With a spare £500, I’d buy shares in both companies today — here’s why. 

Imperial stock: 8.68% dividend yield

Imperial Brands has the third-highest dividend yield in the FTSE 100 index, behind Rio Tinto and Persimmon. The Imperial share price has increased by 9% over the past year. The stock currently trades at a reasonable price-to-earnings ratio of 5.39. 

Tobacco stocks typically carry high dividend yields due to low capital expenditure and high profit margins. Rather than reinvesting their impressive cash flows into the business, they often distribute regular dividends to shareholders. 

There are potential moral concerns surrounding investing in Imperial stock, given the adverse health implications for consumers of its products. Moreover, creating a smoke-free generation has been a longstanding goal of the Department of Health.

The UK may one day follow in New Zealand’s footsteps. The Pacific country recently announced a ban on anyone born after 2008 from purchasing cigarettes. As UK sales make up 9% of the group’s net revenue, this could seriously threaten the Imperial Brands share price, despite efforts to diversify away from combustible tobacco with a focus on vapour and oral nicotine products. 

This wouldn’t dissuade me from buying Imperial stock, however. I see the fact that it has one of the highest dividend yields in the FTSE 100 as reasonable compensation for the long-term risks.

The company also posted encouraging financial results for 2021. Operating profit increased by 15.2% and basic earnings per share were up by 89.5% on 2020. Crucially, Imperial’s dividend increased by 1% to 139.08p per share in line with the company’s progressive dividend policy. 

Direct Line stock: 8.2% dividend yield

Direct Line is one of the top ten FTSE 250 stocks when it comes to dividend yields. The Direct Line share price is down 10% over the past year. I see this as an attractive entry point to take a position in the insurer. 

At £314.8m, motor insurance produced 54% of Direct Line’s operating profit for 2021. I believe consumer demand for its insurance products will remain strong, despite rising inflation and squeezed household budgets.

After all, driving is an essential feature of many people’s lives and car insurance is mandated by legislation. Additionally, Direct Line is a familiar household brand thanks to the company’s advertising campaigns. 

The introduction of new FCA pricing rules in January has caused uncertainty in the insurance market, leading to hikes in premiums. Direct Line acknowledges this risk in its financial results and the company has conducted scenario testing to mitigate this. 

Considering its downtrodden share price and a dividend yield over 8%, I’d buy shares in Direct Line now.  

Dividend yields for passive income

If I invested £500 evenly between the two stocks, I’d expect to receive £42.20 a year in passive income at current dividend yields.

There is speculation that Chancellor Rishi Sunak may cut the current £2,000 dividend allowance in the Spring Statement. To protect my total dividend income from future tax changes, I’d buy these equities in a Stocks and Shares ISA before the upcoming ISA deadline on 5 April. 

The post 8.2%+ dividend yields! I’d buy these 2 passive income stocks with £500 appeared first on The Twelfth Magpie.

More reading

• How much do you need in an ISA to target a £9,999 second income that rises every year?
• 6.7% yield! Is Imperial Brands an irresistible FTSE 100 share to consider?
• Here are the stunning returns I’m targeting from £20,000 in this high-income FTSE star
• State Pension of £12,548 not enough? How much would be needed in an ISA to match it?
• How to invest £20k in FTSE 100 stocks and target a 6% dividend yield

Charlie Carman does not own shares in any of the companies mentioned. The Motley Fool UK has recommended Imperial Brands. 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, ie Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

FTSE dividend shares offer some incredible yields right now. Solid, defensive businesses like GlaxoSmithKline and Unilever currently pay income of around 5% a year. Insurer Aviva pays 5.22%, while one of my favourite FTSE dividend shares, Legal & General Group, pays an incredible 6.71%. These are just the first that spring to mind. Some stocks yield 8%, or more. I’m looking at you Imperial Brands Group (8.68%), and you Persimmon (10.34%).

I’m buying FTSE dividend shares

At the same time, the returns on cash are low. Even though the Bank of England has hiked base rates for three months in a row, Halifax, Lloyds, NatWest, Bank of Scotland and Santander are still paying just 0.01% on easy access.

Savers now have an estimated £250bn sitting in savings accounts that pay no interest, Hargreaves Lansdown figures show. I believe it makes sense to have a bit of rainy-day cash on instant access, to fund emergencies such as a broken boiler or car repairs.

Yet I’m not leaving my long-term wealth on deposit, because I feel it can work so much harder elsewhere. Investing in FTSE dividend shares is riskier than leaving money in the bank. Stock markets can go up and down (in fact, they do it all the time). They can crash (they do that pretty regularly too). Individual companies can run into trouble. Profits can plunge. Management may cut dividends. Even apparently big, solid firms can go out of business.

Cash is a safe haven, but with inflation set to hit 8% later this year, and possibly even 10%, it also carries risk. If I leave money sitting in a savings account paying 0.01%, the value of my money will plunge in real terms. Inflation is called the silent assassin because you do not see it at work. If I have £10,000 in the bank earning zero interest and look at it one year later, my statement will still say £10,000. But if inflation averaged 10% in that time, it would only buy me £9,000 worth of goods and services. So I’m relying on FTSE dividend shares to help my money maintain its value as prices rise.

I’m facing down the inflation threat

Right now, FTSE 100 dividend shares offer an average yield of 3.22%. Better still, that is a rising income, because most companies aim to increase their dividend payouts over time. I also have instant access to my money.

There is another reason why I favour FTSE dividend shares. I should get capital growth as well, if their share prices rise. That is far from guaranteed, of course. My stock picks may fall in value, possibly dramatically. Some may never recover.

Yet I limit my exposure by buying a spread of 15-20 FTSE dividend shares and hope my winners outweigh my losers. And I will keep reinvesting my dividends for growth, turbo-charging my returns. I’m hoping they will protect me against the growing inflation menace. 

The post I’m not accepting 0.01% on cash when FTSE dividend shares pay 6% or 7% appeared first on The Twelfth Magpie.

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Harvey Jones doesn't hold any of the shares mentioned in this article. The Motley Fool UK has recommended GlaxoSmithKline, Imperial Brands, Lloyds Banking Group, and Unilever. 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.

It’s a tough call to make as there are so many top income stocks out there. Right now, fund manager M&G and housebuilder Persimmon both yield more than 10%. Imperial Brands and Rio Tinto yield more than 9%. Abrdn and Phoenix Group Holdings pay more than 8% a year. These are incredible returns, at a time when a best-buy easy-access savings account pays just 0.65%.

I’d buy this FTSE 100 Legal eagle

If I could only pluck one dividend stock from the index, I would go for Legal & General Group (LSE: LGEN). The £14.55bn insurance giant isn’t the whizziest stock, but it’s a solid name, with a solid business, and pays a solid level of passive income.

Today, L&G yields 7.2% a year, with dividend cover of 1.3 times. The forecast dividend yield is even more promising at 7.9%, with cover of 1.8.

It’s a pretty reliable dividend too. Unlike FTSE 100-listed insurers Aviva and RSA, L&G maintained its dividends through the pandemic. Management also kept staff on and shunned furlough support.

It didn’t emerge completely unscathed. The group’s final 2020 dividend payment was held flat due to Covid, and management also cut its dividend growth target for the next five years. Yet today’s passive income level still looks enticing to me.

What isn’t so enticing is its growth potential. The Legal & General share price trades at similar levels to five years ago. There have been up and downs along the way, but few signs of a breakout. Yet I’m looking for passive income here, rather than active growth.

The L&G share price crashed on Friday, by 5.62%, compared to a drop of 3.48% across the FTSE 100 as a whole. Yet I reckon current fears could be a buying opportunity, and L&G’s valuation looks tempting to me. It currently trades at a relatively low forward valuation of 8.3 times earnings, well below the FTSE 100 average P/E of 14.3. Its price-to-sales ratio is 1.1. That’s hardly demanding.

This is a top passive income stock

Legal & General is widely diversified across a broad range of personal finance areas, selling everything from general insurance and protection to investment funds, pensions, equity release and bulk annuities. It’s also a direct investor in housing and commercial real estate.

Interestingly, it’s one of just a handful of companies that continue to sell annuities, which could now swing back into fashion as interest rates finally pick up. The group is also well capitalised, and has forecast operating margins of 18.5%, and return on capital of 10.6%. This should help keep that passive income sustainable.

I’m not getting carried away. Legal & General is one of those stodgy, boring stocks that investors overlook when markets are flying. That may be an advantage right now. One year ago, it reported a 2% dip in full-year operating profits to £2.4bn. We will find out how well the last year has gone when it reports on Wednesday.

Another risk is that lack of share price growth — and the worse-than-average fall last week that I mentioned above. If it fails to grow in price, its dividends may not be enough.

Either way, I’d buy it for passive income ahead of any other FTSE 100 stock today. Then hold it for years and years.

The post If I could only buy one FTSE 100 dividend stock for passive income, I’d choose this appeared first on The Twelfth Magpie.

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Harvey Jones doesn't hold any of the shares mentioned in this article. The Motley Fool UK has recommended Imperial Brands. 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 full-year results to 30 September came as welcome respite to investors in the FTSE 100 tobacco giant. Its shares have more than halved over the last four years while the dividend was slashed in May. Its future looks brighter as it pays down debt, and I would buy it for a balanced income-generating portfolio today.

Shares in Imperial Brands are on the up after it reported a 0.8% rise in full-year adjusted group revenue to £7.98bn. Tobacco revenues rose 1.8% albeit with a weaker mix, while adjusted operating profit fell 4.8% to £3.52bn. Bomhard hailed the group’s “resilience” in a difficult year.

Still smoking

Today’s final results predicted low-to-mid single digit growth in organic adjusted operating profit for 2021, excluding the impact of the sale of its premium cigar business.

Imperial Brands shares tumbled last September as earnings flattened and US states cracked down on vaping, following deaths and illnesses. It also issued a profit warning in February. There was further bad news in May, when the board re-based its dividend, cutting the payout by a third to save cash amid flat tobacco sales and falling vaping revenues.

Investors won’t be complaining too loudly, given they still get a market-thrashing yield. Right now, Imperial Brands shares yields an incredible 10%, covered 1.8 times by earnings. I can’t see many better income shares around right now.

The pandemic hit duty free sales, following the collapse of international travel. It did offer one consolation, though, as tobacco smuggling fell. These two trends are likely to reverse, once we find a way out of the pandemic, although I do not expect travel to spring back that quickly.

Imperial Brands shares may stagnate

Anybody buying tobacco shares must accept this is a declining market, as smoking slowly but steadily dies out. There is still a long way to go and a lot of sticks will be sold in that time. Boosting market share helps, and the group grew its share in three of its top five markets last year. Imperial Brands should continue to generate plenty of cash to fund its dividend payouts. 

Future sales declines seems to be fully priced in, with the group’s shares now trading at just 5.3 times forward earnings. City analysts expect those earnings to rise by a steady 4% next year.

In another piece of good news for the group, adjusted net debt is falling. It now stands at £10.3bn, around £1bn lower than last year, helped by the disposal of its Premium Cigar arm. The strategic review in January should provide more clarity.

In a tough year for income seekers, shares in Imperial Brands look attractive. I would buy them for that mighty income, not so much for the growth.

The post I’d buy Imperial Brands shares right now for its astonishing 10% yield appeared first on The Twelfth Magpie.

More reading

• How much do you need in an ISA to target a £9,999 second income that rises every year?
• 6.7% yield! Is Imperial Brands an irresistible FTSE 100 share to consider?
• Here are the stunning returns I’m targeting from £20,000 in this high-income FTSE star
• State Pension of £12,548 not enough? How much would be needed in an ISA to match it?
• How to invest £20k in FTSE 100 stocks and target a 6% dividend yield

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. 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 Imperial Brand share price comes with an eye-popping yield of 15.37%. That’s the second biggest on the FTSE 100, behind Russian steel producer Evraz, which yields almost 25%. Numbers like these show you just how startling the stock market crash has been.

The big problem with outsize dividends these days is that you cannot rely on them. A a string of companies have already slashed theirs in an unprecedented cull.

Stock market crash bargain

The Imperial Brands share price was under pressure even before Covid-19 struck. The FTSE 100 stalwart took a pummelling on 5 February, when it forecast flat revenues and lower adjusted earnings per share. This they attributed to the US regulatory ban on certain flavours of cartridge-based vapour devices and weaker than expected consumer demand for vapour.

Imperial Brands was on a long-term downwards trend well before the stock market crash. It has fallen 65% in the last three years alone. Smoking doesn’t just kill, it can also die off under pressure from tax-hungry governments, aggressive regulators, and consumer health campaigns. We have witnessed this in the West, and may one day see it in emerging markets.

On the other hand, tobacco manufacturers retain a massive customer base. Imperial Brands sells more than 250 billion ‘sticks’ a year. Its US business remain strong, while its Africa, Asia, and Australasia division has just delivered revenue growth, with strong volumes. It will be a long time before we live in a smoker-free world.

Imperial Brands share price opportunity

The current health crisis may persuade some to quit, as health experts warn smokers are more vulnerable and should stop smoking. I think the impact will be marginal, though.

Analysts at Citi offer some encouragement about the Imperial Brands yield, claiming on Tuesday that 2020 payouts from the world’s largest tobacco companies were safe. The report praised the companies’ resilience and added that if sales do slow, they can always cut back spending on next-generation products or credit lines.

Citi included Imperial Brands in this, saying it should continue to pay interest bills and maturing debts, while still funding this year’s shareholder payouts. One for this year’s Stocks and Shares ISA?

Stocks and Shares ISA buy

The Imperial Brands share price looks an incredible FTSE 100 bargain, trading at just five times forward earnings. I reckon those earnings are more secure than in many other sectors today. Even at today’s dizzying level, the dividend is covered 1.3 times.

Nobody knows what is going to happen next. That dividend could go, but the shareholder payouts at other companies seem in greater peril at the moment. While buyers are taking a risk putting this into their Stocks and Shares ISA, the potential rewards are also huge.

The post This FTSE 100 stock yields 15%. I’d buy it in a Stocks and Shares ISA today appeared first on The Twelfth Magpie.

More reading

• How much do you need in an ISA to target a £9,999 second income that rises every year?
• 6.7% yield! Is Imperial Brands an irresistible FTSE 100 share to consider?
• Here are the stunning returns I’m targeting from £20,000 in this high-income FTSE star
• State Pension of £12,548 not enough? How much would be needed in an ISA to match it?
• How to invest £20k in FTSE 100 stocks and target a 6% dividend yield

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

Smoke without fire

Investors were primed for disappointment today and brushed off the 7.3% drop in pre-tax profits to £1.69bn for the year to 30 September, preferring to focus on the 2.2% rise in revenue to £31.6bn instead. They knew what was coming following September’s profit warning, after President Donald Trump announced a crackdown on vaping and flavoured e-cigarettes, hitting potential sales of Imperial Brand’s myblu.

Today, outgoing CEO Alison Cooper called 2019 “a challenging year with results below our expectations,” with the group hit by tough trading in its portfolio of Next Generation Products (NGP), which were designed to offset shrinking revenues from traditional tobacco products. NGP revenues grew 52.4% to £285m, but Cooper admitted this “was below the level we expected to deliver.”

She blamed the disappointment on an increasingly competitive environment and regulatory uncertainty in the US, while growth in Europe was also slower. Imperial will now prioritise markets and categories with the highest potential for sustainable profitable growth, while waiting to see whether regulatory uncertainties improve.

Fresh focus

Future focus will be on profit and cash generation, with “a more tightly focused business model that will create long-term value for shareholders.” Can Imperial Brands achieve this? It won’t be easy amid a US vaping clampdown, especially if other countries follow its lead.

NGPs were supposed to offset the long-term decline in developed world smoking, but now fresh thinking is required. Today, we learned that Thérèse Esperdy will succeed Mark Williamson as chairman from January, but the search for a new CEO continues.

Tobacco net revenue, meanwhile, rose 2.7% over the year to £7.71bn, but earnings per share fell 1.6% at constant currency to 273.3p.

Dividend delight

In July, the £16bn group started rewarding loyal investors with a £200m share buyback programme for 2019, of which £108m has been completed. That won’t do much to offset the hefty capital losses investors have suffered, but the big consolation in this case is the dividend.

Imperial Brands now offers a quite stunning forecast yield of 11.8%, covered 1.3 times by earnings. That’s a compelling level of income, provided the dividend isn’t cut. In the summer, management announced it was dropping its long-running policy of increasing dividends by 10% every year, something it had managed every year for the last decade. Future payouts will be in line with earnings growth, which disappointed some investors, but seems wise if that makes today’s whopping yield more sustainable.

The other big attraction is its bargain basement valuation, with the stock trading at just 6.1 times forward earnings, well below the FTSE 100 average of around 17 times.

Imperial Brands does carry net debt of £11.37bn, which is another worry. I also believe tobacco is a declining business, but it isn’t declining as rapidly as today’s low share price would suggest. Any good news could send it soaring.

The post I reckon the low Imperial Brands share price and near-12% yield make it a screaming buy appeared first on The Twelfth Magpie.

More reading

• How much do you need in an ISA to target a £9,999 second income that rises every year?
• 6.7% yield! Is Imperial Brands an irresistible FTSE 100 share to consider?
• Here are the stunning returns I’m targeting from £20,000 in this high-income FTSE star
• State Pension of £12,548 not enough? How much would be needed in an ISA to match it?
• How to invest £20k in FTSE 100 stocks and target a 6% dividend yield

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

Imperial power

Tobacco giant Imperial Brands Group (LSE: IMB) currently yields a regal 10.2%, while its forecast yield stands at an even mightier 11.2%, covered 1.4 times. Still, you are right to approach this stock with caution. Especially with its share price down 30% over the last year, and 45% over three years. Its market cap of £17.23bn simply isn’t as big as it was.

Investor sentiment took another knock late last month, when the group cut annual revenue guidance in light of challenges in the US vaping market and weakness in Africa, Asia and Australasia. Group net revenue for the year to 30 September is now expected to grow at around 2%, with earnings per share broadly flat.

Imperial Brands has been caught up in the US regulatory assault on vaping, or Next Generation Products (NGPs), as it calls them. The market is slowing, as a growing number of wholesalers and retailers no longer order or promote vaping products.

Generational change

Despite this, the group still claims it can build “a strong and profitable NGP business in a rapidly evolving market”, and expects to grow net revenues from this source by a massive 50% this year, even if that’s below expectations.

Imperial Brands is increasing brand investment and consumer promotions, but sales of Blu rose less than expected, amid competitor discounting. NGP growth looks more promising in Europe and Japan, and many people remain bullish about tobacco stocks, including G A Chester, who believes pricing power can offset volume declines.

He still rates the stock a ‘buy’, but others fear share prices could ultimately fall to zero, as smoking is in terminal decline. Yet both British American Tobacco and Imperial Brands still have plenty to offer investors, distributing a combined total of £6bn worth of dividends in 2019. Imperial Brands’ asset divestment programme is expected to realise up to £2bn by May next year.

Bargain price

Many will argue that regulatory threats are already priced in, given recent sharp share price falls. Imperial Brands currently trades at just 6.4 times forward earnings, a fraction of the 17.17 times seen across the FTSE 100 as a whole.

This is seriously cheap, while its double-digit yield is far above the FTSE 100 average of 4.7%. So you get a low price, and high income. Earnings per share are expected to grow a steady 3% this year, and 5% next. Incredibly, the yield is on course to hit 12.2% in 2020.

Growth thereafter may slow after the group’s (sensible) recent decision to abandon its long-running policy of increasing the payout by 10% a year. From 2020, it will increase its payout in line with profit growth, but should still remain a hugely attractive income stock.

Net debt is high at £13bn, around 75% of its market cap. Yesterday, chief executive Alison Cooper announced that she was stepping down after nine years, a sign that a rethink is required. Smoking is in long-term decline, and I do not see that changing. The future could be tricky, but I think Imperial Brands’ massive dividend income still outweighs the risks.

The post £1,000 to invest? This FTSE 100 bargain dividend stock is set to yield more than 12%! appeared first on The Twelfth Magpie.

More reading

• How much do you need in an ISA to target a £9,999 second income that rises every year?
• 6.7% yield! Is Imperial Brands an irresistible FTSE 100 share to consider?
• Here are the stunning returns I’m targeting from £20,000 in this high-income FTSE star
• State Pension of £12,548 not enough? How much would be needed in an ISA to match it?
• How to invest £20k in FTSE 100 stocks and target a 6% dividend yield

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

These two big name blue-chips both yield more than 9%. Alternatively, here’s a couple more FTSE 100 dividend stars, each yielding more than 10% and trading at a discount.

Imperial might

Recent stock market volatility has driven share prices down and yields up, creating bargains galore for long-term investors who can withstand short-term share price swings. Tobacco giant Imperial Brands Group (LSE: IMB) is another tempting opportunity.

It currently trades at just 10.1 times earnings while offering a juicy forward yield of 7%, more than eight times the average cash ISA, which currently pays just 0.85%. The dividend is covered 1.4 times by earnings which is pretty solid, although of course, stocks are inherently riskier than cash.

Brands power

Where Imperial Brands has disappointed is share price growth, with the stock down 30% in the last two years. Over five years, it has grown just 15%. Big tobacco is traditionally seen as a defensive sector but may offer less protection than before, as the war on smoking continues.

And now regulators are looking to crack down on vaping, which they view as a backdoor route to nicotine addiction. Last month, Imperial Brand’s Fontem Ventures vaping initiative, whose brands include blu and Reon, was one of 21 manufacturers of electronic cigarettes to receive a letter from the US Food and Drug Administration. The FDA wants to see “robust” plans to curb the rise in youth vaping, backed by threats to remove the products from the shelves.

Lower volumes

You can decide for yourself whether you want to invest in this industry, but if you do, you will be interested to know that Imperial Brands recently reported that it is on track to hit revenue and earnings growth targets in the year to 30 September, as stronger pricing offsets slightly weaker tobacco volumes.

Big tobacco is undoubtedly in retreat. Imperial Brands highlighted a 2.1% fall in tobacco sales volumes in the six months to 31 March but this looks comparatively good against a drop of 5.7% across the industry. Naturally, it is cutting costs too, with savings expected to top its original £100m target. The group is also pinning hopes on its planned heat-not-burn tobacco product which should be launched early next year and is supposed to emit fewer poisonous fumes.

Lighting up

Earnings growth is expected to be flat in the year to 30 September 2018, then pick up by 3% the following year. By then, the dividend is expected to stand at 203.81p per share, against earnings per share of 275.86p, giving ample cover of 1.35. At that point, the yield is forecast to hit an even dizzier 7.6%. 

Management is working to drive down net debt which stood at £12.7bn at 31 March. This is a reduction from £13.9bn one year earlier and a fraction of rival British American Tobacco’s hefty £45.7bn debt pile. Imperial Brands still generates plenty of cash and its dividend payout looks more secure than many of those other FTSE 100 high-yielders to me.

The post Have £1,000 to invest? I’d check out this 7% yielding FTSE 100 bargain for a stocks and shares ISA appeared first on The Twelfth Magpie.

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• 6.7% yield! Is Imperial Brands an irresistible FTSE 100 share to consider?
• In the event of a stock market crash, is this one of the best stocks to consider buying?

harveyj has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. 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, with a low valuation and a high yield, it could now offer sound recovery prospects. It could therefore be worth buying for the long term alongside another unpopular FTSE 350 stock which issued a quarterly update on Friday.

Uncertain outlook

The company in question is gold miner Centamin (LSE: CEY). Its share price declined by around 9% following its third quarter report, with its production being down by a quarter on the same period from the prior year. Certainly, there was an improvement in its operational performance versus the second quarter of the year, and production increased by 27% to 117,720 ounces versus the previous quarter. But with the company now expected to record production of 480,000 ounces for the full year, it is behind its guidance from earlier in the financial year.

Clearly, the near-term prospects for the business are somewhat uncertain. The gold price has been under pressure in recent months, with a rising US interest rate, a stronger dollar and a buoyant global economic outlook contributing to a lack of investor interest in the precious metal.

So it could be a good time to buy Centamin. The company has a forward dividend yield of over 7%, and trades on a price-to-earnings growth (PEG) ratio of just 0.6. While potentially risky, in the long run it could offer impressive total returns versus the FTSE 100.

Turnaround potential

While there is scope for the Imperial Brands share price to continue to underperform the FTSE 100 in the near term, the company appears to have improving growth prospects. Its investment in next generation products such as e-cigarettes could lead to strong growth over the long run. Consumers are gradually switching from tobacco to less harmful alternatives and this trend could continue. With the potential for improving margins in reduced-risk products, the prospects for the sector may be brighter than the stock market is currently anticipating.

In terms of its valuation, Imperial Brands appears to offer a wide margin of safety. Following its share price fall it now has a price-to-earnings (P/E) ratio of 11, with a dividend yield of over 7%. Since its shareholder payout is covered around 1.4 times by profit, it seems to be highly affordable given its current outlook.

Of course, the company may also offer defensive appeal due to the resilient nature of its business model. With the current bull market having lasted for almost a decade, a bear market may not be too far away. Therefore, the potential for FTSE 100 outperformance seems to be high over the coming years. And in the meantime, a high income return should adequately compensate investors for the risk facing the business.

The post This FTSE 100 stock has crashed 15% this year, but could it be time to load up? appeared first on The Twelfth Magpie.

More reading

• How much do you need in an ISA to target a £9,999 second income that rises every year?
• 6.7% yield! Is Imperial Brands an irresistible FTSE 100 share to consider?
• Here are the stunning returns I’m targeting from £20,000 in this high-income FTSE star
• State Pension of £12,548 not enough? How much would be needed in an ISA to match it?
• How to invest £20k in FTSE 100 stocks and target a 6% dividend yield

Peter Stephens owns shares of Centamin and Imperial Brands. The Motley Fool UK has recommended Imperial Brands. 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.

Retailer therapy

Management heralded a “year of growth and strategic progress” in the 12 months to 30 March and the response would probably have been more enthusiastic, if investors had not already been primed to hear some good news today. In April, the group announced that its full-year performance would be “at the upper end of market expectations”, thanks to strong growth in customer numbers. 

Findel’s Express Gifts division, which provides a personal shopping service to around 1.8m active customers through direct marketing and its Studio.co.uk and Ace.co.uk websites, reported strong revenue growth of 9.6% to £285m, with clothing sales particularly strong, up 14.2%.

Back to school

The group has transformed online sales and cut base costs at its Findel Education division, which provides resources to nurseries, schools and other educational establishments. It has cut prices across 800 best-selling products for customers who switch to online ordering. Revenues dropped 6.2%, partly as a result, although customer numbers did grow 5%.

This £212m company recently appointed Phil Maudsley its chief executive and he’s turning it round after the group issued two profit warnings in two years. Past problems continue to weigh on its valuation, which is a tempting 8.6 times earnings. However, City analysts are sceptical, forecasting a 5% drop in earnings per share (EPS) in the year to 31 March 2019, then another 3% drop the year after. Its share price may be up 18% in the past year but retail is a risky sector. Findel’s price is right, but its future could be patchy.

Imperial power

As far as bargains are concerned, I think this one looks a little more addictive. Tobacco manufacturer Imperial Brands (LSE: IMB) currently trades on a cut-price forward valuation of just 10.2 times earnings after a tough year that has seen its share price drop 26.3%.

This is a tough sector to invest in as the number of smokers continues to fall in the developed world. That’s a trend I think will spread across emerging markets as better off, better educated consumers place a greater priority on their health.

Dividend winner

However, the market is not going to collapse overnight, and one major benefit of the Imperial Brands share price crash is that it now offers a whopping forecast yield of 7.2%, covered 1.4 times. It’s now the 11th cheapest stock on the FTSE 100, as measured by its P/E, while offering the fifth highest dividend yield. Better still, as my Foolish colleague Alan Oscroft points out, it has now posted nine consecutive years of 10% dividend growth.

Yes, tobacco sales volumes and net revenue fell 2% at constant currencies in the six months to 31 March, but these were within expectations. It plans to cut £100m worth of costs this year and is making progress in the nascent vaping market (I see more vapers every day). Forecast EPS growth is negligible, but I still feel the yield and valuation are too tempting to ignore.

The post This small-cap and 7%+ FTSE 100 dividend stock could be unmissable bargains appeared first on The Twelfth Magpie.

More reading

• How much do you need in an ISA to target a £9,999 second income that rises every year?
• 6.7% yield! Is Imperial Brands an irresistible FTSE 100 share to consider?
• Here are the stunning returns I’m targeting from £20,000 in this high-income FTSE star
• State Pension of £12,548 not enough? How much would be needed in an ISA to match it?
• How to invest £20k in FTSE 100 stocks and target a 6% dividend yield

harveyj has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. 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.