws out a forward price-to-earnings ratio of just eight for the year to March 2019 and the forward dividend yield sits just above 4%. City analysts following the firm expect earnings to lift 4% for the year to March 2018 and 7% the year after that.

Those forward earnings look set to cover the dividend payout almost three times, suggesting the directors see opportunities to reinvest incoming cash for growth rather than paying it all out on the dividend.

One issue potentially pegging the valuation is the firm’s large pension deficit, although payments to the pension hole remain manageable, and the firm’s growth could swamp the problem over the coming years.

The post This dirt-cheap stock could fund your retirement appeared first on The Twelfth Magpie.

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Kevin Godbold 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.

Today I’m going to look at two cheap stocks which have particular problems. Are the potential rewards worth the risk of a big loss, or is the only sensible option to stay away?

Cheap and profitable

Hogg Robinson Group (LSE: HRG) provides businesses with outsourced services such as travel and expenses management. The group has an operating margin of about 12% and generates plenty of free cash flow to support its 3.7% dividend yield. In my view, it’s a good quality business.

The firm’s shares currently trade on a forecast P/E of nine, even though earnings per share are expected to rise by 17% this year. In theory, Hogg Robinson should be a straightforward value buy.

The problem is that the firm’s balance sheet is loaded down with huge pension liabilities. Hogg Robinson’s pension deficit rose from £258.3m to £413.2m during the six months to 30 September.

To put that in context, £413.2m is nearly double the group’s market cap of £226m. So even if Hogg Robinson was sold and the money paid into the pension fund, there would still be a big shortfall.

The value of the pension deficit is linked to corporate bond yields, which fell sharply last year. If this decline reverses then the pension deficit could shrink rapidly — the company says that a 1% increase in bond yields would reduce the deficit by £162m.

Unfortunately, there’s no guarantee this will happen. The situation could still get worse, especially if inflation continues to rise.

The worst-case scenario for shareholders is that Hogg Robinson will end up being run solely to generate cash for its pension fund. The dividend could be stopped and the value of the shares would fall dramatically.

There’s no way of knowing how things will turn out. So the shares look pretty risky to me.

I couldn’t do it

Trinity Mirror (LSE: TNI), which owns the Daily Mirror, also has a problem pension.

The group’s pension deficit rose by £160m to £466m during 2016. Like Hogg Robinson, Trinity Mirror now has a funding shortfall that’s bigger than the business itself, which has a market cap of £319m.

However, there’s an extra complication here. Most people believe that the printed newspaper business is in long-term decline. Trinity Mirror’s like-for-like sales fell by 8% last year.

Although the group boosted its overall revenue by 20.3% through the acquisition of regional group Local World, there’s no disguising the problem. Digital readership is growing but the income from online activities isn’t replacing lost revenue from print newspapers.

Despite this, the company is currently very profitable. By cutting costs, combining operations and selling unwanted assets, Trinity Mirror is making money. The group generated an operating profit of £93.5m on sales of £713m last year. That gives an operating margin of 13%, which is pretty good.

Trinity Mirror’s 2017 forecast P/E of 3.3 tells me that the market thinks this story is going to end badly. I share this view. But there is just a small chance that the market view is wrong. If the group’s management can put it onto a sustainable long-term footing, the shares could deliver big gains from current levels.

The post 2 value stocks that could do serious damage to your portfolio appeared first on The Twelfth Magpie.

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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.

The perfect package

Packaging play Mondi (LSE: MNDI) greeted the market with bubbly financial numbers in Tuesday trade, sending the stock 0.5% higher from last night’s close.

Mondi advised that underlying operating profit for 2015 should clock in above the €767m recorded in the prior period, with underlying earnings per share anticipated to advance between 22% and 27% from 2014 levels, at 131-136 euro cents per share.

And I believe the Surrey business is in great shape to enjoy further stunning earnings growth well into the future, as expansion into hot sub-segments in the packaging industry — not to mention rising presence in the US and Asia — pays off.

The City expects Mondi to report a 10% earnings advance in 2016, resulting in a very-decent P/E multiple of 14.1 times. And a handy 41.5p per share dividend, yielding a chunky 2.8%, seals in the investment case in my opinion.

Services play on the up

Like Mondi, corporate services provider Hogg Robinson (LSE: HRG) also provided plenty of cheer in Tuesday’s session after releasing its own reassuring trading update. Shares were last 2.3% higher as a result.

Hogg Robinson advised that it had “continued to trade in line with our expectations during the second half of the company’s financial year to date,” with full-year growth expected to meet current market expectations. And the growing popularity of cutting-edge products, like its travel and expense management solution Fraedom, should keep earnings heading higher in the longer-term, in my opinion.

The number crunchers expect Hogg Robinson to follow a 6% earnings uptick in the period to March 2016,with a 7% advance in the following year, resulting in ultra-low P/E ratings of 10.4 times and 9.8 times respectively.

And when you throw in prospective dividends of 2.5p per share for 2016 and 2.7p for next year — payouts that yield 3.4% and 3.7% correspondingly — I reckon Hogg Robinson is a terrific selection for those seeking brilliant all-round value.

A premier pills pick

Drugs colossus AstraZeneca (LSE: AZN) has enjoyed a solid bump higher during the past week, with its share price gaining 7% from recent two-year nadirs as bargain hunters have piled in.

And with good reason, in my opinion. AstraZeneca’s advice this month that it expects further revenues falls in 2016 may have weeded out less-hardy investors, but this was always likely to be the case as patent losses on key products like Crestor and Nexium continue.

Instead, I believe the result of chief executive Pascal Soriot’s R&D overhaul in recent years should deliver delicious returns in the years ahead. A focus on ‘growth platforms’ like diabetes, respiratory and oncology is already delivering the goods, with sales in these areas rising 11% in 2015. And I reckon prolonged sales growth can be expected as global healthcare demand takes off.

Although the City expects AstraZeneca to endure a further 10% earnings decline in 2016, I believe a subsequent P/E multiple of 16.5 times is a great level to tap into the firm’s great growth prospects. On top of this, a projected 280-US-cent-per-share dividend yields a splendid 4.2%.

The post Should You Buy AstraZeneca plc, Mondi Plc & Hogg Robinson Group plc Today? appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.