I don’t have to look far for FTSE 100 stocks offering massive dividends at the moment. Actually, the number will have gone even higher after yesterday’s market wobble. There is one company, however, that catches my eye more than most. Its dividend yield stands at 10%!

Record production

BHP Group (LSE: BHP) is one of the world’s top producers of iron order and copper. It also has interests in nickel, zinc, coal, potash, oil and gas. As one might expect from all that, it’s also one of the biggest companies in the FTSE 100.

In today’s operational update, CEO Mike Henry said that the company had hit production records at its iron ore operations in Western Australia and its coal mine in Queensland. Annual copper production at the Olympic Dam project in South Australia also rose to its highest level since it was snapped up the asset 16 years ago. 

In addition to this, BHP also said that it had “brought on four major projects safely, on schedule and on budget” over the last year. This should mean that BHP is even better placed to profit from the huge need for metals over the next decade. Renewable energy sources, electric vehicles and increased urbanisation — all of these so-called ‘megatrends’ will require its help. This is one reason why I would buy BHP today. The other is the dividends.

FTSE 100 dividend demon

Despite being a rocky ride at times, BHP shares have rewarded long-term investors. Anyone buying five years ago would be sitting on a gain of 136%. In the last year, the FTSE 100 member’s valuation has increased 21%. 

Naturally, we’re just talking about share price gains here. If the dividends distributed to shareholders throughout this time were included, the result would be even better thanks to compound growth.

Right now, the consensus forecast is that the mining giant will return 220p per share for FY21 (according to Stockopedia). Using today’s share price, that becomes a mammoth yield of 10%. For comparison, even the best instant access Cash ISA pays out just 0.5%, according to Moneysavingexpert.com.

However, no investment case would be complete without a sober consideration of risks that come with investing in BHP. 

No sure thing

Perhaps the most apparent of these is the volatility in commodity prices. This means that BHP’s share price is ultimately determined by something it can’t control. That’s true of many companies but it’s something prospective investors like me would need to feel comfortable with. As a litmus test, I’d look at the share price graph. Would I have been able to sit on my hands between 2011 and 2016 when the shares tanked?

The cyclical nature of mining also means that dividends can never be guaranteed. In fact, last year showed that payouts can be the first things to be cut by any company when times get tough.

Even if they’re not wiped or suspended, they can vary from year to year. Obviously, I’d also prefer a company to be hiking its cash returns annually. Unfortunately, that’s not been the case with the FTSE 100 miner. The general direction has been up but there’s been some variability along the way.

This being the case, I think it’s vital that I invest in a number of stocks from other sectors to give myself a better probability of growing my income stream over time.

The post This FTSE 100 stock pays income of 10%! appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

There are many routes to riches in the market. One of the more ‘relaxed’ methods is to buy and sit on stocks paying big dividends. If these stakes can be purchased at a low price, all the better. 

Today, I’ve picked out two lesser-known dividend champions that, in addition to handing out cash to shareholders, still look great value.

Great dividend stock

Online trading provider CMC Markets (LSE: CMCX) has had a superb last year or so with volatile markets bringing a lot of new clients to its services. Net operating income was 63% higher over the 12 months to the end of March to £409.8m. Pre-tax profit rocketed 127% to £224m.  

Despite this, the shares look cheap considering CMC’s consistently high margins and returns on capital. They currently change hands for just 13 times forecast earnings.

Naturally, there will come a time when markets settle. Indeed, CMC has noted that “client trading activity has moderated from prior elevated levels” since the start of its new financial year. This may bring out a few sellers. The shares have climbed almost 400% over the last two years, after all. 

Then again, the company’s rapidly growing stockbroking arm should help make up for this. A forecast 3.8% yield easily covered by profits also makes this a great dividend stock, in my opinion.

Despite the risk of ‘buying at the top’, I’d feel comfortable adding this stock to my own portfolio now.

Ice cool income

Shares in asset manager Polar Capital (LSE: POLR) also look great value considering the mix of potential growth and income on offer.

Right now, these can be bought for 14 times forecast earnings. That looks a good deal based on fundamentals and recent trading. At the start of the month, Polar reported a 49% jump in pre-tax profit to £75.9m over the year to the end of March. A record 71% rise in Assets under Management (AuM) to just under £21bn was also announced.

However, the PEG (price/earnings to growth) comes in at 1. According to the celebrated investor Jim Slater, anything around this level or lower suggests investors are getting a lot of bang for their buck.  

Obviously, there’s no sure thing. The POLR share price could quickly lose its momentum if global markets experience another big wobble and investors take flight. Whether this is the result of a Covid variant really taking hold or some ‘unknown unknown’, we can’t say. CMC might welcome more volatility. Polar Capital, less so.

Then again, the dividends should make up for any short-term pain. The shares currently yield 4.7%. So, like CMC, I’d be a buyer today.

Receive, reinvest, repeat

Cheap dividend stocks can be appealing for older investors who want to generate income. However, we know that feeding these payouts back into the market has the potential to really grow a person’s wealth, whatever their age.

One risk is that I might not stick to this approach. Spending dividends means missing out on the benefits that compounding brings over time. If this were the case, I’d give serious consideration to asking my broker to automatically reinvest on my behalf.

As last year showed, this income is never entirely secure either. The pandemic forced many firms to slash their payouts to shore up cash. As such, spreading my money around a few dividend stocks is something I wouldn’t hesitate to do. 

The post 2 cheap dividend stocks to buy now appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Polar Capital Holdings. 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.

Premier Miton

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

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

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

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

Gateley

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

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

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

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

H&T

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

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

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

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

The post 3 secret income stocks to buy in June appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Fresnillo

Silver and gold miner Fresnillo (LSE: FRES) was one of the top-performing FTSE 100 shares in 2020. In 2021 so far, it’s been a completely different story. Since the beginning of the year, the very same shares have slumped almost 30% in value.

Arguably the main reason for this price reversal is down to the company reducing its gold forecasts for the year as a result of operational difficulties. Aside from this, the price of the precious metal has also fallen considerably since hitting record highs last August. Of course, Fresnillo isn’t the only company impacted by the latter, but it does go some way to highlighting how volatile commodity prices can be and how much risk investing in this sector involves.

It will be interesting to see how shareholders react when the miner announces its latest set of full-year results on 2 March. Even if there’s nothing further to worry about from a company perspective, the recent sell-off may push even more investors to consider taking some profit off the table.

Legal & General

After a rollercoaster year, Legal & General (LSE: LGEN) shares are back to pre-pandemic levels. Whether they stay there for long is another thing entirely. 

Of course, investing in a FTSE 100 insurance firm doesn’t guarantee a comfortable ride. Legal’s fortunes are heavily tied to the health of the global economy. And, as things stand, there’s still no consensus on how bad things will be post-coronavirus. 

On the other hand, one could argue that the shares are still cheap enough to mitigate this risk. Despite recovering strongly since news landed of the successful coronavirus vaccines, LGEN’s stock still changes hands at just 9 times forecast earnings.

There’s also the income stream to consider. At the time of writing, analysts have the company returning a total dividend of 18.5p per share to owners in FY21. That’s a yield of 7.1%. What’s more, this chunky payout looks likely to be covered sufficiently by profits, making the possibility of a cut in the near future fairly remote.

LGEN reveals its numbers for 2020 on 10 March.

Taylor Wimpey

A final FTSE 100 share worth watching in March is housebuilder Taylor Wimpey (LSE: TW). Although I don’t expect its full-year results (released on March 2) to generate much in the way of headlines, we could see some positive momentum in the shares the following day. This is assuming Chancellor Rishi Sunak does extend the stamp duty holiday as expected in the Budget.

Quite how long this boost lasts remains to be seen. It could be that many investors are still waiting for a better idea of how the housing market will shape up in the rest of 2021. As such, I’m not sure Taylor Wimpey will move out of the 100p-200p trading range it’s been stuck in for most of the last six years or so just yet. 

In the meantime, the company trades on a valuation of 11 times forecast FY21 earnings. It looks financially fit with net cash on the balance sheet. 

The post FTSE 100 stocks: 3 to watch out for in March appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. 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.

Less puff, more profit

Today, British American Tobacco revealed a 2.8% rise in revenue from its combustible products, thanks to a fall in volume being offset by higher prices. Adjusted profit from operations puffed 4.8% higher and £660m in cost savings was also announced.

By far the most interesting part of today’s report for me however, was the rise in the number of people consuming the firm’s non-combustible products. This climbed 3m to 13.5m over the year. The FTSE 100 titan now believes it can increase this number to 50m by 2030. 

Looking ahead, BAT also said global tobacco industry volume was expected to shrink 3% in 2021. More encouragingly, it still expects constant currency revenue growth of between 3-5%.

All told, I’d say today’s statement was pretty positive. Notwithstanding this, I wouldn’t be queuing up to buy the shares. 

FTSE 100 value trap?

For me, BAT remains a ‘Marmite’ stock. On the one hand, you’ve a global player in an industry that’s practically immune from new entrants. It’s also been a consistent winner from an income perspective. Today’s 2.5% increase to the dividend means the firm will now return a total of 215.6p per share to holders. That gives a staggering trailing yield of 8.2%, reasonably covered by profits. Analysts are forecasting another rise to dividend next year too!

On the other hand, the BAT performance over the last few years leaves a lot to be desired. The shares are now worth roughly half what they were in the middle of 2017 and trade on a P/E of 8. That’s indicative of a value trap, in my opinion.

Other potential negatives include the possibility of new revelations regarding vaping safety (or lack of) and the sizeable amount of debt on its balance sheet. It goes without saying that prospective investors also need to be comfortable about owning a company selling addictive products.

Taking all this into account, I believe there are better options in the FTSE 100. One of these, in my opinion, is BAE Systems (LSE: BA). 

Consistent income 

From an income perspective, the FTSE 100 defence giant is equally attractive. Having now reinstated its dividend, the company is expected to return 23.5p per share for FY20. This gives a yield of 4.9% at the current share price. 

Another boost to BAE’s income credentials is that it has consistently raised its payouts over the years. This is something I particularly look for when screening dividend stocks. A good-but-not-excessive, gently increasing cash return is more desirable to one that barely moves year-on-year.

This isn’t to say BAE will suit all investors. From an ethical point of view, it can arguably be placed in the same group of ‘sin’ stocks as BAT. Moreover, the share price has hardly set the world on fire recently. 

Despite this, I’m confident the ongoing need for nations to protect themselves, particularly in areas such as cybersecurity, makes BAE a solid long-term hold.

 Full-year results are due on 25 February.

The post I’d avoid this 8.2% dividend share and buy this FTSE 100 stock instead! appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Record results 

Not every company has suffered at the hands of the coronavirus. For evidence, take a look at today’s record results from online trading platform Plus500 (LSE: PLUS). 

Total revenue soared a massive 146% to $872.5m in 2020, thanks to “unprecedented levels of platform usage“. A total of 82 million trades were placed by customers over the period, compared to around 35 million in 2019. This goes some way to highlighting just how popular trading has become over the multiple lockdowns we’ve endured.

Naturally, there’ll come a time when markets and trading activity begin to settle.  Indeed, Plus500 said today is expected revenue in 2021 to “grow from more normalised levels” achieved in 2019.

Even so, I think the dividends on offer still make Plus an attractive option for those looking for income. Right now, analysts are predicting it will return 83.6 cents per share (60p) in FY21. That becomes a yield of 4.4% at today’s share price. As well as being far better than the interest rates offered by even the best Cash ISA, this income looks likely to be easily covered by profits.

Naturally, Plus500 won’t be to every investor’s taste. The ongoing threat of regulation in its industry could keep the share price in check, even if the company succeeds in becoming a “multi-asset fintech group“. This may be one reason why the FTSE 250 member’s valuation — at just 9 times forecast earnings — appears low relative to the market as a whole.

For those looking for their dividend fix, but wary of buying Plus at its peak, I think there’s a great alternative in the index. 

Quality… on the cheap

Another FTSE 250 stock offering great income right now is price comparison site Moneysupermarket.com (LSE: MONY). In fact, this is one of the reasons I began building a position in the company last year.

Analysts currently have the company returning 11.3p in FY21. That translates to a yield of 4.2%. I think that’s sufficient compensation for being patient while trading recovers. In spite of the foggy earnings outlook, I suspect we could see a big increase in demand for the company’s services from UK holidaymakers looking for travel insurance once restrictions are lifted.

Sure, MONY isn’t without risk. It’s certainly not the only option for those looking to compare prices on financial products. There’s also the opportunity cost of not investing elsewhere to consider. After all, the share price has been stuck in the 200p-400p range for the last six years! To me, this would imply that big capital gains look unlikely in the near term.

Nevertheless, I like the valuation. A forecast price-to-earnings (P/E) ratio of 18 feels reasonable for a company that has the quality hallmarks I look for. These include a good brand, net cash on the balance sheet and high operating margins.

On top of this, MONY also generates great returns on capital employed — a key metric used by fund managers such as Nick Train and Terry Smith to separate the wheat from the chaff. 

The post 2 of the best FTSE 250 dividend shares to buy in the UK today appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Moneysupermarket.com. The Motley Fool UK has recommended Moneysupermarket.com. 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.

Here’s how I’d get started.

Passive income 101

The first thing to sort before buying anything whatsoever is to open up a Stocks and Shares ISA. By doing so, I know that any dividends I receive won’t be taxed. That might mean saving only a few pence in the beginning, but it could amount to an awful lot of pounds as the years pass.

As an aside, sheltering my investments in an ISA will also protect me from paying capital gains tax further down the line when I come to sell. Again, why would anyone want to hand back money to the government if they can legally avoid doing so?

Buy the best

Once an investor has an ISA ready to go, it’s time to buy some shares. Rather than dive in indiscriminately however, I’d look for the best of the best. 

The first thing I’d check for is whether a firm is actually paying dividends. Unfortunately, a lot of previously great dividend stocks are not currently giving anything back due to the coronavirus. This may be because they’d rather not or, more worryingly, because they simply can’t. 

Assuming a company is still providing holders with a passive income stream however, the next thing to check is whether the dividends are sustainable. The key thing to look at here is the dividend yield.

As a rough rule of thumb, a yield greater than 6% usually requires further investigation. It suggests the market suspects this cash may not be returned. Since a yield can look massive when a share price has fallen heavily, it’s vital to check how a company is faring before buying its shares.  

Another ratio to look at is the dividend cover. This is the extent to which dividends are covered by profits. A cover of two is ideal here. Anything less than one is best avoided. It means a company is tapping into its reserves to pay shareholders.

A final thing to note is whether dividends have been/are increasing. A regularly-hiked payout suggests a business is growing and management is confident about the future. Stagnant dividends can point to a company treading water.

Plan B

If picking individual stocks feels too risky, there’s another way of generating passive income. This involves buying what’s known as an exchange-traded fund. These cheap funds simply track a basket of shares rather than a single company. The iShares Core FTSE 100 UCITS ETF, for example, generates the same return as the FTSE 100 index. 

Most importantly, buying a product like the one above pays dividends. At the time of writing, the iShares ETF yields a very respectable 3.1%. That’s a lot more than I’d get from a Cash ISA!

One last thing

Although spending any dividends I receive from shares is tempting, I’m also aware that reinvesting this cash will make me considerably richer in time thanks to the brilliance of compound interest. 

While generating a second income in 2021 is wise, throwing whatever I receive back into the market is an even better plan.

Receive, reinvest, repeat. That’s the Foolish way.

The post How to make passive income from dividends in 2021 appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Personally, I’d much rather snap up a different lowly-valued company in London’s top tier. Before revealing its identity, however, here’s why I’m not rushing to join the queue for the battered bank.

Why I’m avoiding Lloyds shares

Perhaps the biggest reason, at least right now, is Brexit. The manner of our increasingly messy departure from the EU looks like being decided at the very last minute. Should the UK and EU fail to agree on a trade deal, I think it’s likely Lloyds will bear the brunt of the fallout. A likely reduction in economic growth could put pressure on its share price, at least until the dust settles.  

A second reason I’m avoiding Lloyds shares relates to its exposure to the housing market. Being the UK’s biggest mortgage lender might not sound like a bad thing given how hot property currently is. Even so, I suspect it might get increasingly unattractive as the full economic impact of the coronavirus is felt.

The possibility of a third lockdown in January heaps yet more pressure on businesses. The extension of the furlough scheme until the end of April may soften the blow, but unemployment rates are surely still set to rise in the near term. This will put further strain on those already struggling to make their mortgage payments. Yes, another fall in interest rates might help but that’s also bad news for margins at Lloyds. 

Third, Lloyd yields less than 1% at the moment. This is problematic for me since the sizeable pre-coronavirus dividend stream was one of the biggest attractions for holding the shares. I’m not as optimistic as others that this will be hiked significantly in FY21. 

Taking all the above into account, I think there are far better ‘cheap’ stocks on the market right now. 

Better FTSE 100 bet

One FTSE 100 stock I’d be far more interested in buying at the current time is pharmaceutical giant GlaxoSmithKline (LSE: GSK). 

Glaxo is unlikely to be impacted by any political shenanigans in the same way as Lloyds. At the end of the day, people will always require what it produces, even if year-to-year earnings aren’t totally consistent. Moreover, its truly global geographical reach means Glaxo, unlike Lloyds, will benefit from a fall in the value of sterling in the event of no deal.

Then there’s the price. At less than 12 times expected FY21 earnings, GSK’s valuation feels dirt cheap to me for a major player in a highly defensive industry.

Another reason why I’d buy Glaxo over Lloyds shares is the possibility of further consolidation in the pharma space. AstraZeneca‘s planned merger with Alexion may push other giants to come knocking on Glaxo’s door in 2021.

A final motivation is income-related. A likely 80p per share return in this financial year gives a yield of 5.9%. For comparison, the best instant access Cash ISA available returns just 0.6% a year. 

All told, Glaxo seems a far better FTSE 100 buy at the moment, I feel. Lloyds shares could still make me money over the long term, but I’m not sure my patience will stretch that far. 

The post Investors are buying Lloyds shares. I’d snap up this cheap FTSE 100 stock instead appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Scottish Mortgage Investment Trust. The Motley Fool UK has recommended GlaxoSmithKline, Hargreaves Lansdown, and Lloyds Banking Group. 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.

As a long-term investor however, it’s vital to keep things in perspective. Anyone buying IAG five years ago would still be underwater. Back in 2015, the shares were changing hands around the 230p mark. Today, they’re at 156p. No wonder top UK fund managers like Terry Smith avoid the airline sector like the plague.

Now compare this derisory performance to FTSE 100 peer and life-saving technology specialist Halma (LSE: HLMA). Over the same five-year period, its share price has soared almost 190%!

Regardless of today’s initially underwhelming half-year numbers, I still think Halma is the better investment for anyone looking to retire early.

“Resilient performance”

Revenue fell 5% to £618.4m over the six months to the end of September with sales at the firm’s Safety sectors (Process and Infrastructure) declining.

On a more positive note, Halma did see revenue growth in its Environmental & Analysis and Medical sectors. Sales in the US were also stronger, making up for tricky trading in the UK, Mainland Europe and the Asia Pacific region.  

All told, adjusted pre-tax profit fell by 5% over the period to £122m. Given just how tough 2020 has been, this was regarded as a “resilient performance” by management.

I agree. What’s more, I think the company’s ‘essential’ line of work should mean things get back on track quicker than many more cyclical FTSE 100 shares, including IAG.

Encouraging outlook 

According to CEO Andrew Williams, Halma has had a “good start” to the second half of its financial year. While the near-time economic outlook is uncertain, orders and revenue have already been better than in 2019.

As a result of this, the £9bn-cap now expects adjusted pre-tax profit for the full year will come in “around 5% below FY 2019/20.” That’s actually an improvement on its previous prediction of somewhere between 5% and 10% down.

Unsurprisingly, this news has been lapped up by the market. Halma’s share price rose 4% in early trading. But the good news doesn’t end there. 

Dividend delight

Halma’s appeal goes beyond capital gains. Although not a stock I’d buy just for the income, it remains one of the most consistent dividend hikers on the market. Despite recent events, the interim dividend was raised another 5% to 6.87p per share today. 

By sharp contrast, IAG no longer pays a dividend. Due to its battered balance sheet, I can’t help but think it’ll be a long time before it does. Halma, by contrast, had just £315m in net debt at the end of September — around 4% of the company’s entire value.

Better value than the IAG share price?

It’s certainly possible the IAG share price will move a lot higher over the next few weeks and months now that we seem to be turning a corner on the vaccine front. Then again, the recovery is unlikely to be free of turbulence, given the logistical challenge of distributing it to so many people.

As a Foolish investor, I’m therefore asking myself which business I’d rather own for years. Despite its eye-watering valuation (44 times earnings), the answer continues to be Halma.

The post Forget the IAG share price. I’d rather buy this FTSE 100 stock to retire early appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Halma. 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 UK became the first major economy to pass a net-zero emissions law in 2019. This requires various industrial sector companies to eliminate all greenhouse gas emissions by 2050. Contrary to popular belief, the transition to net-zero emissions appears to be progressing well. In 2018, UK emissions were 44% lower than levels in 1990, primarily due to innovations in the energy sector.

Today renewable energy technologies generate approximately 46% of electricity. Wind farms generate 33% of that. 

A renewable opportunity in the FTSE 250?

Greencoat UK Wind (LSE:UKW) is an investment trust that specialises in UK wind farms. It allows investors to indirectly own wind turbines and profit from the electricity they generate.

The business is quite simple. Led by the board of directors, the trust identifies critical wind assets around the country and adds them to the portfolio.

Greencoat sells the energy directly to the national grid. It invests profits into future investments and pays them out as dividends to shareholders. Running wind farms is not a particularly capital intensive operation. Excluding maintenance costs, the remaining expenses are negligible, allowing for an average operating profit margin of over 80%. This level of profitability is partly due to only 17% of owned wind farms being located off-shore. These are typically more expensive to maintain. 

Management has also enacted financial restrictions that shield shareholders from unnecessary risk. For example, the firm cannot have more than 40% debt as part of the capital structure.

Source: Greencoat

The financials

Greencoat’s 2019 income statement reveals an over 60% decline in revenues from the prior year. This decline was a result of multiple faults in several farms that were taken offline for repairs.

In the most recent interim report, the company announced it had fixed these faults. Revenue for the first half of 2020 currently stands at £135m with an estimated final revenue of £270m. This represents a 200% and 16% increase in revenue compared to 2019 and 2018, respectively. While this is undoubtedly good news, it does reveal how much damage a few faults can have on the overall performance of the business – an ongoing risk.

Lack of price power is another unavoidable issue. Approximately 50% of all revenues are exposed to the floating power price. With legislation capping energy prices, there is little room for electrical price appreciation.

The bottom line

Joe Biden is set to be the 46th US president, and the market is enjoying large returns from the ‘Biden Bounce’. The additional pressure on the global energy sector to transition to renewable energy may result in new innovations in wind farm technology.

Despite its limitations, the FTSE 250 stock has become the UK’s leader in wind generation. The dividend remains linked to retail price index inflation and at current prices represents a 5.3% yield that has been steadily increasing by 4% each year. Mixing low reliance on debt, continuous cash flow, a handsome dividend, and a very windy country, creates a recipe for success in my eyes.

The post Biden bounce! 1 cheap FTSE 250 stock I’d buy today appeared first on The Twelfth Magpie.

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Zaven Boyrazian does not own shares in Greencoat UK Wind. The Motley Fool UK has recommended Greencoat UK Wind. 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.