Generating passive income from a portfolio of shares is a long-term game, but this year’s troubles have presented investors with an exciting short-term opportunity.

The FTSE 100 is packed full of top stocks offering supersized yields while trading at low valuations. I’ve highlighted a number of my favourites but here’s one I haven’t looked at in years. Private equity firm Intermediate Capital Group (LSE: ICP).

Passive income and growth

The global alternative asset manager supplies capital to growing businesses and now manages $71.3bn of assets across 15 countries. This is the type of company that does well when the economy is booming, but can struggle when times are tough, as it is now.

Its stock is down 47% over the last year, and it trades just 12% higher than five years ago. That’s bad news for existing investors but does offer an opportunity for people like me looking to build long-term passive income at a discounted price.

Intermediate Capital Group would currently give me dividend income of 6.5% a year. That yield looks secure too, covered 2.4 times by earnings. Yet buying today is not without its risks.

First-half group profit crashed from £264.7m to just £35.6m, with earnings per share plunging from 83.9p to 13.5p. This was largely down to an investment company loss of £108.1m. 

Private equity profits and losses tend to be lumpy though, and other news was much more positive. “Robust” fundraising hit $6bn in six months, while third-party fee income was £265.3m, up 33% on last year.

The balance sheet is “strong” with liquidity of £1.3bn, while happily for shareholders, the interim dividend was hiked from 18.7p to 25.3p.

The company has a solid track record of increasing dividends. Full-year shareholder payouts totalled 30p in 2018, then climbed steadily to 45p in 2019, 50.80p in 2020 (when many FTSE 100 companies scrapped theirs in the pandemic), 56p in 2021 and 76p last year. Revenues, pre-tax profits and earnings per share all rose strongly over the same period.

As the world stumbles into recession, the going will get harder. Yet, as with many shares on the FTSE 100, I feel that today’s troubles are an opportunity for investors like me who take a long-term view.

Intermediate Capital Group is now trading at just 6.4 times earnings. In March, it was notably pricier at 11.3 times. The yield then was just 2.6%. It’s a lot more generous today.

This makes now a really attractive entry point, especially for far-sighted investors. I would only buy a stock like this for a minimum 10-15 years, and ideally longer. Today, I would reinvest my dividends, and start drawing them as passive income after I retire.

Intermediate Capital Group invests in the businesses of the future. The FTSE 100 offers plenty of passive income opportunities, but this appears to offer strong share price growth prospects as well. It has just shot straight to the top of my 2023 watchlist. When I have some cash to spare after Christmas, I will buy it.

The post Unmissable 6.45% yield! I’ll buy this dirt-cheap FTSE stock for passive income in 2023  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 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 FTSE 100 has performed better than most global stock markets this year, but it has still fallen sharply. Trading at just over 6,900, it is down almost 8% in 2022.

This has been a tough year. The global economy had barely started to recover from the pandemic, when Putin invaded Ukraine.

Energy prices have rocketed, while inflation is in double digits. The era of cheap money has hit an abrupt close, as stimulus goes into reverse. All the froth has gone out of stock markets, and house prices may soon start falling.

The FTSE 100 has done okay

The UK is in crisis, after former chancellor Kwasi Kwarteng’s mini-budget undermined the pound and the nation’s pension funds. As far as the FTSE 100 is concerned, the only surprise to me is that it has not fallen further.

I’ve no idea whether we will see another sell-off. I never predict stock market movements, for the simple reason that it is not possible to do so with any consistent degree of success.

Instead, I aim to take advantage of market movements after they have happened. At least there I’m on solid ground. The FTSE 100 has dropped this year, therefore my favourite companies are cheaper. If I buy them today, I’m getting a relative bargain.

Naturally, the lead index could drop again, making them cheaper still. If that happens, I will console myself with the fact that my reinvested dividends will pick up more stock at the lower price.

I will further console myself by investing a little more, at the lower price. That’s how I invest. By feeding any spare money I have into the market, taking advantage of any dips.

There are so many bargain stocks on the FTSE 100 right now, I hardly know where to start. Many individual stocks have fallen much further than the index as a whole. For example, private equity firm Intermediate Capital Group is down 51% over 12 months, and now trades at a bargain 5.5 times earnings. It yields a thumping 7.67%.

I’m amazed by how cheap stocks are

Many other FTSE 100 stocks have a similar profile. Barclays is down 24% in the last turbulent year. It trades at just 3.93 times earnings and yields 4.16%. British Land is down 30%. It’s valued at just 3.38 times earnings and pays income of 6.43%.

I would need to do more research before actually buying them, but their low valuations and high yields are incredibly tempting. There are loads more like them on the FTSE 100. This is a great time to buy dirt-cheap dividend stocks.

The big risk when buying companies is that I may be walking into a value trap. Especially now, as inflation powers upwards and consumers and businesses face the worst cost squeeze in four decades. I expect things to get worse rather than better, but I also remind myself that stock markets typically recover long before the actual economy does.

If I waited for happier times to buy FTSE 100 shares, they would cost me a lot more than they do today, and yield far less.

The post The FTSE 100 has fallen 8% this year! I’m going shopping for shares appeared first on The Twelfth Magpie.

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

Harvey Jones doesn't hold any of the shares mentioned in this article. The Motley Fool UK has recommended British Land Co. 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.

Rathbone shares have climbed by 52% since 2016’s low in October, to 2,667p (including a results-day 37p rise), and have doubled in price over the past five years.  The reason for that seems apparent from the company’s recent performance — we’ve seen earnings per share growing by 58% in just four years, with analysts forecasting a further 15% gain by the time we reach December 2018.

While the company spoke of “ongoing geopolitical uncertainty” which is currently dominating short-term market conditions, we did see underlying pre-tax profit rise by 22.7%, to £43.3m, in the first six months of the year.

Funds

The key long-term measure of confidence in an investment manger is its level of funds under management, and we saw a 7% rise to £36.6bn since December 2o16 — and seeing as the FTSE 100 put on only 2.4% over the same period, I’m impressed by that.

I would not place my own investment cash under the control of a professional manager, purely because I think my own simple strategy is effective enough without paying anyone else to do it for me. But there are many, from private investors to charities and pension funds, who need the services of companies like Rathbone — and I reckon buying shares in investment managers themselves can be very rewarding.

I see what might be thought of as contrarian safety here too — it’s when markets are at their most volatile that people turn more to respected professionals to manage their cash. 

And I see Rathbone Brothers as a well-managed and well-respected firm that should continue to do well.

Corporate finance

Financial services at all levels can be very profitable, and I’ve also been examining Intermediate Capital Group (LSE: ICP). The company provides capital for a variety of corporate needs, including IPO, management buyouts and similar.

The first quarter of this year has been pretty good, with inflows in the period of €0.6bn coupled with “robust demand for current fundraising“.

The firm did see a 2% drop in funds under management, to €23.3bn, in the three months, but it put that down to an “expected quieter quarter” and an adverse currency exchange impact on dollar-denominated funds among other things. But inflows in the second quarter are expected to be higher.

Outgoing chief executive Christophe Evain said: “Our expectation continues that this will be a strong fundraising year,” and that supports expectations of a good year this year.

One for the brave?

Intermediate Capital is in a volatile sector, and that can show through in erratic share price movements. But one thing I see as a long-term calming effect is the company’s progressive dividend.

It’s grown from 20p per share in 2013 to 27p this year, and though an impressive share price performance over that timescale has dropped the yield to 3.8%, we’re also looking at a trailing P/E of under 10. Dividend cover is strong, and I expect to see yields increasing nicely over time.

If you’re happy to handle short-term volatility without panicking (which I see as an essential characteristic of a growth investor), I really do see Intermediate Capital Group as having solid long-term potential.

The post Rathbone Brothers plc is a growth stock that could have far more to give appeared first on The Twelfth Magpie.

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Alan Oscroft 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.

Upbeat performance

Results released by Premier Asset Management (LSE: PAM) on Tuesday showed it is making encouraging progress. The company’s assets under management increased to £5.5bn, with net inflows in the three months to 31 March 2017 being £170m. This meant that total net inflows in the rolling 12 months to 31 March were £667m, which shows that the company’s investment performance and marketing activities are working well.

In fact, Premier Asset Management has 95% of assets under management performing above the median over three years. Over a five-year period, 80% of its assets under management are in the first quartile, which shows that its performance remains strong.

With a dividend yield of 5.9%, Premier is one of the highest-yielding UK-listed shares at the present time. However, its dividends are due to rise by 41% next year, which puts it on a forward yield of 8.3%. With dividends due to be covered 1.4 times by profit in 2018, its shareholder payouts appear to be highly sustainable, which could lead to higher growth in future years. As such, now seems to be the perfect time to buy it.

Dividend growth potential

Premier is not the only financial services company with high dividend growth potential. Specialist asset manager Intermediate Capital (LSE: ICP) has a dividend coverage ratio of 1.9, which suggests growth in shareholder payouts could be high in future years. Therefore, while its dividend yield of 3.7% may be roughly in line with that of the wider index, it has significant scope to rise over the medium term.

Certainly, the asset management industry can be a relatively volatile place to invest. The performance of funds can disappoint and if the global economy endures a downturn, Intermediate Capital’s financial performance could be downgraded. However, with the company having recorded three consecutive years of rising earnings on a per share basis, it appears to have a sound business model and growth strategy.

With Intermediate’s shares trading on a price-to-earnings (P/E) ratio of 14, they seem to offer fair value at the present time. Given that inflation is forecast to rise and the company has such a high dividend coverage ratio, it would be unsurprising for investor demand for its shares to rise. This could provide capital gains and equate to index-beating total returns over the coming years.

The post Two bargain dividend stocks I’d buy in April appeared first on The Twelfth Magpie.

More reading

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

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