Since I last wrote about British Airways owner IAG (LSE: IAG), the share price has seen an 11% recovery. After a generally positive set of H1 results, I could be tempted into buying the shares in order to capitalise on the potential upside.

IAG shows promise

IAG followed through on its Q1 guidance of achieving profitability in the second quarter. Q2 was, in fact, the group’s first profitable quarter since the start of the pandemic, with an adjusted earnings per share (EPS) of 2.5c.

It was also pleasing to see revenue per available seat kilometres (ASK) and passenger numbers edge closer to pre-pandemic levels. Aside from that, IAG managed to improve its financial position slightly, reducing its debt by €688m, while receiving positive free cash flow.

Therefore, the view of achieving operating profitability by the end of the year is starting to become a realistic possibility. All signs are pointing towards an increasingly promising rest of the year for the FTSE 100 firm.

Striking deals

Apart from the much improved financial performance of the company, IAG also managed to quash fears of future strikes. The company managed to strike a deal with 16,000 workers for a 13% pay rise this year. This should alleviate fears of last-minute flight cancellations, at least for the time being.

Nonetheless, not all is as smooth cruising as it may seem. This is because Heathrow Airport has opted to extend its cap on passenger numbers until the end of October, with no more than 100,000 travellers per day, leading to cancellations of tens of thousands of flights. As Heathrow is the hub of IAG’s most profitable airline, I’m expecting this to impact H2 results.

As a result, CEO Luis Gallego revised the company’s outlook downwards. IAG now expects capacity to hit 78% of 2019 levels, as compared to the previous 80% that IAG had expected. From this, North Atlantic capacity (IAG’s most profitable routes) is now expected to hit 92% of 2019 levels in Q3, compared to the previous guidance of 95%.

Having reservations

While the future outlook for IAG still remains rather promising, I have my reservations regarding its potential upside. Although passenger demand still remains strong, I’m fearful that it’s only a matter of time before sky-high inflation, and a potential recession on the cards, starts hitting consumers harder.

Furthermore, IAG’s long-haul recovery continues to lag that of shorter trips. The continued travel restrictions in large parts of Asia, specifically China, is hindering its growth potential. And with China sticking to its zero-Covid policy, this avenue doesn’t look likely to recover any time soon. Business travel also still continues to lag, only hitting 60% of its pre-pandemic volume. Moreover, as the winter months approach, I’m expecting the number of holiday travellers to start winding down.

Even though IAG shares have the potential to grow plenty, my optimism is hindered by a cloudy economic environment. Overall costs still remain high and, most importantly, the company still has a mountain of debt to pay off, which is expected to increase going into the year end. For that reason, I won’t be investing in IAG shares.

The post Should I be buying IAG shares today? appeared first on The Twelfth Magpie.

More reading

• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• 2 cheap FTSE 100 stocks that have P/E ratios below 10
• What might Middle Eastern peace mean for the IAG share price?
• Up 119% but with a P/E of just 6.6% – what’s going on with the IAG share price?
• 3 UK stocks to consider snapping up if the stock market crashes this month

John Choong 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 decline won’t seem to stop for IAG (LSE: IAG) shares. With the share price sliding to a one-year low, I might be tempted to see it as a buying opportunity. Nonetheless, given the state of its finances, I know it would be a high-risk, high-reward investment.

Terminal situation

IAG shares aren’t just trading at its one-year low. It’s also close to its five-year low of £0.91. What started off as a baggage system error last month has now evolved into something much worse. This is because staff shortages at airports have led to massive travel disruptions for British Airways, the biggest airline at IAG.

The airline had initially cancelled 650 flights in July, impacting over a 100,000 passengers. But to make matters worse, Britain’s biggest airline said today that another 10,3000 short-haul flights will be axed until the end of October. This is in part due to British Airways staff striking during the busiest period for the airline. Most of its check-in staff had received a 10% pay cut during the pandemic, but are yet to get their compensation fully reinstated.

This isn’t good news for IAG as it gets squeezed from both sides. Mass flight cancellations could result in the group falling short of its top line guidance. On the other hand, bigger paycheques to check-in staff will squeeze its bottom line even further.

The easy way out?

Sky-high inflation is starting take a toll on consumers’ wallets. Additionally, the Bank of England expects inflation to peak at 11% later this year. As such, consumers’ discretionary spending is expected to decline. Given that fares from airlines at IAG don’t exactly scream bargain, customers are more likely to turn towards budget airlines such as easyJet and Wizz Air. While its competitors also face a similar number of cancellations, they offer cheaper fares on average. This brings better value proposition to customers.

Delays expected for IAG

When IAG unveiled its Q1 results, it mentioned its aspirations to achieve operating profitability by Q2. However, given the current state of affairs, I view this to be highly unlikely. And even if it does manage to achieve such a feat, I don’t expect it to last for the rest of the year. Therefore, I anticipate delays on its route back to profitability.

More worryingly though, IAG has a mountain of debt (€19.6bn) to deal with. It doesn’t help either when its debt isn’t covered by its current operating cash flow nor its cash and equivalents (€7.9bn). If the FTSE 100 firm can’t deliver on its repayments, it’ll have to risk refinancing its debt, making repayments more expensive. This will likely sour investor sentiment further.

IAG shares are a in precarious position at the moment. There doesn’t seem to be light at the end of the tunnel and its balance sheet is in tatters. Moreover, its share price seems to be only going in one direction for the time being. Nevertheless, a report from Bloomberg stated that British Airways is nearing a deal with unions, which could mitigate staffing shortages and turn the airline’s fortunes around. That being said, I still won’t be buying IAG shares for my portfolio as I view it as too high of a risk. Instead, I’ll be investing in other companies that have better fundamentals.

The post Should I buy IAG shares if the price drops below £1? appeared first on The Twelfth Magpie.

More reading

• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• 2 cheap FTSE 100 stocks that have P/E ratios below 10
• What might Middle Eastern peace mean for the IAG share price?
• Up 119% but with a P/E of just 6.6% – what’s going on with the IAG share price?
• 3 UK stocks to consider snapping up if the stock market crashes this month

John Choong 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.

International Consolidated Airlines Group (LSE: IAG) shares are currently trading at £1.15, and are down 25% this year. Given the current economic landscape, its stock could be in further trouble, and here’s why.

Excess baggage

From Covid, to inflation, and now airport disruptions, the travel industry can’t seem to catch a break, and this week has been one of the more disruptive ones. Staff shortages, technical difficulties, and rail strikes have served up a perfect dish of chaos for IAG.

On Monday, Heathrow Airport suffered a widespread problem with its baggage system. As a result, Heathrow requested airlines to cancel 10% of their flights from Terminals 2 and 3. Although IAG’s main hub is located at Terminal 5, this still affected the limited number of IAG services at T2 and T3.

To make matters worse, Gatwick Airport capped its daily operations to 825 flights a day in July, and 850 flights a day in August, due to staff shortages. This has led to delays and flight cancellations, with easyJet suffering the brunt of it. Nevertheless, I doubt IAG is spared from this as I’m expecting a number of its services to be impacted as well.

Three strikes and you’re out

Three weeks ago, British Airways check-in staff threatened to strike in July. This is because their pay has yet to return to pre-pandemic levels after salary cuts made during the pandemic. With the deadline fast approaching on 27 June, IAG is stuck between a rock and a hard place.

For one, the board could reinstate workers’ pay, but doing so would impact its already fine margins. To mitigate this, British Airways would have to increase its ticket prices, which might dampen demand and extend its route back to profitability.

On the other hand, not doing anything could be equally devastating. A lack of check-in staff might lead to further delays and cancellations, which wouldn’t be good for IAG shares. Seeing that British Airways is the group’s biggest revenue driver, a strike could impact IAG’s top line quite substantially.

Delayed departure

In its last trading update, IAG mentioned that it expects to achieve operating profitability by Q2. However, this seems to be increasingly unlikely. Apart from potentially having to fork out higher wages or lose millions in revenue, the FTSE 100 firm still has to deal with high oil prices.

Since its Q1 update, jet fuel prices have hit fresh new highs of $175 per barrel, which isn’t going to do its bottom line any favours. Additionally, the Consumer Price Index in May continued to hit 40-year highs at 9.1%. With fears of an impending recession, this is most likely going to dissipate the travel tailwind and send IAG shares even lower.

More importantly, IAG’s balance sheet is in a terrible state. Its debt-to-equity ratio sits at a staggering 2,318%, while its short-term assets can’t cover its short-term liabilities. Not to mention, its last reported free cash flow sits at -€885m. This rings alarm bells of a company that’s in big trouble. Therefore, I won’t be investing in IAG shares. Instead, I’ll be parking my money in other growth stocks that have better financials.

The post Could IAG shares be in further trouble? appeared first on The Twelfth Magpie.

More reading

• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• 2 cheap FTSE 100 stocks that have P/E ratios below 10
• What might Middle Eastern peace mean for the IAG share price?
• Up 119% but with a P/E of just 6.6% – what’s going on with the IAG share price?
• 3 UK stocks to consider snapping up if the stock market crashes this month

John Choong has no position in any of the shares mentioned at the time of writing. 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.

Up and away?

I would have expected the IAG share price to lift off after it reported a generally positive set of Q1 results last month. The group managed to recover a substantial amount of its losses to €731m from €1.1bn a year ago. Total revenue before exceptional items was up by a whopping 485% year on year (Y/Y).

In addition to that, total passenger numbers saw an increase to 14.4m, alongside a 72% load factor (A measure of how full a plane is). Most importantly, IAG expects its operating results to be profitable from Q2 onwards, which is great news for investors. So, why’s the stock stalling then?

Sky’s not the limit

The negative sentiment surrounding IAG shares can be attributed to passengers being warned of major delays this week. Workers are carrying out a ballot over a potential pay strike. Check-in staff at Heathrow airport said that the company has refused to reverse a 10% pay cut imposed on them during the pandemic. Meanwhile, management pay has been restored to pre-pandemic levels.

Trade Unite, the trade union representing these staff disclosed that the industrial action ballot covers around 500 staff, and is expected to close on 27 June. An unfavourable settlement would most probably lead to strikes in July, which is IAG’s busiest period of the year. With a bottleneck of queues already building up outside several UK airports, this could very well hinder IAG’s route to profitability in the short to medium-term.

To make matters worse, the group is also facing shareholder pressure over a decision to decrease CEO Luis Gallego’s share compensation. IAG’s annual general meeting is fast approaching, and shareholders are not very keen on awarding its chief executive after the company posted enormous losses during the pandemic.

Flying blind

Nonetheless, do the positive figures from the group’s Q1 report make IAG shares investible for me? I think not. The conglomerate’s balance sheet still remains undesirable, as its staggering amount of debt is not well covered by operating cash flow. Despite IAG reducing its debt levels by 0.6% last quarter, a potential slowdown in customers may undo its recovery.

I expect travel tailwinds to slow down in the coming quarters as economic headwinds start to take shape. Inflation in April came in at 9%, and with further interest rate hikes expected, I am doubtful that passenger numbers will continue recovering at the same pace.

Although the lifting of lockdowns in China should see passenger numbers rise in Asia, oil prices have also risen. Oil is now hovering around $120 per barrel and will definitely have a negative impact on IAG’s bottom line. This sparks fresh concerns as to whether the company’s guidance of achieving operating profitability by Q2 is still a realistic possibility. As such, I will not be looking to invest in the IAG shares. Instead, I’ll be looking to purchase other shares that could benefit my portfolio with more financial security.

The post The IAG share price is down 15%. Should I buy? appeared first on The Twelfth Magpie.

More reading

• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• 2 cheap FTSE 100 stocks that have P/E ratios below 10
• What might Middle Eastern peace mean for the IAG share price?
• Up 119% but with a P/E of just 6.6% – what’s going on with the IAG share price?
• 3 UK stocks to consider snapping up if the stock market crashes this month

John Choong has no position in any of the shares mentioned at the time of writing. 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.

Considering these numbers, I think investing in the FTSE 100 could be a much better idea than opening a Cash ISA, and today I’m going to highlight two FTSE 100 dividend champions that I would buy if I had £20k to invest in an ISA. 

Booming market

The global travel and tourism market is booming. Last year the market grew 3.9%, compared to 3.2% for global GDP, marking the eighth successive year when the travel and tourism industry has grown faster than the global economy. 

As one of the largest travel companies in Europe, Tui Travel (LSE: TUI) is riding this growth wave. Indeed, between 2013 and 2018, the company’s normalised earnings per share jumped from €0.32 to €1.32, a compound annual growth rate of 26.6%.

I think it is unlikely that this rate of growth will continue, but I’m optimistic that Tui’s size and reputation with customers will help it grow faster than the rest of the market. 

Analysts believe the tourism market will continue to expand faster than global GDP for the foreseeable future, as consumers spend more and more travelling the world.

This suggests that TUI’s earnings could grow by at least 4% per annum over the long term. Coupled with the company’s current 4.4% dividend yield that implies investors can look forward to an 8.4% total annual return for the foreseeable future. 

The grounding of Boeing’s 737 Max jets is expected to hit Tui’s growth in 2019. However, the company is likely to return to growth the next year, according to the City. 

Analysts have pencilled in earnings growth of 43% for fiscal 2020, and the dividend is expected to rise as well, hitting €0.67 per share, giving a dividend yield of 5.5% on the current share price.

Undervalued

Sticking with the travel market, my next FTSE 100 income pick is British Airways owner IAG (LSE: IAG). The airline business can be an unpredictable one, but it looks as if IAG has cracked the code.

By focusing on keeping costs low and growing through acquisitions, IAG’s net profit has surged. City analysts are forecasting a net profit of €2.2bn for 2019, up from just €122m in 2013. 

And it doesn’t look as if the company is going to slow down any time soon. At the beginning of November, the group announced that it had signed an agreement to purchase Spanish carrier Air Europa. The €1bn deal will give the group a foothold in the Latin American market, as well as better economies of scale as IAG already owns Spain’s two biggest airlines, Iberia and Vueling.

Management wants to use this stable of carriers to turn Madrid into one of the world’s largest aviation hubs. Considering IAG’s successful track record of buying and integrating airlines into the broader group, I think it will succeed.

Further growth could be great news for shareholders and income seekers. As IAG’s profits have ballooned, so has the company’s dividend to investors. This year the business will distribute €0.33 per share in dividends, up from €0.18 in 2015, according to analysts. That’s a dividend yield of 5.2% on the current share price. 

On top of this market-beating dividend yield, the stock also trades at a highly attractive valuation of just six times forward earnings.

The post Forget a Cash ISA! I’d invest £20k in these 2 FTSE 100 dividend champions yielding 5% appeared first on The Twelfth Magpie.

More reading

• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• 2 cheap FTSE 100 stocks that have P/E ratios below 10
• What might Middle Eastern peace mean for the IAG share price?
• Up 119% but with a P/E of just 6.6% – what’s going on with the IAG share price?
• 3 UK stocks to consider snapping up if the stock market crashes this month

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

Back in April, the airline stopped offering the FT to passengers because it was reportedly upset with the paper’s coverage. This did little to improve the brand’s reputation among customers and the press. 

All of these factors have had an impact on the stock’s share price, lagging the broader market by 14% over the past 12-months, excluding dividends paid to investors.

Booming profits

However, despite all of the negative publicity, profits have held up relatively well. IAG is expected to report earnings per share of €1.07 this year, a 7.4% dip from last year, but up 20% from 2016’s figure of €0.89.

Barring any more substantial setbacks, City analysts expect growth to return in 2020 with earnings rising 7% to €1.15.

I think this could be a fantastic opportunity for investors to buy into this world-class brand at a discounted price. At the time of writing, shares in the airline group of trading at a forward P/E of just 5.9, a valuation that offers a substantial margin of safety, in my opinion.

The stock also supports a dividend yield of 5.3%, so investors will be paid to wait for confidence to return. Lastly, the payout is covered three times by earnings per share, so there’s a sizable cushion to protect the dividend if earnings fall further. 

New CEO

Another FTSE 100 dividend champion I think’s too cheap to pass up right now is the owner of the B&Q and Screwfix brands Kingfisher (LSE: KGF). The firm has been struggling to grow for the past six years, with revenue for the period expanding at an anaemic 1% per annum. Rising costs have also eaten into the company’s profit margins.

Kingfisher’s operating margin has fallen around 40% since 2014. A transformation plan, which was designed to revolutionise the business for the digital age, has also failed to yield the desired results.

But I think the company’s fortunes could be about to change. At the end of September, Véronique Laury, who has been managing the group since 2015, stepped down and was replaced by Thierry Garnier, a veteran of French retail giant Carrefour.

The new CEO has been quick to make his mark. He’s already replaced the management of Kingfisher’s struggling French business with a former executive at Carrefour’s hypermarkets unit. 

Garnier has also put his money where his mouth is. Soon after coming on board, the CEO splashed out £130k buying Kingfisher shares. The group’s CFO also purchased a similar amount. 

I think it could be worth following Kingfisher’s new CEO as he seeks to turn the business around. Today, you can snap up shares in this retail giant for just 10.3 times forward earnings. The stock also supports a dividend yield of 5%, so you’ll be paid to wait for the recovery. 

The post £2,000 to invest? I’d buy these dirt-cheap FTSE 100 stocks yielding 5% appeared first on The Twelfth Magpie.

More reading

• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• 2 cheap FTSE 100 stocks that have P/E ratios below 10
• What might Middle Eastern peace mean for the IAG share price?
• Up 119% but with a P/E of just 6.6% – what’s going on with the IAG share price?
• 3 UK stocks to consider snapping up if the stock market crashes this month

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

But in the years since, Evraz has gone from strength to strength. Last year, it reported a net income of $2.4bn, and this year analysts have pencilled in a projected net profit of $1.4bn.

Cash returns

As profits have boomed, the company has adopted a policy of returning as much cash as possible to shareholders. In 2017, it distributed $0.30 per share and management declared a $1.18 (97p) per share distribution in 2018.

With earnings set to fall by around 38% for fiscal 2019, analysts aren’t expecting the company to repeat last year’s performance. Instead, they’ve pencilled in a full-year dividend of $0.66 (54p), giving a dividend yield of 11%. Still, if Evraz hits this objective, it’ll have returned a total of 175.6p per share to investors over the three-year time frame, 34% of its current share price.

I’m confident that this trend will continue. You see, Evraz’s two highest-ranking managers, Alexander Abramov and Alexander Frolov, own around 30% of the business. This implies they’ll work to achieve the best results for the company’s owners because they stand to lose more than most other shareholders if they don’t.

That’s why I think it could be an excellent addition to your portfolio if you’re looking for a blue-chip income stock trading at a bargain-basement price.

Brand value

Shares in International Consolidated Airlines (LSE: IAG) have taken a hammering over the past few months as the group’s flagship British Airways brand has suffered from strikes, IT glitches and lousy customer service. A recent survey of air travellers ranked BA as one of the worst airlines in the world to fly with, an accolade no brand wants to achieve.

These issues have sent investors running for the hills. Since the beginning of the year, shares in the airline group have fallen more than 30%, excluding dividends, and are currently dealing at a forward P/E of 4.3.

Nevertheless, despite the firm’s problems, I think IAG has a bright long-term outlook. The company operates somewhat of a monopoly over the landing slots at Heathrow, which gives it a tremendous competitive advantage. The group holds nearly two-thirds of airport’s current capacity, so while customers might not want to travel on the airline, their other options are relatively limited.

With this being the case, the market seems to have overreacted with regards to IAG’s valuation. The stock is around 50% cheaper than its international peers, despite its UK-market share. In my opinion, this indicates a wide margin of safety for investors buying at current levels. Only adding to the appeal is the company’s 6.5% dividend yield.

Considering all of the above, if you’re looking for a dirt-cheap, blue-chip dividend stock for your portfolio, I highly recommend taking a closer look at IAG.

The post 2 dirt-cheap FTSE 100 dividend stocks I’d buy yielding up to 11%! appeared first on The Twelfth Magpie.

More reading

• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• 2 cheap FTSE 100 stocks that have P/E ratios below 10
• What might Middle Eastern peace mean for the IAG share price?
• Up 119% but with a P/E of just 6.6% – what’s going on with the IAG share price?
• 3 UK stocks to consider snapping up if the stock market crashes this month

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

This is only the median valuation of stocks in the UK’s leading blue-chip index. Some businesses are worth substantially more or less. And one company that is worth considerably less is International Consolidated Airlines Group (LSE: IAG). 

Impressive turnaround

Owner of the British Airways and Iberia brands, IAG is one of the world’s largest airline groups. Over the past 10 years, under the management of CEO Willie Walsh, IAG has been transformed from a money-losing basket case into a tremendously profitable airline business. Last year the company earned nearly €3bn, although this was mainly due to one-off factors. But City analysts are expecting a healthy €2.3bn of net profit for 2019.

Based on these figures, IAG’s return on equity — a measure of business profitability — was 32% last year, which puts the company in the top 10% of the most profitable public businesses on the London market. 

However, despite these attractive profitability metrics, shares in IAG have the lowest valuation in the FTSE 100. At the time of writing, shares in the company are trading at a forward P/E of just 4.2, that’s a discount of 67% to the market average. 

Generally speaking, companies with a higher level of profitability than the rest of the market deserve a premium valuation, but that’s clearly not the case with IAG. The question is why, and if it is worth taking advantage of this valuation anomaly?

Time to buy?

The airline business is quite an unpredictable one. There are so many different factors that can alter earnings. It is quite difficult to predict growth. Analysts have to take into account factors such as fuel costs, currency exchange rates, airport delays, interest rates and even the weather. There’s also the threat of strikes, which IAG currently has to contend with. 

With so many things to consider, airline stocks tend to trade at a discount to the rest of the market because their growth outlook is so unpredictable. Shares in IAG have always been subject to this uncertainty discount, but it has never been as wide as it is today.

Historically, the stock has traded at a multiple of around eight times forward earnings. Based on current growth forecasts, this would imply a share price of 800p, an upside of 90% from current levels. IAG also looks undervalued compared to international peers. For example, the US airline sector trades at a forward P/E of around 7. 

Undervalued

After taking into account IAG’s own valuation history, and the current valuation of its international peers, I have concluded that the stock is significantly undervalued at current levels. While the shares do deserve an uncertainty discount, a discount of around 40% to international peers seems too steep to me.

The post This is the FTSE 100’s cheapest stock. Is it worth buying? appeared first on The Twelfth Magpie.

More reading

• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• 2 cheap FTSE 100 stocks that have P/E ratios below 10
• What might Middle Eastern peace mean for the IAG share price?
• Up 119% but with a P/E of just 6.6% – what’s going on with the IAG share price?
• 3 UK stocks to consider snapping up if the stock market crashes this month

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

With this being the case, today I’m going to highlight three FTSE 100 stocks that I believe currently offer once-in-a-lifetime yields.

Turnaround complete

The first company is FTSE 100 insurance group RSA (LSE: RSA). Investors have been giving this business a wide berth since 2013 when the group ran into trouble, losing £347m in that year alone and forcing management to act quickly to stem losses. 

After five years of restructuring, the business now looks as if it has finally recovered from past mistakes. For 2019, analysts are expecting earnings per share to rise a staggering 37%. They’ve also pencilled in a 36% increase in the dividend payout, which will give an estimated yield of 5.1% according to current projections. Not only is this the highest distribution the company has offered since the financial crisis, but its valuation is also extremely attractive compared to history.

What’s more, shares in RSA are currently dealing at a forward P/E of 12.4 compared to the five-year average of around 15.

Flying high

My next dirt-cheap income play is International Consolidated Airlines Group (LSE: IAG). A quick look at this business will quickly tell its shares are extremely undervalued at current levels.

Over the past 12 months, shares in IAG have declined by around 34% and after this slump, are dealing at a forward P/E of 4.6. However, the company’s fundamentals do not support this decline. City analysts are expecting earnings per share to rise from €1.16 to €1.20 by 2020.

Analysts reckon the company will increase its dividend to investors as well during this period. The City has the stock yielding 6.2% in 2019, and with the distribution covered 3.4 times by earnings per share, it doesn’t look to me as if this payout will come under pressure anytime soon.

With the stock trading at a discount of around 50% to its 10-year average P/E, and supporting the highest dividend yield since 2009, I reckon now could be the time to snap up shares in IAG on the cheap.

Growing market

My final FTSE 100 income play is global cruise operator Carnival (LSE: CCL). There is plenty to like about this business. As I have pointed out before, one of the main reasons why I am bullish on this company is because the demand for cruises is growing steadily around the world, and is forecast to continue doing so for many years to come.

As the operator of the biggest fleet of cruise ships in the world, Carnival is exceptionally well placed to profit from this trend. But the market seems to be overlooking this factor. Right now, the stock is trading at its lowest valuation in 10 years, even though earnings have nearly tripled in the past six.

On top of this, the stock supports a dividend yield of 4.1%, which is the highest yield offered by the shares since 2014. The distribution is covered twice by earnings per share. All of the above leads me to conclude that Carnival is another bargain income stock that’s worth adding to your portfolio today.

The post I think there’s never been a better time to buy these 3 FTSE 100 income stocks appeared first on The Twelfth Magpie.

More reading

• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• 2 cheap FTSE 100 stocks that have P/E ratios below 10
• What might Middle Eastern peace mean for the IAG share price?
• Up 119% but with a P/E of just 6.6% – what’s going on with the IAG share price?
• 3 UK stocks to consider snapping up if the stock market crashes this month

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Carnival. 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, I’m looking at two such FTSE 100 stocks and explaining why I would buy them at the current price.

Soaring growth

International Consolidated Airlines (LSE: IAG) will almost certainly suffer if the UK economy slumps post-Brexit. An economic crash will depress wages, which means consumers will have less money available to spend on things like holidays, so IAG’s sales will fall.

That said, as a global airline business, IAG’s customers come from all over the world, so even if the UK economy does crash, I think the group’s international diversification will help it weather the storm.

The market doesn’t seem to agree. Indeed, right now the stock appears to be pricing in a one-third decline in profits. Shares in the airline are dealing at a forward P/E ratio of 6.5, compared to the airline industry average of around 9.5.

I don’t think the company deserves this valuation for two reasons. Firstly, because I believe it’s unlikely earnings will fall by 30% in the near term and, secondly, the company is one of the most profitable European airline groups. It reported an operating profit margin of 12% for 2017, against the industry average of less than 10%. A better-than-average profit margin usually deserves a premium valuation to the rest of the industry.

As well as its sector-leading profit margins and discount valuation, shares in IAG also support a dividend yield of 4.3%.

Considering all of the above, I think the stock is oversold, and patient investors could be well rewarded buying IAG today — with a 4.3% dividend yield, investors will also be paid to wait for the recovery.

Long-term growth

Shares in travel business TUI Travel (LSE: TUI) are suffering from the same kind of negative investor sentiment. Unfortunately, the company’s recent trading updates have done little to reassure investors that they should be investing in this business.

Still, as my Foolish colleague Peter Stephens recently pointed out, while Tui’s near-term outlook might not be attracting investors to the stock, the company’s long-term potential is more attractive. 

As one of the biggest holiday and tour operators in Europe, Tui has unrivalled buying power and economies of scale, meaning it can offer discounts and experiences other holiday companies cannot. With this being the case, I’m optimistic about the firm’s long term potential. Consumers will always be looking for holidays and holiday packages, which tells me that while the industry might have to navigate some choppy waters, over the long term, demand should only increase.

On that basis, I think the stock’s current valuation of just seven times forward earnings offers a lovely opportunity to buy into this long term growth story. Only adding to the appeal is a dividend yield of 8.3%, which means that investors in Tui, just like those of IAG, will be paid to wait for the share price recovery.

The post 2 top value FTSE 100 stocks I’d buy right now appeared first on The Twelfth Magpie.

More reading

• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• 2 cheap FTSE 100 stocks that have P/E ratios below 10
• What might Middle Eastern peace mean for the IAG share price?
• Up 119% but with a P/E of just 6.6% – what’s going on with the IAG share price?
• 3 UK stocks to consider snapping up if the stock market crashes this month

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