Earnings results are a great way for investors to judge a company. They’re used to determine whether companies are on track with their initial guidance. These results can often radically move share prices in either direction, depending on the numbers reported. So, here’s an earnings preview for three FTSE firms reporting results this week.

It’s always best to compare firms’ new quarterly/half-year numbers to those from prior years. But certain revenue figures may have been impacted by the pandemic, so it’s important to get context from pre-pandemic levels too. The new figures that are due can also be useful to determine whether a company can perform better than its previous year’s numbers, or if it can beat analysts’ annual forecasts. It’s a shame that analysts in the UK don’t normally publish earnings previews for quarterly or half-year periods.

Royal Mail (Q1 trading update)

Royal Mail (LSE: RMG) is Britain’s biggest postal service and courier company. The group runs the brands Royal Mail and GLS (an international logistics company). The FTSE 250 firm is expected to provide a trading update for its most recent Q1 performance ending June 2022 on Wednesday 20 July. The company’s financial year ends in March 2023.

Analysts covering Royal Mail are predicting a slowdown in both its top and bottom lines for the current financial year. The board painted a gloomy picture for the group in its Q4 earnings call, which sent the share price crashing. Lockdown tailwinds have dissipated, and the logistics group is locked in discussions with staff over its latest pay round, with the threat of possible strike action. Pair that with a slowing British economy and high fuel costs, and it seems to me that the only way for its share price to go is down. Making matters worse, EPS for its current year has seen a steady decline from £0.54 to £0.45 over the last 90 days. Nonetheless, if revenue figures come in above 2020 levels, there could be a surprise rally.

Howden Joinery (H1 earnings)

Howden Joinery (LSE: HWDN) is the UK’s number one trade kitchen supplier. It provides thousands of products across kitchens, joinery, and hardware. The FTSE 100 firm is expected to post its half-year earnings for its six months performance ending June on 21 July. The company’s financial year ends in December 2022.

The overall consensus is that Howden Joinery is expected to continue growing its top and bottom lines. Analysts have also revised their EPS targets for the current year upwards, by nearly £0.01 in the last 90 days. That being said, investors will be paying attention to the guidance provided on Thursday in order to determine whether the supplier can beat its previous year’s record figures.

Dunelm (Q4 trading update)

Dunelm (LSE: DNLM) is a British home furnishings retailer that operates throughout the UK. It’s one of the largest homewares retailers in the country with an ever growing market share. The FTSE 250 firm will be posting its Q4 trading update for the period ending June 2022 on Thursday 21 July. The company’s financial year ends in June 2022.

While public listed companies normally release their full year results along with their Q4 numbers, Dunelm will only report its FY earnings on 14 September. This is most likely due to its financial year only ending three weeks ago. Therefore, the trading update will be more akin to an earnings preview.

Having said that, the revenue figure will be watched closely as specific bottom line figures will only be released in September. Comments from the board will also be closely monitored as investors look to determine whether EPS estimates will be met. Nevertheless, analysts have revised their EPS targets from £0.79 to £0.80 in the last 90 days. Despite that, a slowdown in retail sales in the last quarter should be kept in mind. It may have impacted Dunelm’s top line figure, along with higher fuel and labour costs. These macroeconomic factors could see analysts’ EPS being revised lower, if management hints at lower margins in the trading update.

The post Earnings preview: Royal Mail, Howden Joinery, Dunelm appeared first on The Twelfth Magpie.

More reading

• Which UK stocks are investors overlooking right now?
• 3 shares to consider holding in a SIPP for decades
• How much must investors put into this overlooked FTSE dividend star to make an annual second income of £8,686?
• The FTSE 100’s Howden Joinery just made a bold move — should investors care?

John Choong owns shares of Dunelm. The Motley Fool UK has recommended Howden Joinery Group. 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 is in fine form this morning, rising over 1% in early trading. Is this a sign that February might be a little kinder to investors?

Well, no one knows for sure where share prices will go in the near term. As such, I prefer to stick to my strategy of owning great stocks for years rather than weeks. With this in mind, here are two members of the index I’d be happy to buy, whatever happens next. 

Long term theme

Petcare retailer Pets At Home (LSE: PETS) is an example of a great FTSE 250 business that I could see myself holding for the long term. That’s despite its share price falling around 7% in 2022 so far.

A beneficiary of multiple UK lockdowns and the pet boom that accompanied them, the mid-cap continues to release encouraging updates. Group like-for-like revenue increased 8.7% in the 12 weeks to 30 December compared to the same period in 2020. Perhaps more significantly, it was also 28.1% higher than two years ago.  

This isn’t all that surprising. Pets At Home now seems to have every corner covered. In addition to its 455-store retail estate, the company is rapidly growing its online presence (evidenced by the 99% jump in omnichannel revenue on a two-year basis). It also has a burgeoning veterinary services arm, gaining 9,200 new registrations per week on average.

At 20 times forecast earnings, the shares aren’t exactly cheap. However, I can’t see the themes of “long-term pet ownership, humanisation and premiumisation” highlighted by the company disappearing any time soon. Moreover, the company is “firmly on track to report a record year of sales and profit growth”, according to soon-to-depart CEO Peter Pritchard. It also has net cash of £77m on its balance sheet. 

My only slight concern right now, aside from the need to replace its leader, is the extent to which inflationary pressures might impact the company going forward. They certainly won’t go away overnight. Then again, that’s true for all sorts of businesses. 

I’d be comfortable buying Pets At Home today but I’d back up the truck if the share price continues to fall over 2022.

Another solid FTSE 250 stock

Kitchen supplier Howden Joinery (LSE: HWDN) is another FTSE 250 stock that benefited from the three UK lockdowns. A hot housing market may have also contributed to what has been something of a purple patch for the near-£5bn-cap business. Like Pets at Home, however, the shares have lost a bit of momentum in 2022 so far. As I type, they’re down 12%.

Howdens is down to report its latest set of full-year numbers (covering the vast majority of 2021) later this month. Given that the company only recently stated that pre-tax profit should be “at the top end of analyst forecasts“, I can’t see its value tumbling from here.

Of course, I may be completely wrong. Now that we look to be coming to the end of the pandemic, there’s a possibility that more existing holders may look to bank some profit. After all, kitchens aren’t something that people replace every year.

Still, a P/E of 17 doesn’t exactly scream ‘overvalued’ when I consider Howden’s solid margins, strong brand, consistently high returns on capital and sizeable market share. So, even if the company does struggle to repeat 2021’s performance, I’m confident that this would still be a worthy addition to my quality-focused portfolio.

The post FTSE 250: 2 growth stocks I’d buy and hold for years appeared first on The Twelfth Magpie.

More reading

• Which UK stocks are investors overlooking right now?
• Should I buy this dirt cheap stock to start earning passive income?
• The FTSE 100’s Howden Joinery just made a bold move — should investors care?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Howden Joinery Group. 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.

Post-pandemic boom

Kitchen supplier Howdens Joinery (LSE: HWDN) looks a good bet for promotion, especially after today’s well-received update on trading.

Having benefited from the home improvement boom, Howdens announced that this momentum had continued into the second half of its financial year. UK revenue from 13 June to 30 October 2021 was just under 21% higher than in the same period last year. This brings year-to-date revenue growth to a stellar 37.7%.

Positively, this performance wasn’t confined to Howden’s home market either. International sales growth was also strong, up 16.6% over the three quarters and 39.2% year-to-date. 

Based on this, Howdens now believes pre-tax profit for the full year will come in “around the top end of current analyst forecasts”. This would be somewhere in the region on £360m. That all sounds rather good to me. So, would I buy today?

Well, despite having climbed 43% in value over the last 12 months alone, HWDN shares still look pretty fairly valued. A forecast price-to-earnings multiple of 21 before markets opened for a high-quality market leader doesn’t seem excessive. After all, the company regularly posts excellent returns on capital.  

Then again, recent momentum could slow, particularly if consumers begin tightening their purse strings. Indeed, Howdens already expects a “more normalised trading pattern and performance in 2022“. There’s also inflation to ponder, even if the company appears to have been successful in passing on higher costs to its customers so far. 

Whether these headwinds are enough to delay Howden’s entry into the FTSE 100 is hard to say. As a Foolish investor focused on long-term returns, however, I must say that I continue to regard this company as a classy outfit. I’d have no issue taking a position in the stock today.

Primed for FTSE 100 promotion?

Another FTSE 250 growth stock that could potentially be moved to the FTSE 100 in the next reshuffle is industrial and electrical equipment distributor Electrocomponents (LSE: ECM).

Half-year numbers from the £5.3bn market cap company are due on Thursday. As things stand, I don’t expect much in the way of bad news for those already invested. 

Last month, ECM stated that trading had been strong in all regions in which it operates. In fact, total like-for-like revenue growth over the six-month period has already been estimated at 31%. That’s despite the Covid-19 ‘pingdemic’ and cost pressures many businesses are wrestling with. This led the company to predict that full-year revenue growth and adjusted operating profit margin would now be “slightly ahead” of previous guidance.

Shares change hands for almost 26 times forecast earnings. That’s not exactly cheap considering the pretty average margins in this line of work (roughly 8%).

Like Howdens, ECM will face tricky comparatives going forward, too. Profit is also likely to be “more weighted to the first half”. To me, this suggests things are as good as they’re going to get for now. 

Still, I can see why investors have been bidding the price up over the last 12 months. This presents as another well-run company with minimal debt. As such, it’s one I’d at least consider buying regardless of which index it features in. 

The post These classy FTSE 250 growth stocks could be FTSE 100-bound appeared first on The Twelfth Magpie.

More reading

• Which UK stocks are investors overlooking right now?
• The FTSE 100’s Howden Joinery just made a bold move — should investors care?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Howden Joinery Group. 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 looking at what could be three of the best shares for me to buy before July starts. Why before July? Well, all of the companies highlighted below are down to provide updates to the market next month. And, based on what they had to say earlier in 2021, I think there could be more good news ahead.

Watches of Switzerland

Luxury watch retailer Watches of Switzerland‘s (LSE: WOSG) share price has climbed almost 200% since last June due to strong trading. That’s despite store closures and much-reduced travel and tourism due to the pandemic.

Back in May, WOSG reported a 3.6% rise in sales in the UK where it’s the largest retailer of major brands such as Rolex. An “outstanding result” was also achieved in the US.

I doubt momentum has reversed in the last couple of months. In fact, sales are already expected to grow 16-21% in FY22 as people treat themselves to a new timepiece with lockdown savings. Factor in more airport sales as restrictions are lifted and WOSG’s shares could continue rising after the full-year numbers are confirmed on 8 July.

On 26 times earnings for FY22, the shares certainly aren’t cheap. Some may also feel that the good news is priced in for now. As a long-term investment, however, I continue to regard WOSG as an attractive option for growth investors such as myself.

Howden Joinery

A second stock that could see further positive momentum in July is kitchen supplier Howden Joinery (LSE: HWDN). It reports half-year numbers on 22 July.

Howden’s shares are already up 48% over the last year, supported by the recent boom in home improvement. Back in April, the company reported a 13.1% rise in revenue for Q1 compared to 2019 (the year before the pandemic kicked off). 

Of course, property owners may choose to spend their money on other things once Covid-19 restrictions are completely lifted. Moreover, we don’t know for sure whether the working-from-home trend will truly last. 

Even so, I wouldn’t be inclined to sell based on the valuation. A P/E of 24 is undoubtedly steep. However, this isn’t too lofty for a company that consistently generates great returns on the money it invests. Howden also has the sort of solid balance sheet I look for when hunting for the best shares to buy and hold for the long term so I’m watching it closely. 

Smith & Nephew

A final stock I think could be worth me picking up before next month is medical equipment company Smith & Nephew (LSE: SN). Half-year results from the FTSE 100 member are due on 29 July. 

In contrast to the other stocks mentioned, SN’s share price has barely climbed at all over the last year. Nevertheless, I think this could be set to change as postponed elective surgeries are finally allowed to proceed. Indeed, the company highlighted “improving visibility” back in April. A strongly rebounding Chinese market also gave us insight into how the company’s earnings in other parts of the world may fare post-pandemic.

Once again, there are no guarantees. There could still be a few chapters left in the Covid-19 tale left to unfold. Investors could be left waiting longer for that recovery if the Delta variant proves more problematic. Like the other stocks mentioned here, SN’s valuation of almost 25 times earnings doesn’t scream value either. But I’m considering this one.

The post 3 of the best shares to buy before July appeared first on The Twelfth Magpie.

More reading

• Up 50% this year, this FTSE 250 stock’s smoking the index
• Which UK stocks are investors overlooking right now?
• The FTSE 100’s Howden Joinery just made a bold move — should investors care?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Howden Joinery Group and Smith & Nephew. 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 tend to avoid buying stock in newly-listed companies. The disastrous Deliveroo IPO showed that IPOs are often priced too high, leaving holders under water from the off. But there are exceptions. The  big jump seen in the Victorian Plumbing (LSE: VIC) share price after its Tuesday IPO showed that.

What is Victorian Plumbing?

Founded in a shed in 1999 by Mark Radcliffe, Victorian Plumbing has grown to become a major online retailer. It sells 24,000 branded and in-house-designed bathrooms and accessories. Selling to both the public and trade customers, the company now operates a 109,000 square foot warehouse in Skelmersdale, Merseyside. It also has a showroom in Formby and a ‘digital growth hub’ in Birmingham.

What most sticks out to me about VIC, however, is that its £850m valuation on admission made it the biggest company to IPO on the Alternative Investment Market (AIM). Thanks to a flurry of trading over the last two days, this market cap has already charged ahead of the £1bn mark!

Victorian Plumbing’s share price sat just below 336p as markets closed yesterday. That’s already a great return for those institutional investors that bought in at 262p a pop.

So, would I buy it?

Would I buy at the current price? Quite possibly. There are many things I like about this company. 

For one, it’s already generating serious money. Revenues of almost £209m were logged in the year to September 2020. This arguably makes the investment case far less risky compared to the average AIM-listed blue-sky stock.

Another attraction is the online-only business model. Multiple UK lockdowns have only served to accelerate the structural shift to digital shopping. VIC is clearly well placed to capitalise on this.  

The growth potential is also pretty compelling. By placing more emphasis on attracting trade customers and growing its European presence as planned, I think Victorian Plumbing might replicate the success of £5bn-cap kitchen supplier Howden Joinery in time.

Knowing that its founder will still have ‘skin in the game’ is another positive. True, Mark Radcliffe’s share ownership will reportedly drop massively from 72% to 46% post-IPO. However, his interests should still be firmly aligned with retail investors like me. Incidentally, it’s worth noting that heavyweights such as JPMorgan are also on the register. 

Priced in?

Nevertheless, there’s no guarantee that the Victorian Plumbing share price will keep rising. Aside from a lack of track record on the market, one needs to bear in mind that the firm is listing at a time when the home improvement industry is conveniently booming. Companies like B&Q owner Kingfisher and Travis Perkins are just two examples of those that have reported strong trading over the last year or so.

Whether this lasts is difficult to say. I certainly wouldn’t be surprised if revenue growth at VIC does moderate over the current financial year as we spend our money on other things post-pandemic. As such, I do question whether now is the right time to snap up its shares. Let’s not forget that every transaction always involves someone who thinks it’s actually time to sell.

Watchlist bound

Victorian Plumbing grabs my interest in a way that other recent IPOs have not. Even so, I’m content to wait for the initial excitement to die down before deciding whether to take a stake. Today, it’s on my watch list. 

The post The Victorian Plumbing share price has soared since its IPO. Should I buy? appeared first on The Twelfth Magpie.

More reading

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

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Howden Joinery Group. 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.

When will prices reach their lowest point? The simple answer is that no one knows. And since knows one knows, I wouldn’t attempt to dissuade anyone from putting at least some of their spare cash to work in the near future. Better to start buying quality stocks when they’re already on sale, in my opinion, than miss out on the eventual recovery.

With this in mind, here are three I’d consider beginning to accumulate today. 

Auto Trader

One can’t deny that the car industry has rarely faced such uncertainty.

For me, however, vehicle marketplace Auto Trader (LSE: AUTO) has a number of the things I look for when sizing up stocks: a huge market share, great returns on capital employed, and sky-high margins. 

So, would I go ‘all in’ as things stand? Certainly not. Aside from the idea of a one-month bear market following a ten-year bull market feeling a tad optimistic, few people will be looking to buy a car for a while.

Notwithstanding this, Auto Trader has sought to reassure investors that it’s in a good place financially. At the end of February, it had £111m of its revolving credit facility undrawn. There are certainly firms out there with less headroom than this, which might go some way to explaining why the share price is down less than 20% over the last month.

If you believe the long-term investment case remains solid (and I do), this quality operation warrants a closer look. 

Howden Joinery

Despite only a few of its depots remaining open to serve trade customers, kitchen supplier Howden Joinery (LSE: HWDN) is another firm I’d have no trouble dipping my toe into as things stand.

With £267m net cash and an undrawn borrowing facility of £140m, the FTSE 250 member was in an excellent financial position at the start of 2020.

To help things further, investment has been scaled back, the share buyback programme has been suspended, and the final dividend ditched until the full consequences of the coronavirus for the business are known. This all makes perfect sense to me.

Naturally, paying the mortgage will take priority over a new kitchen in a coronavirus-induced recession but the strong relationships that Howden has built up with customers over the years should prove priceless.  

Boohoo

A third stock I’d feel comfortable buying at the current time is actually a former holding of mine – Manchester-based, fast-fashion giant Boohoo (LSE: BOO).

Although the company has still to update the market on the impact of Covid-19 on business so far, I sincerely doubt trading has remained as good as it was. To quote Next’s CEO, Lord Woolfson, “People do not buy a new outfit to stay at home“. 

True as that may be, I suspect Boohoo stands a far better chance of bouncing back to form given its strong brand and the relatively inexpensive price tags of its wares. The AIM star also had £245m in net cash on its balance sheet back in January. 

Boohoo’s stock is down 35% in one month. For anyone considering building a position now, I’m inclined to think the long-term returns will compensate for any initial period spent ‘underwater’. 

The post Markets may have further to fall but here are 3 growth stocks I’d start buying now! appeared first on The Twelfth Magpie.

More reading

• Which UK stocks are investors overlooking right now?
• Prediction: by 2027, this battered FTSE AIM stock could turn £3,000 into…
• Is the FTSE 100 at risk from an overheated US stock market?
• The FTSE 100’s Howden Joinery just made a bold move — should investors care?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Auto Trader, boohoo group, and Howden Joinery Group. 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.

Two firms that feature on my own watchlist are FTSE 100 pest control business Rentokil Initial (LSE: RTO) and FTSE 250 kitchen supplier Howdens Joinery (LSE: HWDN), who both released results to the market today.  

Organic grower

Ongoing revenue at £9bn-cap Rentokil rose 8.6% at constant currency to £2.68bn over 2019. Positively, 4.5% of this was organic (generated internally rather than through acquisitions) and driven by “increasing presence in growth markets, higher levels of customer retention and a strong innovation programme.” Pre-tax profit came in at £338.5m. 

Considering the non-cyclical nature of its business, I consider Rentokil’s outlook to be very positive. Indeed, according to CEO Andy Ransom, “key demographic trends such as urbanisation” should lead to more growth in pest control and hygiene markets across the globe.

Given all this, it’s perhaps no surprise that the company saw fit to hike its final dividend to 3.64p per share. This brings the total payout for the 2019 financial year to 5.15p per share, representing a 15.2% increase on the previous year. While Rentokil’s 1.1% yield remains very low relative to some in the FTSE 100, the fact that it’s regularly increasing its dividends is a very positive sign, in my book.

All told, I remain very interested in acquiring a slice of this company. That said, 32 times forecast earnings does seem quite a high price to pay in such as nervous market. It stays on the watchlist for now.

Another hiker

Like Rentokil, today’s numbers from Howdens were also positive, with group revenue rising 4.8% to £1.58bn and pre-tax profit moving a very solid 9.3% higher to £260.7m. 

Like Rentokil, this is a company with strong growth prospects. Having opened 44 depots in 2019, Howdens believes it can increase its presence in the UK from 732 to 850 depots while also developing its digital platform.

Like Rentokil, Howdens is also a reliable dividend hiker. Today’s final dividend of 9.1p per share brought the total payout to 13p per share — a little over 12% higher than in the 2018 financial year.

What I particularly like about Howdens though, is its financial discipline. The £4bn-cap boasted £267.4m of net cash on its balance sheet at the end of the year — just the sort of thing that would give me confidence if a downturn in the economy is coming.

Whether this happens as a result of the coronavirus is, of course, hard to say. With regard to the outbreak, Howdens said it was “monitoring” its supply chain and had increased stock levels from product it sources from China. It had also taken steps to find alternative sources of supply. This all sounds very prudent to me. 

Again, however, the valuation needs to be considered. Having done so well over the last year, Howden’s stock now trades on almost 19 times earnings. Although nowhere near Rentokil’s valuation, that’s still fairly high, relative to its industry. As such, I’m hoping for a cheaper entry point in the next few months.

The post 2 great growth stocks I’d buy if markets continue to tumble appeared first on The Twelfth Magpie.

More reading

• Which UK stocks are investors overlooking right now?
• How smart investors cashed in on yesterday’s stock market rally
• Will we see a catastrophic stock market crash this year?
• The FTSE 100’s Howden Joinery just made a bold move — should investors care?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Howden Joinery Group. 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.

Once again, the emphasis will be on picking established, quality businesses with room to grow that also pay dividends.

High returns

While some might view kitchen supplier Howden Joinery as cyclical, I still think it warrants consideration from investors willing to look outside the FTSE 100. Howden sells kitchens to builders rather than homeowners, which means it should get repeat business, regardless of what’s going on with the economy. It also has a couple of things I’m attracted to when screening for stocks: a consistently high return on the money it invests in its business, and zero debt. 

The shares have had a very good run of late and I’d prefer to buy at a cheaper price, but it’s hard to rule out a firm of this quality. The yield is 2%.

Top brands

Like fund manager Terry Smith, I’m rather partial to companies selling small-ticket, branded items that are in demand during good times and bad. That’s why I particularly like stocks in the drinks industry.

The natural pick from the FTSE 250 for this sector would be Robinsons and J2O-owner Britvic. Recent results from the £2.6bn-cap weren’t exactly sparkling, due to problematic trading in France. But this should turn out to be blip rather than a crisis. The shares currently trade on a little less than 16 times expected earnings and yield 3.3%

Food on the go

If you regularly buy something at a station or airport, you’ll know just how valuable a captive market can be for a business. That’s why my third pick is SSP Group, which manages food and drink sites at busy travel locations. Its brands include Upper Crust and Ritazza, but it also manages Burger King and Starbucks outlets.

Perhaps, understandably due to the uncertainty surrounding how Brexit will impact the travel industry, it’s been a rollercoaster 2019 for the shares. However, the long-term trend is most definitely up. SPP’s shares trade on 21 times earnings and come with a 1.9% dividend yield.

Chunky yield

A combination of new regulatory hurdles and a lack of volatility in the markets have made the last couple of years pretty uncomfortable for online trading specialist (and market leader) IG Group.  

That said, recent performance has been far from disastrous and the forthcoming general election should be lucrative since traders will want to get involved in a potential ‘Corbyn crash’ or, perhaps more likely, ‘Boris bounce’. While not as cheap as they once were, its shares currently trade on a still-reasonable 17 earnings and yield a chunky 6.3%. 

Go small

All long-term investors should have some exposure to market minnows, in my opinion. That’s why my final pick is actually not a single company but a near-30-year-old FTSE 250-listed investment trust with 79 holdings.

While ongoing costs will be higher than if you were to adopt a passive investment strategy, the fact the Aberforth Smaller Companies Trust share price has grown annually by almost 13% since inception should compensate for this. Moreover, the Trust pays a dividend (most small-cap funds don’t) which, when reinvested, should help compound gains even further. 

The post Have £5k to invest? Here are 5 stocks I’d buy for a FTSE 250 starter portfolio appeared first on The Twelfth Magpie.

More reading

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

Paul Summers owns shares of IG Group Holdings. The Motley Fool UK owns shares of and has recommended Britvic. The Motley Fool UK owns shares of SSP Group. The Motley Fool UK has recommended Howden Joinery Group. 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’s Q3 statement from the £7bn-cap said trading between the beginning of July and 6 November had been in line with management expectations, helped by the “usual pick-up in customer activity” seen over this part of the year.

Indeed, in spite of our planned EU departure and other economic headwinds, Persimmon reflected that consumer confidence had “remained resilient” thanks to factors such as high employment and low interest rates. In addition to hitting targets for the current year, it had roughly £950m of forward sales reserved beyond 2019. Prices had also remained firm across its regional markets.

Elsewhere in the statement, Persimmon commented on how it was addressing concerns with the quality of its houses and its dealings with customers, something that’s previously made me avoid the shares like the plague.

The company’s care improvement plan — which included the decision to stem the release of new homes for sale in higher demand areas until construction had reached “the appropriate advanced stage” — has sent H1 sales volumes 6% lower than last year. Notwithstanding this, the FTSE 100 member was quick to reassure existing investors that “the normal seasonality of the market” would likely see numbers improve in H2. 

Given that the shares were only trading on 8.5 forecast earnings before markets opened, it’s perhaps no surprise Persimmon’s shares were posting a healthy gain this morning. I remain wary, though, and not simply because of prevailing political and economic concerns.

Increased investment in its customer services, while no doubt desirable given recent negative publicity, could have a knock-on effect on margins over time. Despite boasting a huge net cash position, the scarily-high 10% dividend yield is also covered just 1.15 times by profits (far below the desired 2 times). For a company operating in a highly cyclical industry, that’s simply not enough protection for me.  

Robust performance

Also reporting today was kitchen supplier Howden Joinery (LSE: HWDN) – a business I’ve been far more positive on over the years.

Despite strong comparators from last year, the £3.5bn-cap reported delivering a “robust” performance over the period covering 16 June to 2 November with total revenue at its depots increasing by 4.9%. Gross margin — the difference between revenue and the cost of goods divided by revenue — was in line with what management had predicted.

The outlook is also encouraging. In addition to looking likely to hit its expectations on FY revenue and profits, Howdens declared it was aiming to have opened 40 UK depots in 2019, bringing its total estate to 734. 

The shares have been in superb form over the last couple of years (+65%), helped no doubt by two recent buyback programmes (one of which has now been completed). That said, its current price-to-earnings (P/E) ratio of 17.3 is only slightly above the 16.5 average over the last five years.

This suggests the stock, while not a screaming ‘buy’, might still be worth grabbing. The 2.1% yield, while nowhere near Persimmon’s monster payout, also looks far more secure, covered as it is 2.7 times by profits. 

The post Why I’m still avoiding this cheap FTSE 100 stock yielding 10% appeared first on The Twelfth Magpie.

More reading

• Down 63% and yielding 6.3%! Is this FTSE 100 share a brilliant bargain?
• This 5.5%-yielding income stock’s at a 13-year low and cheap to-boot! Time to consider buying?
• Down 65% but yielding 6%! Is this FTSE 100 dividend stock an unmissable bargain?
• A 6.7% forecast yield and 53% below ‘fair value’! 1 stunning FTSE income stock for investors to consider today?
• How much do you need in an ISA to target a £2,066 monthly passive income in 2066

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Howden Joinery Group. 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.

In my view, it makes more sense to use a Stocks and Shares ISA for long-term savings — five years or more. Today I want to look at two FTSE 250 companies whose past performance has delivered outstanding shareholder returns.

I’ll explain why I think there’s a good chance these firms’ winning behaviours will be repeated over the coming years.

227 years of success

The WH Smith (LSE: SMWH) share price has doubled over the last five years, as strong growth in the group’s travel business has offset weaker performance on the high street.

The travel business is almost certainly the key to future growth, but it’s no new venture. The company opened its first travel branch in London’s Euston railway station back in 1848.

What does all of this have to do with buying shares today?

Firstly, the firm’s 227-year history and continued evolution suggests to me that this business is a long-term survivor. Unlike some other high street stalwarts — such as Debenhams — WH Smith has adapted and remained highly profitable.

Secondly, the latest figures from the company suggest that management is continuing to make smart, forward-looking decisions.

Solid results

Sales at WH Smith rose by 8% to £695m during the six months to 28 February. This growth was led by the travel division, where sales rose by 18% in total, including a 10% contribution from recent US acquisition InMotion.

Trading profit from the travel business rose by £3m to £44m. This was enough to offset the fall in high street profits, which fell by £2m to £48m.

Although the future of the high street business is often questioned, it’s worth remembering that it remains very profitable. One reason for this is that the firm’s high street rent costs are falling by an average of 33% on each lease renewal.

Super shareholder returns

WH Smith has returned £1bn to shareholders since 2007 via dividends and buybacks. The shares have risen by more than 400% over the same period.

The group’s current performance suggests to me that these strong returns could continue. Although the shares look pricey on 19 times earnings and with a 2.7% dividend yield, I continue to rate WH Smith as a long-term buy.

I think this is a great business

Another business that’s delivered outstanding returns to patient shareholders is Howden Joinery Group (LSE: HWDN). This business sells kitchens direct to tradesmen from its network of depots all over the UK.

By focusing on local trade buyers only, Howden gains a loyal army of expert, repeat customers. The company is also able to avoid the showroom, staff and support costs that would be needed for a retail operation.

Sales have risen by 47% since 2014, while profits have climbed 70%. This has been achieved with an increase of just 20% in the number of depots.

Even in a recession, this is a stock I’d be happy to hold. My strategy would be to buy more shares at lower prices, in order to enjoy bigger gains when the market recovered.

With a 2019 P/E of 15 and a 2.4% yield, I rate Howden as a long-term buy.

The post Forget the Cash ISA, here are 2 FTSE 250 dividend stocks I’d buy and hold forever appeared first on The Twelfth Magpie.

More reading

• My friend says this is the best cheap share in the market. Is he correct?
• Which UK stocks are investors overlooking right now?
• Here’s why WH Smith shares just crashed 20%!
• The FTSE 100’s Howden Joinery just made a bold move — should investors care?

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Howden Joinery Group and WH Smith. 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.