You can get a higher return from FTSE 250 stocks, some of which currently offer dividend yields approaching 10%. Today, I’m going to take a look at three such companies, all of which support dividend yields of around 7%. 

Global champion

Despite regulators’ crackdown on some of the company’s most profitable trading products, shares in financial services group IG (LSE: IGG) have remained a solid investment.

Following the crackdown on CFD and Binary options trading, the group’s earnings declined 30% in fiscal 2019. City analysts expect the pain to continue into the current financial year as well.

However, analysts are also forecasting a return to growth in fiscal 2021, as the company re-focuses its efforts on growth in emerging markets and high-margin clients. 

According to analysts projections, this growth should safeguard IG’s dividend, which is not currently covered by earnings per share. Still, a robust net cash balance of £309m at the end of fiscal 2019, tells me the company has the resources to maintain its 6.6% dividend yield for around two years before it runs out of cash. 

At the time of writing, the stock is trading at a forward P/E of 16.7, falling to 14.9 for 2021 as growth returns. 

Undervalued opportunity

Another FTSE 250 dividend champion I think is worth considering is insurance group Hastings (LSE: HSTG). Shares in this business have come under pressure recently following a warning about claims inflation.

It’s costing more to repair cars after accidents, and this is having an impact on the group’s bottom line. As a result, management believes the company’s loss ratio — the amount an insurer spends on claims compared to how much it earns on premiums — may move above a target range of 75-79%.

This warning’s disappointing, but I’m optimistic about the company’s long term prospects. Insurance is a cyclical business, so if claims costs are rising, it shouldn’t be long before premiums do as well. That should help Hastings return to growth. 

It looks as if it could be an excellent time to take advantage of the company’s recent problems. Shares in the group are trading at a 2020 P/E of 10.3 and yield 7.3%. I reckon that’s a price worth paying for this up-and-coming insurance firm.

Turnaround incoming 

The third FTSE 250 income champion I’m going to profile is Provident Financial (LSE: PFG). Like the other businesses in this article, Provident has fallen on hard times. Still, I believe that this could be an excellent opportunity to snap up the undervalued stock as the company makes a recovery.

Since 2017, the doorstep lender has struggled to attract customers. But in the third quarter of this year, the group reported a 6% rise in new and returning customers. According to management, this momentum will continue throughout the rest of 2019, which should stabilise the business. 

If management’s forecasts come to fruition, City analysts expect earnings to return to growth in fiscal 2020 too. Based on these targets, the stock is dealing at a forward P/E of just 8.2 and analysts have also pencilled in a prospective dividend yield of 7.4% for 2020. These numbers show if Provident’s recovery gathers steam, investors could be well rewarded.

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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.

Shifting business model

Stagecoach used to be one of the largest rail franchise operators in the UK, but in April the group was disqualified from bidding on three rail franchise contests because of “non-compliant bids.“

The company is taking the government to court over its decision to exclude it from the bidding process, and the cases are expected to be heard in the High Court in early 2020.

In the meantime, Stagecoach is primarily a bus operator. It has a strong track record in this business. The company has managed most of the buses in London for some time, and management believes that this track record puts the group in a prime position to win contracts that are up for re-tender during the next few months.

Stagecoach says that it is on track to hit full-year expectations for growth, and is continuing with its plan to return £60m to shareholders via a share buy-back, according to a trading update published this morning.

Analysts believe the company will earn 14.5p per share for 2019, which puts the stock on a forward P/E of 9.1. In my opinion, this multiple slightly undervalues the business. The rest of the transportation sector is trading at a forward P/E of 11. On top of the discount valuation, shares in the public transport operator support a desirable dividend yield of 5.8%.

International diversification

If Stagecoach is not for you, another FTSE 250 income champion that I reckon could be an excellent investment for a Stocks and Shares ISA is IG Group (LSE: IGG).

City analysts are expecting IG to report a 7.4% decline in earnings per share for fiscal 2020. Regulations introduced to try and stop inexperienced traders taking on more risk than they can afford are weighing on group profitability.

But IG has more to offer than leverage trading products. The company also provides a stockbroking service and has operations around the world.

Returning to growth

IG’s diversification has helped the company in the face of regulatory changes. Analysts believe it will return to growth next year.

Based on the current City estimates, shares in the financial services group are trading at a forward P/E of 14.8, falling to 13.2 for fiscal 2021. On top of this, the stock supports a dividend yield of 7.4%. Unfortunately, this distribution is not wholly covered by earnings per share, which is a concern.

That being said, IG does have £310m of net cash on its balance sheet. According to my calculations, with the dividend costing around £170m per annum, the cash balance is enough to sustain the payout for nearly two years if profits evaporate.

On that basis, I reckon income investors can buy the shares safe in the knowledge that the dividend is here to stay for the foreseeable future.

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Falling, falling

Barclays (LSE: BARC) is another that has failed to make progress, its share price falling another 16% over the past 12 months, and 25% over two years. The £27.6bn FTSE 100 group has, like the rest of the sector, been hit by Brexit, as well as low interest rates, the global economic slowdown, lingering after-effects of the financial crisis, and the subsequent regulatory onslaught.

These continue to hit revenues with the bank reporting a 2% drop in the first quarter. Even more worryingly, credit impairment charges and other provisions jumped 56% to £448m, and that’s while the economy still growing.

Activist threat

Despite that, Barclays Group did post a profit before tax of £1.5bn. This looks good against Q1 2018’s £200m loss (although that was disproportionately hit by litigation and conduct charges).

Barclays International continues to pose a conundrum, as profits fall there too. But management is reluctant to offload its investment banking arm, one of the last remaining European remnants following the departure of Deutsche. Activist investor Edward Bramson, who has a 5.5% stake, is on the case.

Low interest

The cloud hanging over the sector is confirmed by a valuation of just 7.2 times forecast earnings, well below the 17.85% seen on the FTSE 100 as a whole. This either looks like a tempting opportunity or a value trap, depending on your mood.

The Barclays share price tempts due to its lowly valuation and 4.7% forecast yield, covered 2.9 times by earnings. Next year, that’s forecast to hit 5.4%. Brexit and the global slowdown remain a menace and with interest rates looking to head back down rather than up, the bank could struggle to improve those all-important net interest margins.

Despite these worries, I still believes Barclays merits a place in a well-balanced portfolio.

IG for me

FTSE 250-listed online trading company IG Group Holdings (LSE: IGG) is steady today despite reporting a 16% fall in its net trading revenue to £476.9m in its preliminary results for the year to 31 May.

The slippage is due to previously-announced European Securities and Markets Authority (ESMA) restrictions on the trading of CFDs and binary options, as well as “less favourable” market conditions, particularly in the second half of 2019.

Recovery trade

The FTSE 250 group also posted a 2% drop in total operating costs to £284.3m, while operating profits fell 31% to £192.9m. The bad news was evidently priced in, as the stock has fallen a third over the last year, and investors are looking forwards as management expects to restore revenue growth in 2020, and continues to recruit and retain a high quality client base.

IG has also maintained its full-year dividend of 43.2p per share, and will continue to hold it there until earnings allow progression. That means the £2.1bn group has a whopping forecast yield of 7.1%, even if cover is thin at 0.9. No wonder Paul Summers has been scooping it up.

City analysts anticipate a return to earnings growth in 2021. The dividend should give ample reward while you wait for trading conditions to swing back in IG’s favour.

The post Why I’d buy the Barclays share price and this 7%+ yielding FTSE 250 bargain appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. 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.

However, towards the end of 2016, regulators across Europe announced they would be looking to crack down on the sale of risky derivatives contracts by companies like IG to inexperienced retail traders. Regulators’ initial proposals finally became law during the second half of 2018, and they have had a significant impact on IG.

Management now believes that revenues will fall 17% year-on-year for the recently ended 2019 financial year. Operating profit for the period is expected to be around £190m, compared to £281m.

These figures are disappointing, but I believe there is a great opportunity here. As well as publishing a trading update for the financial year ending 31 May 2019 today, IG also announced its four-point business plan for returning to growth.

Growth plan

To deliver revenue growth, management has set out what it is calling its “four levers” that include expanded distribution channels, a global firm with a more local focus, segmented target markets and multi-product offerings. 

Essentially, this corporate speak means that the company is planning to look away from its core European and UK markets for growth, targeting opportunities in regions such as Australia, Singapore, the United States and Japan where it is still a relatively small operation. IG is also planning to launch new products and partnerships in its key markets. One potential opportunity the group has identified is the leverage securities market for retail clients in Hong Kong.

According to management’s estimates, revenue from these “four levers” or “significant opportunities” will be around £60m for the recently concluded 2019 financial year. Going forward, the group is targeting revenues of £160m from “significant opportunities” by 2022 which, when combined with revenue growth of around 3% to 5% over the medium term from core markets, puts IG on track to report revenues that are approximately 30% higher from current levels in fiscal 2022, management believes.

Time to buy?

There’s no denying that IG has been through a rough patch over the past 24 months, but now management has a plan in place to return to growth, I’m optimistic that it is on the road to recovery.

What’s more, today, management has declared that the dividend is here to stay for the foreseeable future. Specifically, today’s strategic update notes, “the company expects to maintain the annual dividend at 43.2p per share until the group’s earnings allow the company to resume progressive dividends.” This only adds to the appeal of the stock in my opinion, because, at current levels, shares in IG are yielding 9.1% so investors will be paid to wait while the business returns to growth. 

So overall, now that IG has published its plan, I think now could be the time to buy this FTSE 250 income stock. 

The post I think it’s time to buy this FTSE 250 stock yielding 9.1% appeared first on The Twelfth Magpie.

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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.

However, while this distribution might look attractive at first glance, I’m not a buyer of the shares because it seems to me as if the group is facing a revenue cliff edge. 

Revising expectations 

The last time I covered IG, I concluded that the stock might be worth buying as an income investment because it can use its size to consolidate the spread betting and contracts for difference markets (CFD) following the introduction of some strict regulations for the sector last year.

I still think IG will come out on top over the long term, but the company’s latest trading update seems to suggest the trading environment for the group is going to become a lot worse before it gets better. 

Indeed, today IG reported that during the three months to February, the second full trading quarter following the introduction of the new rules on CFD trading, revenues slumped 29% to £108m.

This is much worse than both the company and City analysts were expecting. Just six months ago, IG’s management told investors they were expecting a 10% decline in revenues. In the first quarter after the rules were introduced, revenues slumped 23%.

Trading in these first few quarters seems to suggest IG’s profits for 2019 will decline faster than expected. Analysts had pencilled in a decline in earnings per share of 23% for fiscal 2019 off the back of a 15% revenue decline. With initial figures showing revenue is declining twice as fast, I do not think it is unreasonable to suggest that IG’s earnings per share could slump by as much as 30% and possibly more this financial year, which would put the company’s dividend in danger.

Dividend danger

A 30% reduction in earnings per share indicates dividend cover will fall to just one this year, and that is assuming profits don’t fall any further than 30%.

If earnings per share decline 40%, the payout will not be covered. And even though the company’s strong balance sheet provides some cushion (at the end of fiscal 2018 it reported £352m of net cash) with earnings set to slump over the next two years, I think IG’s dividend yield is living on borrowed time.

With that being the case, I would sell the shares and buy the FTSE 100 instead.

A better buy

The reason why I think the FTSE 100 is a better buy than the financial services group is that there is a lot of uncertainty around at the moment, which makes it difficult to pick stocks.

By investing in the FTSE 100, you do not have to worry about picking individual firms, and whatever happens to the UK at the end of March, I think the index will still provide investors with a steady return as more than 70% of its profits come from outside the country.

On top of this, there’s a 4.6% dividend yield on offer, which, because it is an average of all the companies in the index, looks much safer than the distribution offered by IG.

The post I would sell this 7.8% yielder and buy the FTSE 100 instead appeared first on The Twelfth Magpie.

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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.

The business reported a 54% jump in reported revenues and an 11% increase in adjusted net profit. However, reported net profit declined 50%, and management has made the decision to reduce the firm’s dividend payout by a third, yanking back Playtech’s dividend yield from around 8% to 5.5%.

Maximising shareholder returns 

Management says the reason why it has decided to cut the dividend is “to maximise efficiency of shareholder returns.” Instead of paying cash out to investors, Playtech is returning €40m through a share buyback. Considering the stock’s current valuation (it’s trading at a forward P/E of 6.8) this seems like a sensible decision.

Having said that, I would sell Playtech after today’s results as I can see several red flags in the numbers. Specifically, I’m concerned that 2019 won’t be as strong as 2018 in terms of revenue growth. 

For example, in today’s results release, the company notes regulated B2B Gaming revenue for the first 49 days of 2019 was up 7% on the same period in 2018, although non-regulated gaming revenue for the same period declined 26%. 

The company goes on to guide that it expects to report adjusted EBITDA in the range of €390m-€415m for 2019, up from 2018’s figure of €343m, although this is assuming the Asian business “remains stable.” Further down the release, the firm notes “underlying adjusted EBITDA decreased by 21% compared to 2017, predominantly due to the fall in revenues from Asia.” If Asian revenues declined substantially in 2018, I think it is reasonable to suggest they will continue to decline in 2019, which might upset Playtech’s outlook.

So, after considering all of the above, I would avoid Playtech for the time being and invest my money in financial services group IG (LSE: IGG) instead.

Attractive opportunity 

Thanks to new regulations aimed at curbing inexperienced investor losses in the spread betting and contracts for difference markets (CFD), City analysts are forecasting a 20% decline in earnings per share for IG this year. 

The company isn’t alone in this. Virtually all spread betting and CFD providers are expected to suffer from the regulation. However, as the sector’s largest player, I think IG will come out on top. The group’s size and global diversification implies it should be able to shrug off the regulations and potentially capture market share from smaller peers.

The business has also recently been investing in other, more traditional investment products, such as share trading and it now offers ISAs for clients. These new initiatives should, in my opinion, help the group weather the storm and come out on top.

Based on the above, I think it’s worth buying shares in IG both for the group’s income as the stock yields 7.3%, and its growth potential. The shares are currently dealing at a highly attractive multiple of just 11.7 times forward earnings.

The post One FTSE 250 8% yielder I’d sell and one I’d buy today appeared first on The Twelfth Magpie.

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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.

Dividend delight

Company dividends offer the antidote to today’s low interest rate world, if you are willing to take on a bit more risk. The FTSE 100 currently yields 4.01% and some individual companies generate far more than that. 

City of London Investment Group (LSE: CLIG) is a specialist emerging markets asset manager that manages a range of institutional products investing in closed-end funds. It is a relatively small, specialist operator with a market cap of £104m.

High income

Investment growth has been steady but not spectacular, with the share price up 61% over five years. The real reward comes from its generous dividends and since launch in 2006 it has delivered a total return of 377%. It currently yields a whopping 6.91% a year, covered 1.5 times by earnings, and growth investors can benefit by reinvesting those dividends.

Emerging markets are having a tough time, and it could get worse. Assets under management fell from £3.9bn to £3.8bn in the three months to 30 September, although emerging and frontier market outflows were mostly offset by developed market inflows.

Volatility cuts both ways

City of London Investment Group still posted a £2.2m profit and increased its dividend 8% from 25p to 27p a share. It currently trades at a modest valuation of 9.9 times forward earnings. This could be a way to play recent emerging market weakness and pocket a high yield.

FTSE 250 spread betting firm IG Group (LSE: IGG) has crashed from 870p to today’s 584p in just over a month, a drop of 33%, as Q1 2019 revenues fell due to lower stock market volatility and stiffer regulation from Europe. It now trades at an apparently bargain valuation of 11.2 times earnings, and I reckon the rewards now outweigh the risks.

Brexit fix

IG thrives on stock market volatility as that gives its trader customers a bit of red meat to sink their teeth into. However, markets were relatively calm in the three months to 31 August, hitting first-half revenues which fell 5% to £128.9m.

It was also hit by a move from the European Securities & Markets Authority (ESMA) to extend a prohibition on selling binary options to retail clients for a further three months from 2 October. This ban, introduced on 2 July, led to a significant drop in trading by IG’s UK and European clients, reducing historic revenues by around 10%. The abrupt exit of boss Peter Hetherington added to the uncertainty.

Good bet

IG is responding by shifting its focus to boosting the numbers of its ‘elective professional clients’, which may include sophisticated retail clients. Brexit has threatened its ability to offer regulated financial products in all EU member states, but a German subsidiary looks likely to solve that.

This could be an attractive buying opportunity, with the stock now offering a massive forecast yield of 7.4%, covered 1.2 times. My colleague Paul Summers says this looks like a great time to take a punt on IG.

The post Attention income seekers! These 2 overlooked dividend bargains yield 7% a year appeared first on The Twelfth Magpie.

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harveyj 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.

The firm’s shares fell 15% in May when the company warned on profits after seeing sales slow when the late winter weather reached into March and April. Investors were concerned that with many shoppers deserting the UK’s high streets, Greggs’ stores could suffer.

But today’s results appear to confirm that this was a one-off problem caused by the weather. Management said the bakery chain saw “resilient trading” and “continued growth in developing strategic categories,” such as breakfast and hot food options during the first half.

Underlying operating profit for the six months was £25.7m, down from £27.6m for the same period last year. But chief executive Roger Whiteside said he expects underlying profit for the full year to be “at a similar level to 2017.”

Fill your belly with these

Whiteside is a veteran of the food-on-the-go industry. Under his management, Greggs has diversified into breakfast food, coffee and healthier options, such as salads. His most recent move is to target evening food with a £2 offer for a slice of pizza and a drink after 4pm.

This strategy has been very successful. Earnings have risen by 50% since 2013 and the group’s return on capital employed of 23% is also very impressive. Cash generation has been consistently strong and the group has traded with a net cash balance for some years now.

I expect this business to return to growth over the next few years. The shares currently trade on 16 times forecast earnings with a 3.3% yield. I’d rate them as a long-term buy for income and growth.

Quality profits

Another business I rate highly for its profitability and quality is FTSE 250 online trading specialist IG Group Holdings (LSE: IGG).

In its annual results last week, IG said that revenue rose by 16% to £569m during the year to 31 May. Operating profit rose 32% to £281.1m, giving an operating margin of 49%. That’s a superb figure.

This business has always been highly profitable, but investors have been concerned that new EU regulations restricting the amount of leverage available to retail customers would crush profits.

The impact of these changes seems likely to be more limited than was first expected. IG said that historic revenue would have been around 10% lower under the new rules. Sure enough, revenue is expected to fall by about 7.5% this year, leading to an expected 15% drop in earnings.

Return to growth

However, the group’s focus on high-value professional clients will limit the impact of the changes. And management expect profits to start rising again in 2019/20, thanks to continued expansion and new leveraged products that will be compliant with the EU rules.

I don’t have too many concerns about IG’s business, which has a reputation as one of the best quality operators in this sector. Cash generation is consistently good and the stock offers a forecast yield of 4.5% that should be covered by earnings. I’d be happy to buy and hold this stock in a long-term income portfolio.

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Roland Head 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.

But recently, the group has run into some issues and its shares, which were once believed to be one of the safest investments around, have dived. 

Trading headwinds 

Between mid-June 1998 and September 2013, the shares produced a return for investors of 820%, outperforming the FTSE 250 by staggering 600% over the same period. 

However, since hitting this high water mark, Cussons has struggled to recover. Over the past five years, the stock has underperformed the FTSE 250 by just under 100% excluding dividends. 

So what’s gone wrong? Around 38% of the company’s sales come from Africa, specifically Nigeria, which was booming at the beginning of this decade. Unfortunately, the growth hasn’t lasted, and the country is struggling with economic instability. At the same time, in its home market of the UK and throughout Europe, it is facing more competition from upstart rivals and higher marketing costs that are required to stay ahead of the game. 

It does not look as if these pressures outlined above will alleviate any time soon. In fact, it issued its third profit warning of the year today as trading conditions in the UK and Nigeria have “remained difficult” and “tightened further” within Nigeria in particular. 

The firm now expects profit before tax to come in at the lower end of its £80m to £85m forecast published back in March. And it does not look as if management is expecting a recovery in trading any time soon.

Today’s update warns that “macro conditions will remain challenging” throughout the rest of 2018 and while management is trying to strengthen the group’s portfolio “to better withstand the subdued levels of consumer confidence,” I’m inclined to believe Cussons’ star has further to fall. 

On top of this dour outlook, the shares look expensive. It is currently trading at a forward P/E of 17, which to my mind is far too expensive considering the fact earnings are falling, although my Foolish colleague Peter Stephens seems to disagree. 

A global trading giant 

It is now on my ‘avoid’ pile, and one company I believe might be a better buy is IG Group (LSE: IGG). 

IG has grown over the last 10 years from an upstart into one of the City’s most influential companies. It has also expanded around the world and now offers trading solutions for customers in 17 countries globally. 

Even though the City expects the company’s earnings to fall 14% next year after the introduction of stringent regulations on CFDs come into force, I believe this to be nothing more than a speed bump for the group as it continues to leverage its global presence and trading technology to attract customers. 

In fact, I believe IG could become one of the world’s largest and most recognised financial trading providers in the world over the long term as regulation forces banks out of the business and stymies the growth of smaller companies. Based on this protection, I believe the shares look cheap today, changing hands at only 17 times forward earnings. 

What’s more, the firm has £300m of cash on the balance sheet (9% of its market cap), and the stock supports a dividend yield of 4.5%.

The post 1 FTSE 250 dividend share I’d sell and one I’d buy and hold forever appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of PZ Cussons. 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.

If you’re looking for steady income for your portfolio, you can’t go wrong with British American Tobacco (LSE: BATS). 

The tobacco producer is highly profitable and returns most of its income to investors. For the past decade, British American has reported an average operating margin of more than 30% and almost all of this income has been returned to investors or reinvested in the business to help spark up earnings growth. 

Double-digit growth 

Following the acquisition of Reynolds American in the US, for the years ahead, City analysts are expecting British American’s earnings to really take off. 

Earnings growth of 13% is predicted for 2017 followed by an increase of 10% for 2018, which is highly impressive considering the size of the group (£113bn market cap.). As well as this growth, the shares are set to support a market-beating dividend yield of 4% for 2018 with the payout covered 1.5 times by earnings per share, so there’s room for flexibility if earnings growth starts to stumble. 

That said, British American has grown its payout by around 10% per annum for the past few years, and there’s no reason why this can’t continue as earnings continue to expand.

The one downside about the shares is the valuation. Shares in British American currently trade at a forward P/E of more than 17, which is a bit expensive for my liking, although this valuation is justifiable considering the company’s growth and defensiveness. 

Falling out of favour 

Another top income stock you should consider for your portfolio is IG Group (LSE: IGG). Recently, shares in IG have been under pressure following a move by regulators to crack down on CFD and binary options products. 

Even though it’s not possible to tell what impact these actions will have on it as yet, I believe that the firm is extremely well placed to weather any changes. Indeed, as the most significant player in the sector, the group is already well diversified away from binary options with a recent trading update noting that less than 5% of revenues is now coming from these products.

All in all, management estimates that if the regulations are implemented in their current form, revenue will decline by 10% and is planning to offset this decline by ramping up marketing spend to entice new customers to other services, such as share dealing. 

Put simply, even if regulators place strict new rules on the company and its peers, it should only be a minor hindrance to the group. With this being the case, I believe that IG’s 4.8% dividend yield is here to stay, and would make a great addition to your portfolio. The payout is covered 1.4 times by earnings per share, and at the end of fiscal 2017 (31 May) IG had a cash balance of £323m so not only is the dividend well covered, but there’s also cash to back up the payout if earnings fall. 

The post Looking for steady income? Consider this FTSE 100 4% yielder appeared first on The Twelfth Magpie.

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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.