With this in mind, here are three high-risk, high-reward plays trading under a pound that have grabbed my attention.

Cheap penny stock

One penny stock that could turn out to be a bargain in time is Safestyle UK (LSE: SFE). The firm manufactures and sells PVCu replacement windows and doors to the UK homeowner market. That’s about as dull a company as you’re going to find on the market. Notwithstanding this, I’m encouraged by recent trading.

Last month, Safestyle revealed it had managed to grow revenue, margins and its order book over the first half of 2021. In fact, it now expects full-year performance to be “ahead of current expectations“. That’s impressive, considering just how damaging the pandemic was to business last year.

Naturally, there are still risks. We could see a normalising of demand as people spend their lockdown savings on other things. The rising cost of materials used by Safestyle can’t be discounted either. 

With a net cash position and shares trading at less than 13 times earnings however, I think the potential reward might be worth it. 

Buy the dip?

Another penny stock that grabs my attention is Greatland Gold (LSE: GGP). I first became bullish on this miner when its shares changed hands for less than 2p a pop. From there, the price exploded to a high of 38.5p last December, thanks to positive drill results and the involvement of industry giant Newcrest.

Unfortunately, GGP has now retreated in value. In fact, its share price has fallen by over 50% in 2021, so far. This can be a common trend with penny stocks, especially miners.

After all, finding precious metals is just half of the challenge. Digging it up can be just as problematic, as well as costly. I’d need to keep this in mind if I were to invest in Greatland now.

However, I do think this remains one of the best junior copper/gold plays around. Last month, the company announced that recent drilling results “continue to support the potential for resource expansion” at its joint-owned, world-class Havieron project.

This could add even more value to the deposit GGP has located. The fact that it also operates in Western Australia rather than a more politically volatile part of the world is another attraction.

Travel surge

With signs that Covid-19 is in retreat, investors will be looking to play the full recovery in travel and leisure stocks. One that probably stays off most radars however, is Hostelworld (LSE: HSW).

Back in April, the online booking platform reported that uptake volumes had been “weak” throughout the first quarter of its financial year. Nevertheless, domestic trade was described as “recovering“, with the North and Central American markets looking the most sprightly.

Since then, of course, vaccination programmes have been in full swing. This may allow the company to provide some guidance on full-year earnings when it reports interim numbers next Wednesday (11 August). 

If the outlook has improved (and I think it has), this penny stock could be trading over a pound soon. Then again, the drop in the share price over the last few years, not to mention the strong competition it faces, suggests I’d still need a strong stomach to invest.

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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.

Income + growth

Shares in hostel-booking travel website Hostelworld Group (LSE: HSW) have halved in value over the last year. In part, this seems to have been due to heavy selling by fund manager Neil Woodford. But investors have also been concerned by an uncertain outlook for growth.

The company operates in a very competitive market. It also faced tough trading last summer, due to the hot weather and the football World Cup.

Figures released today show that bookings made under the core Hostelworld brand rose by 4% last year, while the average value of each booking rose 3% to €11.90.

The proportion of bookings made with the group’s mobile app rose from 33% to 40%. I see this is good news. I’d expect app bookings to cut advertising costs and lead to higher levels of customer loyalty, compared to website bookings.

Do the numbers stack up?

Revenue fell by 5.3% to €82.1m in 2018, but this was mostly due to the €2.9m impact from the introduction of a cancellation policy. This means that some revenue can’t be recognised until the bookings it relates to can no longer be cancelled.

Given the modest decline in sales, you might be worried to learn that Hostelworld’s adjusted net profit fell by 19% to £17.5m last year. However, the problem with adjusted profits at software companies is that they can be calculated in many different ways. In my view, a more reliable guide to profitability is cash generation.

Free cash flow fell by just 3.3% to €20.8m last year — a pretty stable performance. This surplus cash covered the group’s €16m dividend payout and helped to lift net cash by 21% to €26m.

Based on its cash flow, Hostelworld looks cheap to me, with a price/free cash flow ratio of just 10.3.

The challenge for chief executive Gary Morrison is to return this business to growth. The risk is that he’ll fail and it will gradually be crushed by larger competitors.

I remain optimistic about this stock, which is modestly priced and loaded with cash. In my view, the shares remain a buy.

A safe and boring 6.8%?

My next stock is FTSE 100 utility group SSE (LSE: SSE). The group is expected to make its first ever dividend cut this year, reducing the yield on offer from 8.4% to 6.8%.

Oddly enough, I think this is good news. The old dividend was no longer affordable. Reducing pressure on the group’s cash flow by cutting the payout makes sense.

The problem is that investors are very nervous about utility stocks at the moment. The utility business is changing, as western economies move towards a heavier mix of renewables. In the UK, the situation is made more complicated by the possibility that a Labour government might choose to renationalise utilities.

In my view, firms such as SSE (the UK’s largest renewable generator) are likely to adapt and survive. I see this uncertainty as a good opportunity to lock in a high dividend yield. As a pure income investment, I’d buy SSE at current levels.

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Roland Head owns shares of Hostelworld. 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’m far less enthusiastic about another Woodford holding, Hostelworld (LSE: HSW), which released its half-year results today. Woodford has been reducing his stake in this business at the same time as ploughing cash into the FTSE 100 tobacco behemoth. Personally, I’d go further and sell out of Hostelworld completely.

Mixed bag

Hostelworld’s shares are down 8% to 270p on the back of today’s results. They’ve now declined 30% since the start of the year, probably not helped by Woodford reducing his stake over the period (from above 25% to 18.85%).

Today’s reported 9% decline in revenue and 26% fall in adjusted profit after tax are not as bad as they appear. Hostelworld has rolled out a new free cancellation booking option. As a result, a chunk of revenue will only be recognised, net of cancellations, in future periods, while costs associated with this revenue have already been booked.

Meanwhile, cash on the balance sheet at the half-year-end was €22.9m — up from €17.7m at 30 June last year — and the company has no debt. The board declared a 6% lower interim dividend, but the running yield is a juicy 5.5% at the current share price.

Fierce competition

In view of the deferred revenue, strong balance sheet and high dividend yield, I don’t dismiss Hostelworld lightly. However, the company is operating in an increasingly competitive marketplace, particularly in Europe. Bigger generalist operators, such as Expedia-owned Hotels.com are treading on Hostelworld’s toes and a rising alternative accommodation sector (think Airbnb) is also providing fierce competition.

Hostelworld’s longstanding chief executive and finance director have both decided to move on this year. Their replacements appear perfectly competent, but the loss of two key executives at the same time isn’t ideal. With the board currently reviewing the group’s strategy and the stock trading at over 16 times current-year forecast earnings, I see better value and greater certainty in British American Tobacco (BAT).

Next generation of shareholder returns

The history of BAT and its investment credentials are neatly summarised in a recent post on the Woodford website. The post also explains why Woodford exited his position in the stock in June 2017 and bought back in May this year. In short, he reckoned BAT’s valuation had reached fair value in 2017 but that “this period of fair valuation was short-lived” and the stock returned to “a more attractive valuation level” in the first half of this year.

In reviewing the group’s half-year results in July, my Foolish colleague Ian Pierce also discussed the attractions of a business that is continuing to increase underlying revenue and profit (and dividends) despite declining industry volumes in traditional tobacco products. I believe pricing power and the growth of next generation products will keep cranking shareholders’ returns higher for many years to come.

Trading at 14 times current-year forecast earnings with a prospective dividend yield of 4.9%, BAT is one of a number of FTSE 100 stocks I’d be happy to buy and hold for the long term.

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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.

Over the past eight years, shares in the company have added 491%, smashing the FTSE 100’s performance of just 31% over the same period as earnings have exploded.

A building boom across the UK, coupled with select acquisitions have helped Breedon grow earnings per share at a compound annual rate of 47.1% over the past six years. And today, the company has announced another substantial acquisition to boost its presence in the UK construction industry.

Expanding overseas 

Breedon has agreed to acquire Lagan Group Limited, a leading construction materials business based in Belfast, for a cash consideration of £455m.

Lagan, which has operations across the UK and Ireland, will add nine additional quarries and 13 asphalt plants to Breedon’s empire, as well as nine ready-mixed concrete plants. Last year, the firm generated earnings before interest tax depreciation and amortisation (EBITDA) of £46m and is expected to be double-digit accretive to Breedon’s underlying earnings per share in the first full year following completion.

As well as the earnings growth, management believes this deal provides the firm with “a stronger platform from which to pursue further organic growth and bolt-on acquisition” as it takes the group into the Irish market and cements its position as the most significant construction materials group in the UK and Ireland.

Further growth ahead 

Following the deal, I believe Breedon’s record of growth is set to continue and the stock’s valuation of 16.9 times forward earnings does not seem too demanding. 

That said, the one thing I am concerned about is the company’s debt, which after today’s deal will have risen to 2.6 times EBITDA. However, management is committed to reducing debt to one times EBITDA by 2020. With this being the case, I don’t believe debt is a threat to the business just yet.

Debt-free 

Another growth stock that has been smashing the FTSE 100 recently is Hostelworld (LSE: HSW).

Over the past 12 months, shares in this hostels operator have added 32% excluding dividends, compared to the FTSE 100’s return of -2%.

As my Foolish colleague Kevin Godbold recently pointed out, there’s a lot to like about this business including its debt-free balance sheet, and rapid earnings growth. A few days ago the firm reported earnings growth of 60% for 2017 thanks to its differentiated offering in the hostel market, which is expected to grow at around 5% a year until 2020.

The company has also attracted the attention of the star hedge fund manager Neil Woodford, who seems to like the shares for their income potential — both the Neil Woodford Equity Income fund and his Income Focus Fund own the stock.

It’s difficult to argue with this view as Hostelworld is an income champion. Last year, the group distributed €0.28 per share to investors for the full year, giving a yield of 6.1% and analysts are expecting the firm to pay out €0.16 in 2018 year for a yield of 3.7%. The company has a history of beating forecasts when it comes to dividends, however, so this might turn out to be a conservative forecast. 

With a debt-free, cash-rich balance sheet, the group can certainly afford to pay out more to investors. 

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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.

To satisfy my craving for growth and income, I’ve hunted through the market and found two stocks with growth ratings and yields of more than 3%.

Investing in tracking

Not all drivers are keen on having a black box in their car tracking their behaviour. But telematics are increasingly a fact of life, especially in the fleet sector.

One company that’s positioned to profit from this trend is telematics supplier Quartix Holdings (LSE: QTX). This £177m firm is focused on supplying tracking technology to the fleet sector, but is also expanding into the insurance sector, when it can do so without sacrificing margins.

Figures released today show that sales rose by 5% to £24.5m in 2017, while pre-tax profit rose by 1% to £6.6m. These modest gains were largely the result of more selective bidding for insurance work. The total dividend was increased by 20% to 13.5p, supported by a higher cash balance of £7.3m.

International growth could explode

The number of vehicles under subscription rose by 20% to 105,314 units last year, but a 23% increase in fleet installations was partially offset by a 17% decline in insurance installations.

Most of this volume growth was in the UK, but Quartix is also expanding fast in France and the USA. Vehicles under subscription rose by 32% to 13,131 in France last year, while the equivalent figure rose by 45% to 8,973 in the USA.

As the company already has more than 80,000 vehicles under subscription in the UK, I’d imagine that the potential market in the USA is many times this size. I believe overseas growth could transform this business over the next few years.

Looking ahead, the stock trades on a forecast P/E of 29 with a prospective yield of 3.5%. I believe Quartix remains a decent long-term growth opportunity.

Invest in younger customers

Young drivers are helping to fuel the growth of telematics-based insurance. Younger customers are also a key part of the growth story for my next stock, hostel-booking service Hostelworld Group (LSE: HSW).

Modern hostels are increasingly popular with young travellers who like their affordable rates, central locations and well-equipped communal spaces. Shares in this £366m firm have risen by 72% over the last year.

Hostelworld confirmed in January that its 2017 results should be in line with expectations. Based on broker consensus forecasts, this means that sales will have risen by around 10% to €87m, while adjusted earnings will have risen by around 5% to €0.21 per share.

This may seem relatively modest growth for a company which trades on a forecast P/E of 20. However, Hostelworld is expanding into the Asian market, where bookings rose by 18% during the first half of last year. This region should make a bigger contribution to earnings going forward.

Another attraction is the group’s dividend policy, which is to pay out 75% of adjusted earnings each year. Strong cash generation has made this policy both affordable and sustainable and the forecast yield has now risen to 3.7%.

In my view, Hostelworld could be a great buy for long-term income and growth.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Quartix. 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 company I’m talking about is InterContinental Hotels Group (LSE: IHG), the owner of 5,273 hotels around the world with nearly three-quarters of a million rooms under management. 

Over the past six years, efforts by management to cut costs and improve margins have seen its operating profit margin rising from 32% in 2012 to just under 40% for 2016. This growth has helped drive an increase in free cash flow per share from approximately 114p to 186p. 

Cash-rich 

The group is flush with cash and management is committed to returning these funds to investors. While the stock may only support a regular dividend yield of 1.8%, special payouts are frequent and last year, InterContinental returned a total of 180p per share to investors, a total yield of 3.7%. During 2016, 510p per share was paid out in special dividends. In aggregate, over the past five years, the company has paid out 1,102p per share in regular and special dividends to investors, that’s a yield of around 59% if you’d bought the shares at the beginning of 2013. 

For 2017 and 2018, City analysts are expecting the firm to report earnings growth of 14% and 17% respectively, which should underpin further large cash distributions in the years ahead. 

Copycat 

Hostelworld (LSE: HSW) looks as if it’s trying to replicate InterContinental’s strategy. The company is opening hostels around the world, offering low-cost accommodation for whoever needs it. 

Today, the group reported that for the year ended 31 December, overall bookings growth was 6% with bookings on its flagship Hostelworld brand up by 13%, with growth in the second half of 2017 at 6%. 

City analysts are expecting the firm to report a pre-tax profit figure for the year of €16.8m, up from last year’s number of €0.2m. A full-year dividend of 13.7p is also projected giving a full-year yield of 3.7%. It seems as if management is committed to this payout as in today’s release, the firm noted that its “business model continued to generate excellent free cash flow resulting in a strong balance sheet at the year-end.” The pre-close trading update goes on to say “the Board looks forward to announcing the full-year final dividend in April.” 

At the end of the first half, Hostelworld had a net cash balance of €18m giving it headroom to pay out a dividend to investors and spend for further growth. 

Earnings growth supports dividend returns 

As the firm continues to invest in its offering, and the business matures, I believe that like InterContinental, Hostelworld will adopt a policy of returning all excess cash to investors. Indeed, management seems to be prioritising dividends making a special note in the company’s half-year figures that “the group will have returned €32.1m to shareholders in dividends in the two years since the initial listing in November 2015.”

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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.

Burford is a pretty unique business that funds litigation battles, which can drag on for years and cost many millions of dollars, in return for a chunk of the proceeds should its client win any damages. This business has proven a hit with clients across the world and its managers have proven adept at wisely investing their capital.

In the six months to June the company’s income rose from $76.2m to $175.5m year-on-year (y/y) while post-tax profits nearly tripled to $142.7m. A large portion of this astronomical increase in income and profit came from a single case against Argentina following the nationalisation of energy company YPF in 2012.

To date, Burford has invested $18m in pursuing these claims on behalf of foreign investors and has already more than recouped this through the sale of 25% of its stake for a total of $106m. And the best news is that the latest sale valued its investment at some $440m, of which it still owns a 75% stake.

And this claim is far from a one-off as the company has a positive record in many other cases and claimed 11 successful investments in H1 alone. It’s also diversifying its investments away from simple single case litigation financing into funding a portfolio of claims, financing cases where it has recourse to underlying assets should a judgement go against it. And it’s providing legal risk management where it only pays out should a claim go against its client.

Branching out into these new business lines is allowing Burford to make more investments, a record $289m was deployed in H1, and lowers overall risk. With its shares priced at just 14 times forward earnings and plenty of investments being made to fuel future growth, I believe Burford is definitely worth a closer look for growth-hungry investors.

A more familiar business 

A much different Woodford holding I have my eye on is Hostelworld (LSE: HSW). While I may have aged out of Hostel World’s target audience, it was definitely my first port of call when travelling on a budget in my younger days.

Evidently this still holds true for younger generations as bookings in H1 were up 11% y/y while an increase in average booking size led to revenue rising 17% in constant currency terms to €46.6m. Meanwhile, management’s renewed focus on the highly profitable core Hostelworld platform paid off with a 21% increase in its bookings and a 30% increase in group constant currency adjusted EBITDA to €12.9m.

Looking ahead, there is still plenty of growth potential as mobile bookings still only represent half of total bookings and the group invests heavily in expanding its brand awareness with its target audience via ads on Snapchat and the like. The company’s high margins also allow it to pay out a growing dividend that currently yields 4.1%. With growth potential and a nice yield, I think Hostelworld is still an interesting option even with its shares priced at 19 times forward earnings.

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Ian Pierce 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.

GBGI, or to use its full name, Global Benefits Group, is a leading provider of international benefits. In plain English, the company is a provider of insurance products such as life, health, travel and disability. 

Business seems to be going well for the group. For the six months to December 31, the company reported a 12.2% increase in gross written premiums, total revenue growth of 22% and a rise in pre-tax profit of 10.7%. The balance sheet also looks robust with a solvency ratio of 160.6% reported at the end of the fiscal first half. 

It looks as if this positive trading performance has continued into the fiscal second half. According to a trading update published today, for the full year, revenue is expected to be 23% higher year-on-year and the value of gross written premiums exceeds $200m. Based on these early numbers, management plans to announce GBGI’s maiden dividend alongside its full-year results, which are set for release in a few weeks. 

City analysts are highly optimistic about the company’s dividend prospects. Indeed, an initial dividend payout of 11.2p is projected, which implies a dividend yield of 6.9% based on GBGI’s share price at the time of writing. 

Tremendous opportunity 

It is still a relatively small business compared to rest of the global life insurance market. In 2015, the market had total gross written premiums of $2.5trn, so at the current run rate of $200m, the group’s market share is less than 0.01%. This means the firm has an enormous runway for growth ahead of it as it captures market share, and that’s why GBGI has made it onto my dividend-growth watchlist. 

Cash cow

In my view, the best dividend stocks have strong balance sheets with little debt and plenty of cash as well as a highly cash generative business model. 

Hostel operator Hostelworld (LSE: HSW) ticks both of these boxes. According to the firm’s latest set of interim figures, underlying free cash conversion for the period was 101%, meaning that the group converted 101% of adjusted profits to cash — a superb ratio. What’s more, at the end of June, the company’s cash balance was €17.7m, that’s even after paying special and regular dividends worth a total of €19.9m for the year ended December 31, 2016. 

After payment of the recommended interim dividend for 2017 (€4.9m), the group will have returned €32.1m to shareholders over the past two years, 14% of its market value at the IPO.

Management is committed to further cash distributions going forward. Analysts have pencilled in a dividend yield of 3.9% for 2017, rising to 4.1% for 2018. However, considering Hostelworld’s cash generation and strong balance sheet, I would not be surprised if these figures turn out to underestimate the company’s dividend potential. 

The shares currently trade at a forward P/E of 18.7 and earnings per share are expected to grow by 7% for 2017, followed by growth of 2% for 2018. 

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One company which ticks these boxes for me is Somero Enterprises (LSE: SOM). This £156m firm is a market-leader in the field of concrete-levelling equipment. This is widely used in the non-residential construction market. For example, in a modern warehouse, a perfectly flat and horizontal floor is essential.

Somero’s selling point is not only the quality of its equipment, but the fact that it provides training and 24/7 global support for all customers. After all, when you’ve just poured a concrete floor, waiting until tomorrow for help isn’t much use.

Promising growth outlook

Turning to the numbers, market conditions appear to be strong. Revenue rose by 7% to $42.4m during the first half, while pre-tax profit was 15% higher at $12m. Net cash remained strong at $18.3m, allowing management to increase the interim dividend by 10%.

Somero’s main market is North America, which accounts for around two-thirds of sales. This region was hit by wet weather during H1 and sales fell slightly, from $29.8m to $28.4m. But the group expects a stronger second half and says its customers are reporting project backlogs “well into 2018”.

The group’s H1 sales outside North America logged an impressive 41% gain, rising from $9.9m to $14m. Sales rose in markets including Europe, Latin America and Asia. This growing geographic diversity suggests to me that profits could be more robust than they have been in the past, if the US market slows.

Management remains confident of hitting full-year expectations. Broker forecasts indicate that earnings per share are expected to rise by 10% this year, putting the stock on a forecast P/E of 13 with an ordinary dividend yield of about 3.1%. In my view, Somero remains worth buying at current levels.

A future cash cow?

We’re all familiar with the big online travel booking platforms. But the market is changing and one growth area among younger travellers is hostels, which are springing up in popular destinations all over the world.

Hostelworld Group (LSE: HSW) is an online booking platform focused on the hostel market. It operates in 20 different languages and deals with more than 35,000 properties across the world.

The firm’s half-year results showed a 16% increase in net revenue, which rose to €46.6m. Adjusted pro-forma earnings rose by 38% to €0.11 per share, while the group’s interim dividend was lifted by 5% to 5.1 euro cents per share.

Key target markets seem to have performed well. Group bookings rose by 11% to 3.9m. Some 50% of all bookings now come from mobile devices, up from 43% the year before. And bookings in Asia also grew strongly.

Hostelworld shares currently trade on a forecast P/E of 20. The group’s strong cash generation means that even at this level, the stock offers a forecast yield of 3.8%. Earnings forecasts have already been revised upwards once this year. I believe further gains are likely and suspect that this business could also become an acquisition target.

In my opinion, Hostelworld offers an attractive mix of growth and income. I would consider buying at current levels.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Somero Enterprises, Inc. 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.

Top performer

Persimmon (LSE: PSN) is among the top 10 best performing stocks in the FTSE 100 Index, after shares in the residential housebuilder gained 44% in the past 12 months.

After such a strong run in its shares, you may be forgiven for thinking there’s little value left for prospective investors. However, with a forecast P/E of just 11 and a prospective yield of 5.2% this year, I reckon Persimmon should still be up for consideration in any dividend portfolio.

Although the cyclical nature of the sector means investors will always worry about the next property downturn, the FTSE 100 company today released an impressive set of results for the first half of the year, allaying fears that the slowdown in the UK housing market would dampen the housebuilder’s profitability.

Legal completions for the six months to the end of June were 8% higher at 7,794, while the average selling price rose 4% to £213,262. Results were also helped by improving operating margins, which rose by 3.8 percentage points to 27.6%, leading pre-tax profits to jump 30% to £457.4m.

And thanks to its strong financial performance, Persimmon is generating good cash flow, which underpins the stock’s income appeal. Net free cash generation increased 24% to £284.5m in the period — equivalent to roughly 3.6% of its market capitalisation.

Looking forward, investors can be reassured that about its dividend prospects after management reiterated its commitment to return at least 110p per share to shareholders each July until 2021 under its capital return plan. This means shareholders could look forward to a minimum yield of at least 4.2% over the next four years.

Hostelworld

Another value and income play is Hostelworld (LSE: HSW). The online hostel booking platform, which directly appeals to younger customers, has been a game changer in the budget accommodation sector.

Shares in the company rose by as much as 10% today, after it announced that profits swung back into the black in the first half of the year. Despite the impact of terrorist attacks on travel demand alongside general macroeconomic uncertainties and currency fluctuations, first-half sales increased 16% to €46.6m, while pre-tax profits swung from a €5.5m loss last year to €5.2m.

Reassuringly, CEO Feargal Mooney announced a 6.3% hike in its interim dividend, meaning shareholders will get an interim payout of 5.1 cents per share.

“We remain confident in our long-term strategy and execution and will continue to manage the risks to our business posed by the impact of terrorist attacks on travel demand alongside general macroeconomic uncertainties and currency fluctuations,” he added.

At the moment, city analysts are projecting growth in underlying earnings of 2% for the full year, with a further increase of 4% in 2018. Based on these estimates, valuations are attractive, as Hostelworld trades at forward P/E ratio of 16.2, falling to 15.4 by 2018.

Hostelworld has a prospective yield of 4.8%.

The post 2 value stocks for high-yield dividend investors appeared first on The Twelfth Magpie.

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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