The idea of earning passive income from AIM stocks might seem a little odd. After all, a substantial portion of the junior market is made up of growth-focused companies. What’s more, small-caps tend not to be the sort of shares that allow one to sit back, relax and collect cash. After a bit of digging, however, I’ve found three I’d buy.

Ienergizer

Operating on six continents, Guernsey-based Ienergizer (LSE: IBPO) provides outsourcing services to companies in fields including banking, healthcare and gaming. This diversification should make earnings — and therefore dividends — pretty secure. Analysts have the stock returning 15p in the current financial year. That gives a juicy yield of 5%. 

Other things I like about IBPO include the high returns on capital and reasonable valuation (17 times earnings). The fact that founder Annil Aggarwal holds a massive amount of shares should also ensure that his interests are aligned with those of retail investors like me.

As with many AIM stocks however, IBPO could prove to be a volatile holding. The ‘free float’ — the amount of stock available to trade on the market — is very small at just 17%. This could mean it takes only a few buys or sells to make the share price motor or sink respectively.

Urban Logistics REIT

Urban Logistics REIT (LSE: SHED) is a second AIM stock I’d buy. Based on the explosion in demand for warehouse space, I reckon this is a pretty bulletproof option for dividends. 

The company has 76 assets on its books and an occupancy rate of 93%. Tenants include DHL, Amazon and Hermes. Margins for this kind of work tend to be very good indeed. 

Another attraction is the valuation. SHED may be a lot smaller than peers such as Tritax Big Box, but it’s also cheaper to buy. The stock currently trades at 21 times earnings. A 4.9% yield is also far more than I’d get from the FTSE 250 constituent. 

I can’t see too many downsides to me adding SHED to my portfolio. That said, a slowdown in the UK economic recovery for whatever reason could still impact sentiment.

Then again, a move away to the main market is looking increasingly likely. This increase in the liquidity of its stock should attract the attention of more investors and help push the shares higher. 

FRP Advisory

A final AIM stock I’d buy would be FRP Advisory (LSE: FRP). The company specialises in corporate finance, debt and restructuring. In its own words, FRP gets “under the skin of businesses in complex and difficult situations”. Thanks to Covid-19, I don’t think there’ll be a shortage of clients once government support fizzles out.

Trading is already going well. Back in July, FRP reported a 25% jump in revenue to £79m in its last full year. As one would hope, the firm’s balance sheet also looks robust with a net cash position.

That said, it’s worth mentioning that the dividends are the lowest of the three mentioned. A 4.37p per share distribution equates to a 3.7% yield. That’s only slightly more than I’d get from buying a FTSE 100 tracker.

So, while I like the defensive nature of this business, I’d need to question whether it’s worth the hassle if truly passive income were my primary objective. It helps that FRP is the cheapest AIM stock mentioned here (16 times earnings).

The post 3 AIM stocks I’d buy for passive income appeared first on The Twelfth Magpie.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended Tritax Big Box REIT and has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. 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.

Segment problems

The main cause of Provident Financial’s difficult year has been the performance of one of its four divisions. The Home Credit division has experienced severe problems which culminated in the group’s CEO resigning from his position. The business sought to improve its overall performance through changing the employment status of agents within its Home Credit division, but this had the effect of reducing sales and collections.

Now, the company has changed its management structure and according to its most recent update, there has been an improvement in the division’s performance. This could indicate the start of a turnaround. While it is clearly early days and there is no guarantee of further improved performance, the trend appears to be a positive one. This could act as a positive catalyst on the company’s share price performance in future months.

Value appeal

After falling by such a large amount in a short space of time, the company now trades on a price-to-earnings (P/E) ratio of 15.5. This suggests that there could be upside potential on offer, since the stock is forecast to post a rise in earnings of 64% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of 0.2, which suggests that it may offer a wide margin of safety. This could limit its downside and mean that it offers high growth potential in the long run.

More difficulties in 2017

Of course, Provident Financial is not the only stock which has posted disappointing returns in 2017. Technology services and media solutions company iEnergizer (LSE: IBPO) has dropped by 48% since the start of the year, with investors responding negatively to its first-half update on Monday. That’s despite the company making progress in its financial performance, with revenue increasing by 6% and operating profit up 9.1%.

Looking ahead, the company is confident about its future. It seems to have a sound strategy, with a focus on recurring revenue streams from business critical processes, new product launches and improving customer loyalty. It has a strong balance sheet, with cash flow improving and it being capable of reinvesting for future growth as well as engaging in M&A activity. Therefore, with a PEG ratio of just 0.9, it appears to be worth buying for the long haul.

Of course, both stocks could remain highly volatile. Their share prices may fall in the near term. However, with upbeat outlooks, they could offer high growth prospects in the long run.

The post Provident Financial plc is a growth bargain I’d buy and hold for 25 years appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

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.

Attractive operations 

iEnergizer (LSE: IBPO) describes itself as a global provider of Business Process Outsourcing (BPO) solutions and helps other firms increase their operating efficiency by dealing with their customer communications and by providing back-office functions. The firm claims to serve leading banking, healthcare, publishing, legal, financial services, gaming and utility companies through 11 delivery centres globally.

For many firms, large and small, outsourcing makes a lot of financial sense, so I’m not surprised to see iEnergizer’s business prospering. The quality of trade shows up in the numbers with return on capital running just over 18% and net cash from operations lending consistent robust support to profits. 

One of the attractions of this type of operation is that much revenue is recurring. iEnergizer embeds itself into its customer operations and it then becomes difficult and expensive for these customer firms to switch to another provider. 

Growth and value

City analysts watching the company expect earnings to lift around 5% for the year to March 2018 and the directors are optimistic about the firm’s long-term growth prospects. The shares are up almost 600% since last spring, demonstrating strong momentum, but the value on offer remains compelling. 

At today’s share price around 82p, iEnergizer trades on a forward price-to-earnings (P/E) ratio of just under seven for the year to March 2018. There’s no dividend, but that’s not for the want of cash. Borrowings seem under control, running around twice the level of annual operating profit, and there’s a handy pile of cash sitting on the balance sheet.

My second quality, growth and momentum gem is Headlam Group (LSE: HEAD), which describes itself as Europe’s leading floor-covering distributor. The firm markets, supplies and distributes floor covering products in the UK, France, Switzerland and the Netherlands. Headlam buys from floor covering manufacturers and sells to independent floor covering retailers and contractors.

Trading well

Business has been good. The compound annual growth rate of earnings per share is running at around 9% for the last few years and the dividend growth rate at about 11%. The shares have responded well, up around 135% since autumn 2011 and continuing to show good momentum. A strong record of cash generation adds to the case for quality, as does a return-on-capital figure running around 19%.

At today’s 588p share price, you can pick up shares in the firm for a forward P/E rating just under 15 for 2017 and the forward dividend yield is around 4.7%. City analysts following Headlam expect earnings to cover the payout almost 1.5 times. Overall, this doesn’t strike me as an excessive valuation.

Both these firms seem to be trading in a sweet spot demonstrating quality, growth and momentum in their operations and on the share price chart. I think there could be more to come on total returns for investors in each case.

The post 2 quality, growth and momentum stocks I’d buy now appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

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

Still, the company continues to have a relatively strong balance sheet, with cash resources of $110m. And with significant progress having been made in advancing the Sea Lion development during the year, Rockhopper appears to be making encouraging progress in what was a transitional year.

Furthermore, Rockhopper has strengthened its asset base via the acquisition of Falkland Oil & Gas, and it appears to be in a better position as a consequence to deliver profitability in the long run. Certainly, its performance depends on the price of oil and on progress made in unlocking the potential value from its asset base. But with production increasing in its Mediterranean assets and the scope to develop its other assets, it may be of interest to less risk-averse investors.

Risky bet?

Also releasing news today was Victoria Oil & Gas (LSE: VOG). Its shares have risen by around 10% after it announced a $26m debt facility that will support its production expansion at Logbaba through 2016 and 2017. This is encouraging news for the company, since it now expects to increase gas production from the Logbaba project by 30% following the 107% increase in average daily production in 2015.

The move may be seen as positive by the company’s investors since it means there’s no need to raise the funds from shareholders. And with Victoria Oil & Gas maintaining a prudent view on its gearing levels, the outlook for the business remains relatively encouraging. As such, it could be of interest to less risk-averse investors, although with there being so many other opportunities among larger oil and gas plays that arguably have less risk, most investors may prefer to look elsewhere first.

Business momentum

Meanwhile, shares in iEnergizer (LSE: IBPO) have risen by a whopping 65% today after it announced a very positive trading update. The digital publisher and technology company expects to announce a significant increase in EBITDA (earnings before interest, tax, depreciation and amortisation) for the year to 31 March 2016, which is above and beyond its previous target. The reason for this is a combination of renewed business momentum, contract wins and the successful implementation of a transformation plan.

As a result of today’s positive update, investor sentiment in iEnergizer has markedly improved and this could push its share price higher over the short run. And while this may lead less risk-averse investors to become interested in the stock, it may be prudent to await further details of the company’s improved performance before buying a slice of it.

The post Are Victoria Oil & Gas plc, Rockhopper Exploration Plc And iEnergizer Limited ‘Screaming Buys’ Following Today’s Updates? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

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