It’s certainly true that the FTSE 250 index of mid-sized companies has outperformed the big-cap FTSE 100 consistently since 2003. Over the last five years alone, the FTSE 250 has gained 17%, compared to a 5% rise for the FTSE 100.

A growing part of my own portfolio is invested in FTSE 250 stocks. Today I want to look at two companies from my watch list.

A top sector buy?

Housebuilder Redrow (LSE: RDW) reported a record half-year profit of £185m this morning, ahead of the retirement of its founder Steve Morgan.

Chairman Mr Morgan has retired once before, but returned to rebuild the business in the wake of the financial crisis. I suspect this departure will be final, but today’s figures suggest he will be leaving behind a business that’s performing well despite Brexit fears.

Legal completions rose by 12% to 2,970 homes during the six months to 31 December, while Redrow’s revenue climbed 9% to £970m. The company’s return on capital employed, a key measure of profitability, rose from 25% to 28%.

A 10% dividend yield

Net cash reached £101m by the end of the year, up from £63m in June. This surplus cash is set to be returned to shareholders via a one-off cash return of 30p per share, representing a total payout of £111m.

Shareholders will also receive a regular interim dividend of 10p, putting the firm on track for a full-year forecast dividend of 29.8p per share.

These two payouts together mean that Redrow stock looks likely to yield 10% this year, at the current share price of c.600p.

Can this continue? The outlook for the housing market is hard to call. However, the group’s £1.2bn order book suggests good visibility for the current year. With the shares trading on less than seven times forecast earnings, I think Redrow remains one of the best choices in the housing sector.

A global alternative

If you’re unsure about investing in companies that only operate in the UK, automotive group Inchcape (LSE: INCH) might be of interest. You may know the name for its UK dealership and leasing business. However, this is only a relatively small part of Inchcape’s global business as a distributor for a number of major brands.

Distributors act as a manufacturer’s representative in a country. They contribute to localisation of new models, logistics and production planning. They also manage the dealer network in their territory.

About 90% of Inchcape’s profits come from distribution, through operations in Asia, Australia, Central America, the UK and Europe. Only 10% of profits come from retailing cars.

In my view, the wide geographic reach of this business should mean that it’s less exposed to cyclical downturns than traditional dealership groups. A regional downturn in one market shouldn’t affect the group’s performance in other regions.

Inchcape shares have fallen by 30% from last year’s high of 826p. The stock now trades on 9.3 times forecast earnings and offers a well-covered 4.6% dividend yield. I believe this could be a good time to buy.

The post 2 FTSE 250 dividend stocks I’d buy with £2k today appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Redrow. 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.

Motorpoint only sells cars that are under three years old and have less than 25,000 miles on the clock. So these cars are a good alternative to buying new, with many still having manufacturer warranties.

This could be an opportunity

Listed new car dealership groups have generally performed poorly over the last year, as new car sales have slowed.

Figures released this week by the Society of Motor Manufacturers and Traders (SMMT) show that this decline continued last month. New car sales fell by 15.7% to 474,069 in March, compared to the same month last year. March 2018 sales were also lower than in 2015 and 2016.

For franchised dealers these figures are a concern. But they may represent an opportunity for Motorpoint. The company said today that it expects to report full-year revenue growth of more than 18%, helped by the opening of a 12th site at Sheffield. 

The biggest risk for investors is probably that used car prices could fall, decimating profits. So far this doesn’t seem to have happened. Motorpoint said today that gross profit margins per car sold “remained stable throughout the year”.

As a shareholder, I’ll be taking a closer look at Motorpoint’s financial performance when its full-year results are released in June. But based on the information provided today I’m happy to continue holding the stock.

I estimate that after today’s gains, the shares trade on a forecast P/E of 13.5 with a prospective yield of 2.4%. I believe this stock may still rate as a growth buy.

I might look overseas

The problem with Motorpoint and most other listed car dealers is that they’re dependent on UK car sales. So if the UK economy slumps after Brexit, business could be tough for a while.

One way to play this risk is to invest in a company that sells cars overseas, such as Inchcape (LSE: INCH).

This group does sell cars in the UK, but its main focus is overseas distribution. This means it partners with car manufacturers to take complete responsibility for logistics, marketing and retail operations in the territories where it operates. Doing this means that car manufacturers don’t have to set up their own independent operations in each country.

Distribution appears to be a more profitable business than operating franchised dealerships. I believe it also has greater growth potential. Inchcape operates in some of the world’s fastest-growing car markets, such as Asia and South America, where car ownership levels are still much lower than in the UK.

Stunning financials

Last year saw revenue climbing 14% to £8.9bn and adjusted pre-tax profit rose 9.5% to £382.5m. Operating margin was stable at 4.6% and free cash flow rose by 64.8% to £313.9m. Return on capital employed rose from 15.2% to 19.9% — a very creditable result.

I believe the geographic diversity of Inchcape’s business means that it’s likely to deliver a very stable performance over the next few years. The stock currently trades on a forecast P/E of 11 with a prospective yield of 3.7%. In my view, this looks like a low-risk buy for dividend growth investors.

The post 2 dividend growth stocks that could help you become an ISA millionaire appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Roland Head owns shares of Motorpoint 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.

Inched it

Inchcape’s recent share price performance has been unimpressive, with the stock trading 16% lower than six months ago, amid industry-wide reversals. Today’s results were headlined “A year of significant progress”, but they were not significant enough to get investors excited amid management warnings of challenges ahead.

Highlights included double-digit growth with operating profit up 14% at actual currency rates and a 12% rise in adjusted earnings per share (EPS). It also posted “strong underlying performance” across its distribution businesses, particularly in emerging markets and Asia.

Let it flow

Cash flow generation is positive at £314m, with the full-year 2017 dividend per share up 13% to 26.8p. Investors can also look forward to a £100m share buy-back. Group chief executive Stefan Bomhard hailed the fact that Inchcape now generates 79% of profits through distribution and has doubled its exposure to emerging markets since 2014, making up 21% of the business.

My fellow Fool Royston Wild is sceptical about its prospects as UK consumer spending is squeezed, but Inchcape does have options beyond these shores. However, management is warning of a more challenging year given supply and demand imbalance and new vehicle decline in Singapore. This no doubt accounts for today’s share price drop.

City analysts reckon EPS will fall 3% in 2018, but grow 4% in 2019. Trading at a forward valuation of 10.8 times earnings on a forecast yield of 4%, covered 2.3 times, it looks like one for your watchlist, but not your buy list.

Time for bed

Workwear and textile rental group Johnson Service Group (LSE: JSG) has seen its share price rise an eye-catching 236% over the past five years, although it is down 0.29% today following publication of its preliminary results for the year ended 31 December.

The group, which provides clothing, bedding and table linen for a range of businesses, also posted a “strong financial performance” with revenue up 13.3% to £290.9m, adjusted operating profit up 14.9% to £43.3m, and diluted EPS up 16.9% to 6.9p. The board recommended an 11% increase in the final dividend to 1.9p per share, lifting the total for the year 12% to 2.8p.

Debt question

In January, Roland Head described this as a multi-bagging growth stock I’d hold onto, after management upgraded profits for the second time in four months. His biggest concern was net debt of £90m at the end of June, or four times trailing net profit, and that remains a concern. As of 31 December debt stood at £91.3m although this was down from £98.2m at the start of the year.

2018 could be bumpy for the group, with EPS forecast to fall 1%, before rising 5% in 2019. At a forward valuation of 15.2 times earnings, the group is neither expensive, nor a bargain. The forecast yield is 2.3%, covered 2.9 times. As you can see, management is progressive on this score. Again, one to watch today, possibly buy later. 

The post Should you buy this monster growth stock and unloved dividend bargain? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Harvey Jones 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 bus and rail operator has now shed almost a third of its value during the past 12 months as investors have lost faith in its long-running turnaround plan. And it’s not difficult to see FirstGroup extending these losses in the months ahead.

Today, the FTSE 250 firm announced that earnings for the full year are likely to fall short of expectations, thanks to problems at its North American businesses.

For its bus operations specifically, FirstGroup noted that “Greyhound’s long-haul business was affected by intensifying airline competition” in the period dating back to last September. But this wasn’t the only problem as “extremely challenging weather conditions in January” dented the performance of all three of its US divisions.

Dividend growth in danger?

Prior to today’s release, City brokers had been anticipating a wafer-thin 1% earnings improvement in fiscal 2018. But of course this is now likely to fall by the wayside, while the 14% forecast for next year looks in severe jeopardy.

Hopes that FirstGroup will re-emerge as a lucrative dividend stock has piqued the interest of some income investors in recent times. Although today’s release was pretty disappointing, one crumb of comfort for dividend chasers will be management’s guidance: “Notwithstanding the mixed trading picture in the period, we continue to expect substantial cash generation for the year as a whole.”

After four years of paying zero dividends to shareholders, the number crunchers were expecting the transit titan to restart its payout policy with a 1.5p per share reward this year, expected to leap to 2.9p in fiscal 2019. Yields for these years stand at 1.8% and 3.5% respectively.

While FirstGroup may have indeed the strength to resurrect its dividend policy in the current period, and to meet brokers’ current dividend projections, predictions of ripping payout growth may fail to come to fruition should difficult trading conditions persist.

With concerns also over the size of the company’s pension deficit, I reckon share pickers should ignore the colossal yields — as well as FirstGroup’s low forward P/E ratio of 6.6 times — and splash their investment cash elsewhere.

Hit the road

With consumer spending power coming under increasing attack in the UK, I reckon fellow big-yielder Inchcape (LSE: INCH) is also too dangerous to merit interest from share pickers today.

The auto retailer has seen its share price duck 13% since the start of October as a slew of industry rivals have all noted a decline in sales volumes in recent months. This is hardly a surprise as demand for ‘big ticket’ items like cars is always the first thing to fall as economic conditions become more difficult.

Reflecting these challenging conditions, City analysts are expecting earnings to dip fractionally in 2018, a projection I think — like the anticipated 4% rebound next year — could be severely downgraded in the months.

As a result, I would ignore an undemanding prospective P/E ratio of 10.8 times, as well as decent dividend yields of 4% and 4.2% for 2018 and 2019 respectively, and steer clear of the motor mammoth for the time being.

The post Is now the time to buy these unloved dividend stocks? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Royston Wild 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.

While many investors are rightly worried about the long-term negative effects of continued regulatory clampdowns on tobacco products, Imperial’s recent share price problems are almost entirely self-made as larger competitor British American Tobacco’s share price is up over 8% during the same period.

Imperial’s issues stem largely from lack of scale in a rapidly consolidating industry, an unwieldy portfolio of brands and geographic weighting skewed toward developed markets most at risk from further regulatory pressure.

However, the company is still well-positioned to solve these problems and turn things around. Management is already taking action to slim down the number of brands it offers with a 33% reduction in the number of stock keeping units it sells since 2013 and a target of 50% in mind. This rationalisation of the portfolio is key as it allows for more investments in a smaller number of effective, growing brands and improves margins and sales.

The positive effects of this plan are already taking shape and in H1 we saw total volumes of these growth brands rising 3.2% as they increased their market share from 7.4% to 8% globally year-on-year (y/y) even as total group volumes fell 5.7%. An increased focus on growth markets such as China, Vietnam and Turkey is also paying off as revenue from these countries rose 1.7% y/y.

As long as Imperial focuses its investments on a smaller number of more profitable and faster growing brands and re-orients its geographic focus towards growth markets, I believe it can right the recent decline in its share price. And if not, it’s more and more likely that a larger competitor will come in with a bid.

A more reliable option? 

But if investing in tobacco stocks isn’t your cup of tea, another high-yield stock I’ve got my eye on is global car dealer and distributor Inchcape (LSE: INCH). Results released this morning covering the quarter to September saw the company’s revenue rise 11.3% on a constant currency basis to £2.3bn due to an acquisition in South America. It saw organic growth of 9.8% in its distribution business and 3.6% in its retail division.

As we can see, Inchcape is still growing nicely even as the UK car market appears to be running out of steam. This is because Britain represents a small portion of its sales, with Asia accounting for 33% of profits in H1 and emerging markets 19%,while the UK & Europe represent only a quarter of group profits.

Investors should also bear in mind that car sales make up only a portion of overall profits with the distribution side of the business by far the biggest driver, and more reliable after-sales accounting for a large chunk of retail profits. With plenty of room to expand its full-service distribution and retail offering into many markets across the globe and a healthy 3% dividend yield, Inchcape is looking very attractive to me with its current valuation of only 12.2 times forward earnings.

The post Imperial Brands plc isn’t the only dirt-cheap dividend king I’d buy appeared first on The Twelfth Magpie.

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Ian Pierce 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.

A profit warning at car-and-plane-parts builder GKN (LSE: GKN) has played havoc with the company’s share price in Friday trade.

The FTSE 100 company was last dealing 8% lower after advising that it “has been made aware of two probable claims which are expected to result in a charge of around £40m in the fourth quarter of 2017.”

It said that one claim relates to its GKN Aerospace division and the other to its GKN Driveline arm, and that “both claims are commercially sensitive with no additional information disclosable at this time.”

These mysterious lawsuits, allied with recent trouble in North America for its GKN Aerospace division, mean that pre-tax profit for 2017 is only likely to be “slightly above” that of last year, GKN added.

It’s not all bad… Honestly!

Over at GKN Aerospace, trading has been described as “disappointing” in the third quarter due to “a significant reduction in margin caused by on-going pricing pressure, continuing operational challenges and the impact of programme transitions.” It warned that these pressures are likely to persist into the final quarter.

In addition, it said GKN Aerospace North America will incur a £15m non-cash charge at its Alabama facility due to revised assumptions on programme inventory and receivables balances. It added that it anticipates booking a “significant non-cash impairment charge” at the year end owing to its troubles across the Pond.

These horrors are certainly fitting for Friday the 13th. But I also see reasons for investors to remain optimistic. Over at GKN Driveline, sales continued to sail above global production rates of 2% in quarter three and as a result the unit “expects to significantly outperform the market for the full year.”

In addition, organic sales at GKN Powder Metallurgy also continued to tick higher thanks to the impact of acquisitions and currency benefits.

Look, I acknowledge things at the Redditch firm are far from perfect right now, and that the predicted 8% earnings surge for 2017 is headed for the guillotine. But I believe GKN’s market-leading positions in both the automotive and aerospace markets should still help it to deliver brilliant profits growth in the long term.

And I reckon a forward P/E ratio of 9.7 times, even in light of any immediate forecast downgrades, makes the company a bargain right now.

Ready to crash?

I am far less convinced by the investment case of car dealership Inchcape (LSE: INCH), however, given that rising pressure on household budgets is already translating into horrendous sales trouble on the forecourt.

The latest trade release from the Society of Motor Manufacturers and Traders last week showed car sales down 9.3% year-on-year in September, the sixth monthly drop. SMMT chief executive Mike Hawes said: “September is always a barometer of the health of the UK new car market so this decline will cause considerable concern.”

He added that “business and political uncertainty is reducing buyer confidence, with consumers and businesses more likely to delay big-ticket purchases,” and with such uncertainty unlikely to be remedied any time soon, I reckon investment in the likes of Inchcape is a massive risk.

So although a predicted 13% earnings rise for 2017 leaves the FTSE 250 firm dealing on a forward P/E ratio of just 12.4 times, the prospect of tanking demand for big-ticket items such as cars is discouraging me for one from splashing the cash on Inchcape right now.

The post One bargain-basement growth stock I’d buy and one I’d avoid appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of GKN. 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.

Analysts at Barclaycard were the latest to cast a shadow over the British retail sector this week, announcing that consumer spending growth slowed to 2.5% in June, the lowest figure for 15 months.

The credit card giant noted that shoppers started to scale back “as the rising costs of essentials prompted consumers to row back on some ‘nice-to-haves’ and come to terms with a ‘new normal’ of subdued wage growth and creeping inflation.” And Barclaycard noted that those respondents who consider themselves to be confident in the UK economy fell to a seven-month trough of 33% in June.

And this figure is, for my money, likely to sink further in the months ahead should data continue to deteriorate and forecasters keep spooking people with scary economic reports.

Ratings agency S&P was the latest to get in on the act this week, predicting that UK GDP expansion would cool to 1.4% in 2017 and 0.9% in 2018, down from 1.8% last year. And the organisation warned of considerable downside risks to its already-insipid forecasts should Brexit negotiations hit trouble.

Sales already stalling

These pressures are already hampering conditions on the forecourt. Latest trade numbers from the Society of Motor Manufacturers and Traders (SMMT) showed new car registrations drop 4.8% month-on-month in June, to 243,454 units.

The industry is being whacked by a double-whammy of falling demand from private customers and business, as well as increases in the Vehicle Excise Duty that came into effect in April. And I expect sales to keep sinking as shoppers’ appetite for discretionary, big-ticket items falls, and the uncertain political and economic outlook causes industry to keep investment on a tight leash.

City analysts have been busy downgrading their earnings estimates for Inchcape in recent months as the environment has worsened, and an 8% increase is anticipated for 2017. And I reckon more downgrades could be just around the corner as Britain’s economy toils.

So I reckon investors should give the business short shrift right now, even in spite of its low paper valuation of 11.8 times forward earnings.

Increasingly fashionable

I am far more optimistic over the earnings outlook of Associated British Foods (LSE: ABF), and believe intensifying pressure on shoppers’ wallets could drive demand at its successful discount fashion Primark division to the stars.

The London-based company saw total sales at its budget clothing arm rise 13% at constant currencies during the 40 weeks to June 24th, with UK sales rising 9% and market share continuing to rise. And the brand continues to make a big impression overseas, too, with parent ABF advising that early trading at its new stores in the US, Spain, Italy, Belgium and the Netherlands, as well as Britain, has been “good.”

With ABF’s other divisions also gaining momentum, the number crunchers expect earnings growth to rev to 15% in the year to September 2017. A further 9% advance is predicted for fiscal 2018.

While these bubbly growth forecasts result in a conventionally-high prospective P/E rating of 23.3 times, I reckon Associated British Foods’ brilliant sales momentum and exciting expansion plans makes the stock worth every penny.

The post One retail stock I’d buy and one I’d sell right now appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Royston Wild 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.

With that in mind, today I’m profiling two under-the-radar companies that have increased their payouts significantly in recent years and should continue to do so going forward.

Inchcape

Inchcape (LSE: INCH) is an automotive distribution and retail group that operates in 29 countries, including both developed and emerging markets. The company works with many of the world’s leading car brands such as BMW, Audi, Toyota and Ford.

It has enjoyed a strong rise in revenue and earnings over the last five years and this has enabled the company to reward shareholders handsomely with consistent dividend increases. Indeed, between FY2011 and FY2016, the payout was increased from 11p per share to 23.8p per share, a compound annual growth rate (CAGR) of an excellent 17%. The dividend was raised 14% last year and City analysts have pencilled-in dividend growth of 12% and 8% for this year and next year.

The forecast payout of 26.7p this year equates to a yield of 3.5% at the current share price, and this is expected to be covered by earnings per share of 64.2p, giving a dividend coverage ratio of a healthy 2.4 times.

It’s worth noting that the luxury automotive industry is cyclical, meaning that profitability can decline at times in the business cycle. However on a forward P/E of just 11.8, Inchcape doesn’t look expensive right now and with the dividend forecast to keep growing, I believe the stock could be an interesting long-term opportunity for dividend growth investors.

Headlam Group

Also increasing its dividend payout significantly in recent years is Europe’s largest distributor of floor coverings, Headlam Group (LSE: HEAD).

Like Inchcape, it has generated consistent revenue and earnings growth in recent years and this has enabled the company to grow its dividend at a robust growth rate. The dividend payout has been lifted from 14.2p to 22.6p over the last five years (CAGR 10%), including a 17.3% rise last year, and City analysts expect another generous increase of 16.5% for 2017. Dividend coverage is anticipated to be around 1.5 times.

Headlam’s share price has pulled back a little over the last few months, dropping from around 640p to 540p today. With around 85% of revenues generated within the UK, it’s understandable that sentiment towards Headlam is a little off right now.

However, when a company’s share price declines, its dividend yield increases, and I reckon the fall may have created a decent opportunity for long-term investors, as the forward yield on offer is now a generous 4.9%. A forward P/E ratio of 13.3 does not look expensive, and in my opinion Headlam could turn out to be a dividend gem for those willing to invest with a long-term horizon.

The post 2 stocks that raised their dividends by over 10% last year appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Royal Dutch Shell B. 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.

Strong 2016 performance

The company in question is automotive retailer and distributor Inchcape (LSE: INCH). Its performance in 2016 was impressive, with the company reporting a rise in revenue of 14.7% and an increase in adjusted earnings of 14.4%. Its performance was aided by weak sterling, which means it could continue to benefit from a weak pound during the course of 2017.

Of course, the company’s strategy also aided its 2016 outcome. It achieved good profits from its Used Vehicles and Aftersales division, while it has improved its alignment to become a partner of choice for leading automotive brands. This has allowed it to enter into potentially lucrative markets such as Thailand with Jaguar Land Rover and South America with Subaru. This provides Inchcape with growth prospects within faster-growing economies across the developing world, which could rejuvenate its bottom line growth rate.

Positive outlook

Looking ahead, Inchcape is expected to record a rise in its earnings of 4% in the current year and 6% next year. Assuming it remains on the same rating as today, this means its shares could gain over 10% within two years.

Furthermore, the company’s price-to-earnings (P/E) ratio of 12.9 is lower than its four-year average of 13.7. If it reverts to its mean rating and meets its forecasts over the next two years then its shares could be trading around 20% higher by 2019. And with the prospect of a weak pound between now and then, an upgrade to its earnings growth rate is possible.

Dividend potential

In addition to capital growth potential, Inchcape remains a sound income stock. It currently yields 3.3% from a dividend which is covered 2.4 times by profit. This indicates there is scope for a rapidly rising dividend over the medium term following 2016’s increase in shareholder payouts of 13.9%.

Clearly, the automotive market is relatively cyclical and investors may therefore prefer a consumer stock which is more defensive. That’s especially the case since Brexit will take place in the next couple of years and the outlook for the global economy is uncertain. As such, funeral services provider Dignity (LSE: DTY) may become increasingly popular.

It has recorded a double-digit rise in its bottom line in each of the last four years. Therefore, it is likely to perform well in future – especially since its financial performance is less positively correlated to the wider index than for most FTSE 350 stocks. However, with Dignity trading on a P/E ratio of 22.8 and yielding just 1%, its upside potential and income prospects seem limited. As such, despite its riskier business model, Inchcape seems to be the superior buy.

The post This dividend stock is set to soar 20%+ within 2 years appeared first on The Twelfth Magpie.

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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. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The key reason for increased investor positivity is the ambitious expansion plan that saw the group open nine new directly owned stores in 2016 as well as convert 16 older stores into its new concept store layout. Compared to larger rivals such as Burberry, Jimmy Choo still has plenty of room to continue growing its footprint as it only had 150 directly owned stores at the end of December.

The company also has a few other interesting growth levers available to it as online sales only represented 6% of total sales at year-end and men’s product was less than 10% of revenue in H1. Furthermore, developing Asian markets are still largely untapped with only 15% of H1 sales coming from non-Japanese countries in the region.

While Chinese luxury sales have been negatively affected by the government’s anti-corruption drive in the short term, this huge and increasingly wealthy market should be a tempting target for Jimmy Choo in the long term.

The downside for potential investors is that the company’s shares currently trade at 23 times forward earnings, which suggests the valuation has already taken account of significant future growth. Another issue to keep an eye on is the fact that like-for-like sales reversed 1% in 2016 due to challenges in the US and the temporary closure of several flagship stores for refurbishment. While these are hopefully short-term issues, interested investors should keep a close eye out for a return to organic growth in the coming quarters.

Driving shareholder returns higher

Global car distributor and dealership group Inchcape (LSE: INCH) represents luxury brands from Rolls-Royce to Porsche and Jaguar. A new CEO coming on board with ambitious expansion plans has helped send shares of the company up over 9% in the past year to their current 739p price.

Despite five straight years of earnings growth, shares of the company currently trade at a sedate 13 times forward earnings, which is reasonable considering the cyclical nature of the luxury auto market.

However Inchcape is less cyclical than many pureplay car dealerships as 78% of the group’s trading profits last year came from its distribution business. This segment imports and exports vehicles, takes care of the distribution and works with OEM partners to source after-care parts. The 9.9% profit margins the distribution business posted last year are also much higher than the 1.9% margins from the retail network.

The company’s healthy balance sheet also means it can take advantage of any downturn to make strategic acquisitions at attractive prices. We’re already seeing this in action as weak trading in Latin America allowed Inchcape to purchase the leading distributor of Subaru and Hino vehicles in December for a relatively cheap £234m, or 8.6 times full-year EBITDA.

Inchcape certainly isn’t immune from any downturn in the global auto market but its high-margin distribution business, a healthy balance sheet and well-covered 2.8% yielding dividend still make it an interesting stock I’ll be keeping a close eye on.

The post 2 top luxury stocks trading for under a tenner appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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