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3 secret income stocks to buy in June

Paul Summers — Sun, 30 May 2021 06:07:22 +0000

It’s inevitable that many investors gravitate to large, familiar companies when looking for dividends, even though their payouts aren’t necessarily more secure. With this in mind, I’m going to highlight three ‘secret’ income stocks from lower down the market spectrum that I’d be just as happy to buy in June.

Premier Miton

AIM-listed asset manager Premier Miton (LSE: PMI) is first up.

Thanks to some great performances from its funds, the firm has been attracting more investors. By the end of March, Premier had £12.6bn in assets under management. This compares favourably to the £9.1bn by this point in 2020. At £6.2m, pre-tax profit over the last interim period came in 17% higher.

On dividends, Premier didn’t disappoint either. It recently hiked the interim payout by 48% to 3.7p per share. Such a jump is indicative of a very confident board. Right now, the small-cap’s shares have a chunky forecast yield of 5.2%. This payout is also safely covered 1.5 times by expected profits.

Although there can be no guarantees in the stock market (and Premier’s fortunes will be dictated by some things beyond its control), I think all this makes the company a good dividend pick. Taking into account its strong financial position, the shares are reasonably priced at 13 times earnings.

Gateley

Legal services firm Gateley (LSE: GTLY) looks to be another decent income stock from the small-cap world, in my opinion.

In last week’s trading update, the business stated that trading had “continued to improve” over H2. It’s now predicting that full-year revenue will be at least £120m — up 9.3% on the previous year. Pre-tax profits will also be up at least 8.1% to £16m.

Analysts have the company returning 7.98p per share in dividends. That becomes a yield of 4% based on last Friday’s closing share price. Again, the payout looks likely to be sufficiently covered by profits (1.6 times). Like Premier, Gately has a reassuringly large net cash position (£20m).

As far as drawbacks go, I do need to remember that Covid-19 could continue impacting companies offering professional services. It’s also worth mentioning that the free float (the number of shares available to buy on the market) is relatively low, making it a fairly illiquid stock. This can potentially lead to big increases in the share price. Sadly, the reverse is also possible.

H&T

Pawnbroker, gold purchaser and jewellery retailer H&T (LSE: HAT) may not be everyone’s cup of tea, but I think it has good dividend credentials.

While only a prediction, analysts have it returning 7.46p per share in FY21. That gives the lowest yield of the three income stocks discussed here (2.7%). However, H&T also has the highest amount of dividend cover (2.6 times profits). Of course, the payout could end up being better if trading goes well over the rest of the year.

Clearly, H&T’s outlook is also dependent to some extent on what happens regarding Covid. Even though the firm provides “essential financial services” and has an online presence, it really needs high streets to remain open. Based on the success of the vaccination programme so far, I’m optimistic. Even so, Boris Johnson may still end up changing his road map in June.

On a more positive note, a strong balance sheet suggests H&T is capable of weathering further storms. A rebounding gold price won’t do any harm either.

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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.

3 under-the-radar dividend shares I’d buy for passive income

Paul Summers — Fri, 29 Jan 2021 08:12:19 +0000

To say I like the idea of making money from doing very little — otherwise known as ‘passive income’ — is putting it mildly. That’s why some of my savings are invested in dividend-paying companies, including some in the small-cap space. Today, I’ll discuss one example of the latter and two more that are on my watchlist.

Passive income generator

I’ve held a stake in kettle safety control supplier Strix (LSE: KETL) for some time now. I see no reason for this to change following Wednesday’s encouraging update on trading over 2020.

Yesterday, Strix stated it had seen “a marked recovery” in demand from July to December. This performance should see it deliver “modest” profit growth for the period. That’s pretty encouraging considering just how awful 2020 was for most businesses.

Of course, Strix’s small-cap status means its share price is likely to be more volatile than your typical FTSE 100 beast. As an investor with time on his side (I hope!), that doesn’t bother me. However, it might make the shares unsuitable for others with shorter time horizons.

Positively, Strix appears to have started the year well. Talk of a “strong” order book for January and Q1 should help the company reduce debt even further and continue paying passive income to holders. As far as the latter’s concerned, a 7.7p per share total dividend becomes a trailing yield of 3.3%, based on today’s share price.

Boring… but beautiful?

Another small-cap generating passive income for its holders is XPS Pensions (LSE: XPS). Analysts have estimated a 6.6p per share cash return in the current financial year (ending 31 March). Using today’s share price, this gives a chunky forecast yield of 5.5%. For perspective, the best I can get from a Cash ISA at the moment is a measly 0.55%! Trading at 12 times forecast earnings, XPS also looks very reasonably priced, in my opinion.

Any downsides? Well, the likely share price performance is unlikely to quicken pulses soon. As the largest pensions consultancy in the UK, XPS will never attract the sort of attention that other stocks might. This being the case, I wonder if the biggest risk in buying XPS is the opportunity cost of not taking opportunities elsewhere.

Still, if I was looking for a relatively mundane, uncyclical business that pays out cash to its owners without too much fuss, XPS surely ticks the box!

Outperforming expectations

A final under-the-radar small-cap stock offering decent passive income is pawnbroker H&T (LSE: HAT). Benefiting from strong demand for jewellery, and the fact that most of its 253 stores could remain open, the company experienced “stronger than anticipated trading” in the final two months of 2020. This, H&T believes, will now lead it to outperform market expectations on profit for the full year.

Sure, some investors may be put off by the image of the industry in which H&T operates. The small matter of the company’s unsecured cash loans business being reviewed by the Financial Conduct Authority is an example of this.

For those comfortable with the ethics of this sector however, analysts currently have the company down to return 9.7p per share for 2020. That would equate to a 3.4% yield at the current share price. Factor in a £34m cash balance and no debt and I suspect cash payouts might rise again in 2021.

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Paul Summers owns shares of Strix Group. 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.

Tempted by the Provident Financial share price? I think these small-cap stocks are far better buys

Paul Summers — Sat, 16 Mar 2019 11:31:49 +0000

The attempted takeover of doorstep lender Provider Financial (LSE: PFG) by less-well-known rival Non-Standard Finance — as summarised here by my Foolish colleague Rupert Hargreaves and supported by fund manager Neil Woodford — was firmly rebuffed by the former’s management team again in last week’s full-year results.

According to CEO Malcolm Le May and co, the £1.3bn offer undervalues the company and its prospects as well as presenting “significant operational and execution risks given NSF’s track record of value destruction“. Ouch.

Instead, shareholders are being asked to put their faith in Provident’s management team and their strategy to return the business to growth.

Based on last week’s numbers, they do appear to be making at least some progress. The mid-cap reported a statutory pre-tax profit of £90.7m for 2018 compared to a £147.9m loss the year before.

Shares understandably reacted well to the news, although they’re still worth 75% less than the 2,300p-a-pop valuation hit back in April 2017.

Quite what happens next is anyone’s guess, particularly as the Competition and Markets Authority (CMA) has confirmed that it will investigate Non-Standard Finance’s bid and Provident has refused to comment on whether it is in talks with other companies on a possible merger.

Personally, I can do without the hassle of wondering how this increasingly hostile state of affairs will resolve itself. Investing is hard at the best of times and attempting to profit from such uncertainty (as opposed to the more general ‘be greedy when others are fearful’ maxim) is fraught with risk.

Moreover, the dividends aren’t really worth the bother. A 10p total cash return for the last financial year gives a trailing yield of just 1.7% — far less than you can get elsewhere in the market.

All things considered, I certainly won’t be joining the queue for Provident’s stock.

Hassle-free

Right now, I still favour a different set of alternative ‘financial’ stocks, namely pawnbrokers Ramsdens Holdings (LSE: RCX) and H&T Group (LSE: HAT).

Last week, the latter released another encouraging set of full-year numbers, which included a 13.4% rise in pre-tax profit to £13.5m and, interestingly, a 37.6% rise in its net loan book from £14.9m to £20.5m.

For its part, Ramsdens recently revealed that it had bought 18 stores trading as The Money Shop for a total consideration of £1.5m. Management expects these will make “a small contribution” to pre-tax profit in FY 2020 and “approximately £0.6m” the following year. More deals like this are expected.

To be clear, these are not glamour stocks whose share prices will rocket. They are, however, well run, diversified businesses (both also offer foreign exchange currency services and are involved in gold purchasing and jewellery retail) and should do well if the economy takes a turn for the worse in the next few years.

Another positive is that both still trade on the same reasonable valuation of around 11 times forecast earnings. Dividend yields are pretty much identical at 4.1% and are covered over twice by expected profits at each company.

That said, I’m perfectly happy to stick with only owning stock in Ramsdens for now. Returns on capital and operating margins are higher at H&T’s smaller rival and it also had net cash of £12.4m at the half-year point back at the end of November. Expect an end-of-year trading update in early April.

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Paul Summers owns shares in Ramsdens Holdings. 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.

This secret small-cap growth and dividend stock still looks ridiculously cheap

Paul Summers — Tue, 14 Aug 2018 13:22:32 +0000

Thanks to their potential for growing revenue and profits at a faster rate than most lumbering FTSE 350 stocks, it’s not hard to see why so many private investors regard small and micro-cap companies as the source of potential riches. Add a bit of income to the mix (which can then be reinvested), and the benefits from focusing lower down the market spectrum arguably outweigh the risks involved, particularly if you’re a young investor with plenty of years in the market ahead of you.

I’ve long thought pawnbroker H&T Group (HAT) fits the bill nicely.

“Solid start”

Having seen an influx of new customers, pre-tax profit rose 10.9% to £6.1m in the first half of 2018. That’s a pretty good result given that the average gold price dipped 2.6% (to £958 per troy ounce) over the reporting period. All told, the company’s net pledge book rose 8.6% in value to £47.8m.

Elsewhere, the £117m cap’s personal loan book soared by 78% in value over the reporting period to £17.8m. In addition to this, I particularly like the fact that 54% of H&T’s lending now falls outside of the “High-Cost Short Term credit category“, implying that it has no intention of pursuing a questionable ‘growth-at-any-cost’ strategy.

Hailing a “solid start to the year“, CEO John Nichols stated that the company would carry on investing in its digital offering following the overhaul of the retail-focused www.est1897.co.uk, in addition to H&T’s main site. Given the importance of offering a quality online experience these days, that seems sensible to me, even if the increase in expenditure has contributed to a sizeable rise in net debt from 11.5m in June 2017 to the £16.8m revealed today.

But H&T should have appeal for income as well as growth-focused investors. The 2.3% increase to the interim dividend (to 4.4p per share) may look modest but the company is forecast to yield 3.7% in the current financial year, with the payout easily covered by profits.

H&T’s shares were up over 4% in early trading, suggesting that the market is more than satisfied with progress at the Sutton-based business. Notwithstanding this, the stock still looks a screaming bargain at just 9 times earnings, particularly for those who are pessimistic on the health of the UK economy in the short-to-medium term.

Even bigger yield

While I continue to be a fan of H&T, I’m even more positive about its high street jewellery rival Ramsdens Holdings (LSE: RFX). It does, after all, boast a higher forecast yield (4.5%) and net cash position.

That said, the recent disposal of shares by management hasn’t helped sentiment towards the stock, compounded by investors’ growing indifference to the shiny stuff. Back in June, the company’s IT Director, the wife of its Operations Director and CEO Peter Kenyon all sold significantly large proportions of their holdings.

While such news may have unnerved some investors, I can’t see anything to worry about just yet. With recent trading being very strong, I’m attributing the sales as nothing more than a desire to crystallise profits following the doubling of Ramsden’s share price since coming to the market back in February 2017. I could be wrong, of course.

Even if the stock continues to struggle for a while yet, the fact that it changes hands on a near-identical P/E suggests Ramsdens is just as much — if not more — of a bargain as H&T.

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National Grid plc isn’t the only defensive dividend stock I’d buy today

Paul Summers — Mon, 04 Sep 2017 08:48:23 +0000

While no investment is without risk, power provider National Grid (LSE: NG) comes close thanks to its virtual monopoly on the market it operates in. It’s also a particularly good company to hold if you think that the ongoing political uncertainty surrounding Brexit (not to mention growing tensions between North Korea and, well, everyone else) could lead to share prices losing the fizz they’ve generally shown since last July. With inflation also outpacing wage growth, it’s likely that we’ll see a weakening of sentiment towards consumer-focused stocks as we move closer to our targeted EU departure date of March 2019. That capital will need to go somewhere and where better than into a company whose operations are so vital to our everyday lives?

Trading at 16 times forecast earnings for the current year, National Grid will never excite, but surely that’s the complete opposite of what those depending on income from their investments are looking for. The shares currently offer a corking forecast 4.9% yield, covered 1.3 times by profits. That’s some reward, even if the stock has lost some of the recent momentum that led its price to almost breach the £11 mark back in May.

Joining the list

Of course, no rational investor would pin all their hopes on just one company. For this reason, I’d be highly likely to add pawnbroker, gold purchaser and personal loans provider H&T (LSE: HAT) to a list of companies I’d buy if I was looking to generate reliable income from my portfolio.

In its recent interim results, the Sutton-based company reflected on a “strong start” to the year. Pre-tax profits in the six months to the end of June were up a very encouraging 62% (to £6m) thanks in part to a rise in the price of gold as a result of sterling’s recent weakness. Competitive pricing and a growing awareness of the company among the general public saw the £123m cap’s loan book rise just over 87% to £11.8m.

Elsewhere, H&T claimed that the launch of a personal loan product with APRs of less than 50% would make it more attractive to those wanting access to loans over the longer term. Recent investment in its pre-owned watch and jewellery website (est1897.co.uk) should also, it believes, help to increase its share of this market.

Like National Grid, I think shares in H&T would be a fairly safe bet in the event of a market downturn. While a proportion of its fortunes will always depend on the price of gold, history shows that pawnbrokers have generally done rather well during troubled times.

Despite recent solid performance, the 120-year-old firm’s shares still trade on a fairly reasonable valuation of 15 times earnings for 2017. What’s more, a low price-to-earnings growth (PEG) ratio of just 0.83 suggests investors are getting access to lots of growth for their money.

Yielding a forecast 3.1% in the current year, H&T’s payouts may be quite a bit less than those of National Grid, but dividend cover is a lot higher at 2.2 time profits. The recent 10% hike in the interim dividend — from 3.9p to 4.3p per share — is encouraging and analysts are already predicting a 13% rise in the full dividend in 2018.

While the company is very much a minnow compared to the £33bn cap, I think the rewards from investing in H&T could be just as good.

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2 stocks I’d buy and hold for the next five years

G A Chester — Tue, 15 Aug 2017 10:57:41 +0000

Investors could be heading into a period of difficult and volatile times. Many markets and stocks are at historically high valuations but economic growth is by no means assured and we have a loose-cannon president in the US and Brexit negotiations in Europe to boot.

Today, I’m discussing two stocks I’d be happy to buy and hold for the next five years.

Thriving business

H&T Group (LSE: HAT) shares moved 10% higher to 295p in early trading today after the pawnbroker and personal loans specialist reported a “strong start” to its 120th anniversary year. It said this reflected “a strong operational performance and a favourable gold price.”

For the six months ended on 30 June, H&T posted a 16% rise in revenue and a 64% increase in earnings per share (EPS). There was solid growth in its core pawnbroking operation and strong growth in its expanding personal loans business. In the latter, customers are flocking to products that are all below the regulatory caps on interest rates and fees “with the majority significantly lower than the cap.”

So, in addition to the attractive counter-cyclical qualities of the industry in general, H&T is appealing, because its scale and sustainable business model is enabling it to thrive against a background of toughening regulation that is driving smaller, exploitative businesses out of the market.

Undervalued

Ahead of today’s numbers, analysts had been forecasting full-year EPS of around 22p, giving an undemanding price-to-earnings (P/E) ratio of 13.4. With the company having already posted EPS of 13.1p for H1, I expect to see earnings upgrades, making the P/E lower still. I also expect to see a full-year dividend of at least 10.2p, giving a prospective yield above 3.4%.

I reckon this £110m AIM-listed company is undervalued and has the credentials to outperform the market in what could be testing times ahead for many companies.

More than a stock for traders

Fresnillo (LSE: FRES) — the world’s largest silver miner, as well as a significant gold producer — is another stock I’d be happy to buy and hold for the next five years. The FTSE 100 giant has a market capitalisaton of £11.2bn at a current share price of 1,520p.

The price is 23% below the 1,983p reached in the aftermath of the Brexit vote, showing that demand for the stock can rise rapidly when markets take a pessimistic turn. But Fresnillo is more than a stock for traders of short-term, sentiment-driven price movements. I believe its business fundamentals and prospects make it an attractive proposition for medium- and longer-term investors.

The company has high-quality, low-cost assets, which allow it to extract silver and gold profitably even at times when prices of the metals are depressed. And the future looks good for many years to come, because it not only has long-life producing assets, but also high-potential development projects and advanced exploration prospects.

Growth at a cheap price

Analysts are forecasting EPS of 63 cents (48.5p) for the current year, giving a P/E of 31.3. While the P/E is on the high side, earnings growth of 39% gives an attractive price-to-earnings growth (PEG) ratio of 0.8, which is nicely on the value side of the fair value PEG marker of one.

This makes Fresnillo’s shares look very buyable to me, particularly as its earnings and dividends (current yield 1.5%) are both forecast to continue growing strongly next year.

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G A Chester 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.

2 ‘undervalued’ growth shares I’d buy in May

Peter Stephens — Wed, 19 Apr 2017 11:47:17 +0000

Finding stocks which offer better growth prospects than anticipated is more common than many investors realise. Certainly, markets are relatively efficient, but doubts surrounding a stock or a sector can lead to share prices which prove to be undervalued. With that in mind, here are two shares which could deliver better capital growth performance than the market currently anticipates.

Solid performance

While the outlook for UK retailers is relatively downbeat, Primark continues to outperform its peers. Its parent company, ABF (LSE: ABF), reported solid progress on Wednesday in its results for the 24 weeks to 4 March. Primark recorded a substantial increase in selling space, which when coupled with its improving consumer offering allowed it to grow market share of the clothing market. In fact, Primark’s growth contributed to a 23% rise in adjusted operating profit for ABF during the period.

Looking ahead, more growth could be on the horizon. Primark has historically performed well when shoppers find their disposable incomes squeezed and they trade down to budget operations such as Primark. As such, rising inflation and uncertainty for the UK’s economic outlook could be good news for the business and for ABF.

ABF trades on a price-to-earnings (P/E) ratio of 25.8, which may seem high given the uncertainty surrounding the outlook for the UK retail sector. However, with earnings due to rise by 13% this year, the company’s price-to-earnings growth (PEG) ratio of less than two indicates that now could be a perfect time to buy. The company has a diverse business model and may benefit from a further weakening of sterling over the medium term.

Growth potential

Also having the potential to deliver rising profitability over the medium term is pawnbroker H&T (LSE: HAT). Its performance as a business suffered a few years ago, with double-digit declines in its bottom line. However, it has arrested the decline and posted two consecutive years of double-digit rises in profitability.

Looking ahead, the company could benefit from a squeeze on consumer spending. Pawnbrokers became increasingly popular during the credit crunch, when people sought to monetise assets such as gold and jewellery. While the outlook for the UK economy may not be as severe as in 2008, there is the potential for a real-terms decline in consumer disposable incomes. As such, H&T is forecast to record a rise in its bottom line of 8% in the current year, followed by further growth of 20% next year.

With the company’s shares trading on a PEG ratio of just 0.6, now appears to be the right time to buy them. They currently yield 3.4% from a dividend which is covered 2.2 times by profit. As such, they could become increasingly popular if their dividend growth rate beats inflation over the long run. This could translate into significant capital growth for the company’s investors.

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Peter Stephens 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.