Dunelm

Dunelm (LSE: DNLM) is a British home furnishings retailer that operates throughout the UK. It is one of the largest homewares retailers in the country with an ever growing market share. New director Karen Witts was appointed CFO this week and a number of Dunelm shares were awarded to her.

• Name: Karen Witts
• Position of director: Chief Financial Officer
• Nature of transaction: Free shares
• Date of transaction: 9 June 2022
• Amount purchased: 73,979 @ nil
• Total value: £N/A

Investec

Investec (LSE: INVP) is an international banking and wealth management group. It provides a range of financial products and services to a clients in Europe, Southern Africa and Asia Pacific. This week, a number of director dealings were carried out in both directions.

• Name: Ciaran Whelan
• Position of director: Director
• Nature of transaction: Sale to cover tax liabilities
• Date of transaction: 8 June 2022
• Amount sold: 24,037 @ £4.77
• Total value: £114,674.28

• Name: Ciaran Whelan
• Position of director: Director
• Nature of transaction: Partnership shares
• Date of transaction: 8 June 2022
• Amount purchased: 21,531 @ £4.77
• Total value: £102,702.87

• Name: Stephen Koseff
• Position of director: Director
• Nature of transaction: Sale to cover tax liabilities
• Date of transaction: 6 June 2022
• Amount sold: 31,514 @ £4.82
• Total value: £151,938.67

• Name: Ruth Leas
• Position of director: PDMR
• Nature of transaction: Sale to cover tax liabilities
• Date of transaction: 8 June 2022
• Amount sold: 10,179 @ £4.75
• Total value: £48,374.68

• Name: Ruth Leas
• Position of director: PDMR
• Nature of transaction: Partnership shares
• Date of transaction: 8 June 2022
• Amount purchased: 10,330 @ £4.75
• Total value: £49,092.29

• Name: Fani Titi
• Position of director: Director
• Nature of transaction: Sale to cover tax liabilities
• Date of transaction: 6 June 2022
• Amount sold: 75,150 @ £4.84
• Total value: £363,996.54

• Name: Nishlan Samujh
• Position of director: Director
• Nature of transaction: Sale to cover tax liabilities
• Date of transaction: 6 June 2022
• Amount sold: 37,885 @ £4.84
• Total value: £183,499.79

Bodycote

Bodycote (LSE: BOY) is the world’s largest provider of heat treatment and thermal processing services. The service acts as a vital link in the manufacturing supply. A non-executive director purchased a decent number of Bodycote shares this week.

• Name: Nicola Susan Boyd
• Position of director: Director
• Nature of transaction: Purchase of shares
• Date of transaction: 8 June 2022
• Amount sold: 3,000 @ £6.54
• Total value: £19,620.00

Types of shares in a SIP

To provide context, there are a few types of shares within a company’s share incentive plan (SIP). A SIP is an employee plan for companies within the UK to flexibly award equity to employees. Publicly listed companies normally exercise this option because it’s tax-efficient for both the employer and its employees.

In this instance, the director dealings at Investec bought partnership shares. Employees can use a SIP to buy shares on a monthly basis or at the end of an ‘accumulation period’. If there is an accumulation period in effect, employees can buy shares at the market value at the beginning or end of the period.

The post Director dealings: Dunelm, Investec, Bodycote appeared first on The Twelfth Magpie.

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John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has recommended Bodycote. 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.

Let’s explore where they could go next and whether I should buy.

Investec: a dividend stock with a solid yield

Specialist Anglo-African banking group Investec (LSE:INVP) has climbed higher than any other FTSE 250 stock over the past year. The blistering 137% growth in the Investec share price hasn’t dented the stock’s passive income appeal. It still yields a healthy 3.7%.

I also like the geographic diversification away from the UK economy that it offers via significant exposure to emerging markets from its Johannesburg operations. At £14.1bn, over 53% of its net core loans are in Southern Africa.

The FTSE 250 bank should also prove resilient in a rising interest rate environment. These factors make Investec stock a great pick to protect my portfolio from the twin threats of a domestic recession and inflation.

On the other hand, credit rating agencies have expressed concerns about rising government debt in South Africa. This could pose a headwind for Investec. Nevertheless, with adjusted operating profit of £377.6m for 2021 and positive forecasts for 2022, the potential risks wouldn’t dissuade me from buying the shares today.

Indivior: a pharma growth stock

Another star performer in the FTSE 250 index is healthcare company Indivior (LSE:INDV). The drug manufacturer’s share price is up by 132% on a 52-week basis and a stunning 585% over two years.

Indivior specialises in opioid addiction treatments. Demand for its products is rocketing due to the opioid problem currently haunting the US. According to the CDC, overdose deaths involving opioids increased by 138% from 2015 to 2021.

Unsurprisingly, Indivior’s financials have benefited. Net revenue increased from $647m to $791m last year, driven primarily by an 88% uptick in net revenue from its extended release injection, Sublocade.

Indivior stock is not without risks, however, demonstrated by its payment of a $600m settlement in 2020 to resolve liability arising from false marketing of its Suboxone Film treatment in Massachusetts, which at one stage threatened to bankrupt the company.

But with its legal troubles in the rear-view mirror and investment in R&D to expand its pipeline into Cannabis Use Disorder treatments, this pharmaceutical company has a bright future, in my opinion. I’d buy.

Drax Group: a FTSE 250 energy stock

Drax Group (LSE:DRX), the owner and operator of the UK’s largest biomass and coal-fuelled power station, has seen its share price almost double over the past 12 months.

Moreover, the company’s adjusted profits rose from £800m to £843m in 2021. Shareholders also benefit from a handy 18.8p dividend per share.

There are clear concerns about investing in a fossil fuel business. However, Drax Group has taken steps to mitigate this.

It is the world’s first energy company to announce an ambition to become carbon negative by 2030. Indeed, the company currently supplies 12% of the UK’s total renewable energy.

Furthermore, there is increasing pressure to diversify away from Russian oil and gas. In this context, I’d buy shares in this homegrown FTSE 250 energy company today.

The post 3 hot FTSE 250 shares that could surge in 2022 appeared first on The Twelfth Magpie.

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Charlie Carman 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.

Booming market

The company is a leader in cybersecurity, a market that’s seeing explosive growth. Analysts estimate worldwide spending on cybersecurity products was around $100bn in 2017 and is forecast to hit $170bn per annum by 2022. 

Avast is trying to grab a small share of this market. Revenue was just $251m in 2015 and is expected to hit $869m for 2019. Analysts are expecting further growth in 2019. They’ve pencilled in revenues of $926m for 2020. 

Staying ahead of cybercriminals is essential if Avast wants to maintain its reputation. That’s why the company is spending more than $70m a year on research and development to do just that.

However, this spending is only a fraction of the group’s overall income. Last year, the firm reported an operating profit margin of nearly 40%. Therefore, most of Avast’s revenue growth goes straight to the bottom line. 

As sales expand, the City is forecasting earnings growth of 16% for 2019 and nearly 10% for 2020. These forecasts put the stock on a 2020 P/E of 13.8, which undervalues the business, in my opinion. Indeed, shares in London-listed peer Sophos are currently dealing at a forward P/E of 29.9, more than double Avast’s current valuation. 

That’s why I think Avast could double your money. Not only is the stock trading at a substantial valuation discount to peers, but it also looks as if earnings have the potential to continue to grow at a double-digit annual rate for many years to come. 

Booming profits

If Avast is not for you, then you might want to take a look at financial services group Investec (LSE: INVP). Over the past five years, shares in Investec have fallen by around 20% excluding dividends. But despite this performance, the company’s underlying business is much stronger today than it has ever been.

The share price might have declined 20% since 2014, but net income is up 60% over the same period. Meanwhile, Investec’s dividend to shareholders has been hiked at an average rate of 5.2% per annum since 2013. 

Usually, when a company’s share price declines in the face of rising profits, it’s a sign the business is issuing a lot of new shares, diluting existing shareholders, and pushing the price down. However, in this case, that’s not happening. Earnings per share have increased by 60% since 2014. 

I think this presents a fantastic opportunity for investors. After recent declines, shares in Investec are dealing at a forward P/E of 8, below the sector median of 13.

On top of the above, the stock supports a dividend yield of 5.8%. A return to the sector median multiple could imply a gain for shareholders of 63% combined with two years of dividend income, and you could be looking at a total return of nearly 100%.

In other words, Investec could be an excellent buy for value-seeking investors. 

The post £2,000 to invest? I think these FTSE 250 stocks could double your money appeared first on The Twelfth Magpie.

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• Aiming for a yearly second income of £19,850? Here’s how it could be done from this newly-promoted FTSE gem
• With a 6% yield and a P/E of just 7.4, is this share a screaming buy for a second income?

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.

In my opinion, the merger with Charter Court should only solidify its position in the market as the company’s bigger scale will allow it to compete more effectively with the mainstream banks, attracting savers and borrowers. That’s not to say the bank is having trouble attracting customers already.

Loan book growth

During the first three months of the year, OneSavings’ loan book grew 5% with net loans and advances growing by £448m to £9.4bn during the quarter. Organic originations i.e. advances made to customers directly from the bank (rather than through a third party) hit £799m, up nearly £100m year-on-year.

However, despite this growth, shares in the bank are changing hands today at just 7 times forward earnings, and they also support a dividend yield of 3.9%. As the payout is covered 3.7 times by earnings per share, there’s also plenty of room for this distribution to grow in the years ahead in my view.

I think this combination of income, growth and OneSavings’s current valuation, is too good to miss and I highly recommend considering adding this bank to your stocks and shares portfolio today.

Revitalising the business 

Another dirt-cheap FTSE 250 income champion I think is worth adding to your stocks and shares ISA today is Investec (LSE: INVP).

Investec is one of the largest asset managers in the world, with operations around Europe, Africa and Asia. The company has grown steadily over the past five years, with earnings per share up by a compound annual rate of 9.1% since 2013 as the group has capitalised on rising stock markets around the world and the burgeoning middle class in its key markets in Africa and Asia.

However, as the company’s earnings have expanded, Investec’s stock price has gone nowhere. In fact, today the stock is trading at roughly the same level as it was five years ago, even though earnings per share have increased by 69% over this time frame.

The stock’s performance over the past five years seems to suggest that investors don’t trust Investec’s growth, or if they do, they don’t seem to believe it’s going to continue, but I think this is incorrect. Investec is currently in the process of streamlining and simplifying its operations, building operations where the company is most active and selling off non-core businesses.

And the strategy seems to be working. For the financial year ended 31 March 2019, management estimates third-party assets under management increased 5.8% on a currency neutral basis to £163.7bn, and customer deposits increased 8.1% to £31.3bn on a currency neutral basis.

In other words, it doesn’t look as if the company is struggling to grow and with this being the case, I think it could be worth snapping up shares in this financial services business today as they are trading at only 9 times forward earnings. For income seekers, there’s also a dividend yield of 5.1% on offer. 

The post 2 dirt cheap FTSE 250 income stocks I’d add to my Stocks and Shares ISA today appeared first on The Twelfth Magpie.

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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.

Secure income 

My first pick is financial services group Secure Trust Bank (LSE: STB). At the time of writing, shares in this enterprise are trading at a forward P/E of just 8 and support a dividend yield of 6.6%. 

Usually, when a bank’s valuation falls to this level, it’s a sign the market believes something is going wrong under the bonnet. However in this case, I can’t see anything to be concerned about. Secure Trust has a Tier 1 equity capital ratio of 13.6%… and its earnings are exploding. 

During the first half of 2018, the bank’s earnings per share (EPS) jumped 36.6% and analysts are forecasting growth of 45% for the full year, which should leave the dividend covered 1.9 times by EPS.

It looks to me as if the market has oversold this bank, and the stock could be an excellent buy for value-seeking investors after sliding nearly 40% over the past 12 months. 

Slow and steady 

My next embarrassingly cheap income play is Investec (LSE: INVP). Investec tends to fly under the radar of most investors because the company is, well, boring. Indeed, with EPS growth averaging 9% over the past nine years, Investec isn’t going to win any awards any time soon. 

Still, what Investec lacks in growth it more than makes up for in reliability. As mentioned above, the company has churned out consistent earnings growth of 9% per annum for the past six years, but despite this, the share price has hardly budged. Even though EPS have expanded from 30p in 2013 to 50p for 2018, the shares are around 10% lower today than they were at the same time in 2013 (~500p). The group’s dividend has also increased 44% over this period, and today the stock yields 5.4%. 

At the time of writing, shares in Investec trade at a forward P/E of just 8.5, which is, quite frankly, an embarrassingly low multiple for a business that has seen EPS expand 67% over since 2013. It could be worth buying the shares today before the rest of the market catches on to Investec’s untapped potential. 

Steel stock 

My last cheap income stock is Evraz (LSE: EVR). As a cyclical steel business, it comes with more risk than both Secure Trust and Investec. However, right now shares in this business are so cheap, there’s a wide margin of safety for investors if anything goes wrong.

Evraz is trading at a forward P/E of 7.3 and a discount of around 20% to the rest of the metals and mining sector on an EV/EBITDA basis. These figures are already based on the City’s expectation that EPS will slide 34% in 2019 to $1.11 from 2018’s blow-out number of $1.68.

Considering that shares in Evraz are trading at a discount of 20% to the rest of its sector, earnings could fall a further 20% before it started to look fairly valued.

On top of this margin of safety, shares in the steel producer support a dividend yield of 9.1% (based on the City’s target for 2019). The payout is covered 1.5 times by EPS, so it looks reasonably secure for the time being. 

The post 3 embarrassingly cheap dividend stocks I’d buy appeared first on The Twelfth Magpie.

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• Aiming for a yearly second income of £19,850? Here’s how it could be done from this newly-promoted FTSE gem
• With a 6% yield and a P/E of just 7.4, is this share a screaming buy for a second income?

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.

Close call

Merchant banking group Close Brothers Group (LSE: CBG) is down more than 3% today, while Investec (LSE: INVP) got off fairly lightly, dipping just 1.4%.

Close Brothers reported a “solid start to the year” in its first-quarter statement and said it continues to perform well in current market conditions. Its banking division has been delivering growth and good returns, “reflecting the diversity of our loan portfolio and disciplined approach to lending.”

Oh Brothers

Its loan book increased 1.9% to £7.4bn, driven by strong growth in its commercial asset, invoice and specialist finance areas. Net interest margins are broadly in line with 2018, while impairment charges remain low.

The £2.2bn group’s Winterflood arm has remained resilient, despite more challenging market conditions, while Asset Management “achieved solid net inflows.” However, negative market movements resulted in a slight decline in managed assets, from £10.4bn to £10.2bn, and a decrease in total client assets, from £12.2bn to £11.9 since 31 July.

Bank on it

Management was happy with a solid performance as Close remains “well positioned for the remainder of the financial year”. Its share price is actually up 15% over the past 12 months, which displays some resilience, yet it trades at a bargain valuation of 10.7 times earnings. Investors also get a forecast yield of 4.2%, with cover of 2.2.

One worry is that five consecutive years of earnings per share (EPS) growth look set to flatten in the year to 31 July 2019. Yet my colleague GA Chester reckons he would still buy Close Brothers ahead of Lloyds Banking Group.

Money men

Investec “delivered a sound operational performance” in the six months to 30 September, notwithstanding a challenging operating environment due to “rising US interest rates, the threat of trade wars, concerns over global growth prospects, weak economic growth in South Africa and Brexit-related uncertainty in the UK.”

Given those headwinds, its Asset Management and Wealth & Investment businesses have done well to grow funds under management, supported by strong net flows of £4.8bn. Investec’s Specialist Banking arm saw a substantial reduction in impairments, as well as revenue growth, supported by reasonable levels of client activity.

Profits up

Investec posted a 14.2% rise in operating profit to £359.3m, up 17.6% on a currency neutral basis (excluding the negative impact of the rand’s depreciation). However, its share price is just 15% higher than five years ago.

The group is now facing a drop-off in EPS growth after five years of growth, with a forecast 1% fall in the year to 31 March 2019, but then rebounding 7% the year after. However, a forecast yield of 5.2%, with cover of 2.1, looks tempting. Especially with the stock trading at a low forward valuation of just 9.3 times earnings. Rupert Hargreaves would buy and hold it for a decade. If you’re tired of the big bad banks, here are a couple of potential goodies.

The post Are these 2 stocks the best way to play a pre-Christmas stock market rally? appeared first on The Twelfth Magpie.

More reading

• Aiming for a yearly second income of £19,850? Here’s how it could be done from this newly-promoted FTSE gem
• With a 6% yield and a P/E of just 7.4, is this share a screaming buy for a second income?

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

What’s more, the company has a long history of increasing its dividend distribution to investors. With this being the case, today I’m taking a look at why you should consider including Investec in your portfolio.

Slow and steady 

As covered above, over the past five years Investec’s shares have underperformed, but reported earnings per share have increased by 120%. 

In other words, Investec is a growth champion, but the market seems to be ignoring its potential. The stock currently trades at a forward P/E of 10.3, a third below the banking and financial sector industry average of 15.5. 

It wasn’t always this way. Several years ago, the company commanded a premium valuation of 17 times forward earnings. The same kind of multiple today would mean a share price of 901p, 58% above current levels. 

So what’s gone wrong? It would appear that the market is concerned about Investec’s outlook. A challenging backdrop in South Africa and the UK, the group’s two core markets, could stifle growth growing forward, and increased competition in the wealth management sector may only add to management’s troubles.

Still, according to the group’s full-year results, released today, clients are still signing up to its offering. The wealth and asset management arm of the business hit £100bn of funds for the first time, while the specialist bank “continued to see good client acquisition,” according to CEO Stephen Koseff. 

On the back of this performance, the firm announced a final dividend of 13.5p per share, taking the full year distribution to 24p, up 4.3% year-on-year. If Investec can continue on its current trajectory of steady earnings and dividend growth, then I believe it is only a matter of time before the market re-rates the share price to a higher multiple. 

It could be worth jumping on this undervalued opportunity today before it is too late. 

Beating expectations 

Another dividend growth stock that’s recently appeared on my radar is 4imprint (LSE: FOUR). Over the past five years, this company has more than tripled its dividend distribution to investors as reported earnings per share have increased by 170%. 

City analysts had been expecting the group to take a step back in 2018 following the breakneck growth, but at the beginning of May, it once again surpassed expectations announcing “trading performance in the first four months of 2018 has been above the board’s expectations, with revenue growth of 16% and order intake up 15% over prior year.” 

Growth for the year is now projected to be “higher than current market consensus.” Analysts had been expecting the company to cut its dividend distribution by 38% for the year giving a yield of 2.4%, but based on the buoyant year-to-date trading, I believe investors could be in line for a bigger payout than expected. 

And while the company’s income potential is exciting, as my Foolish colleague Ian Pierce recently pointed out, 4imprint’s story is going to be growth-focused in the years ahead, as management is targeting $1bn in sales by 2022. 

The post Why I’d buy and hold this dividend growth stock for a decade appeared first on The Twelfth Magpie.

More reading

• Aiming for a yearly second income of £19,850? Here’s how it could be done from this newly-promoted FTSE gem
• With a 6% yield and a P/E of just 7.4, is this share a screaming buy for a second income?

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.

QinetiQ Energy

The £1.16bn science and engineering company, which is headquartered in Farnborough and operates mainly in defence, security and aerospace, looked set to benefit from resurgent defence spending as May’s final results showed pre-tax profit up 16% to £123.3m. But then it spooked markets in July by warning of a slowdown in orders.

Markets are spooked again today even though it has reported 8% revenue growth to £392.5m, or 3% after adjusting for foreign exchange movements, with profit after tax up almost 30% to £64.1m. The interim dividend was hiked 5% to 2.1p but markets are presumably fretting over some of the negative figures, which include a year-on-year dip in underlying total orders from £376.8m to £276.3m.

Challenging times

Net cash flow from operations also fell from a statutory £60.6m to £35.7m, with the group’s net cash position falling from £271.2m to £194.7m, although management explained that this “reflects increased strategic capital expenditure and working capital movements”.

QinetiQ operates principally in UK, US and Australia and today’s report warns of Ministry of Defence cost savings and the challenging political environment in the US, which could undermine plans to increase defence spending. The backdrop is more positive in Australia, Canada, Saudi Arabia and the UAE. Looking forward, City analysts are forecasting a 7% drop in earnings per share (EPS) in 2018 followed by a flat 2019. With the stock trading at 13.5 times earnings, some of this is in the price. The forecast yield is 2.8%, covered 2.7 times. Today’s knee-jerk response looks overdone. However, you may prefer this high-flying defence contractor instead.

Wealth manager

Asset manager Investec (LSE: INVP) also issued results after a rough patch that has seen its share price drop 17% in the last six months but the market response has been more sanguine, its share price clicking up 2p to 506p. The group’s ongoing operating profit increased 10.5% to £347.5m although just 0.9% on a currency-neutral basis. Recurring income as a percentage of total operating income climbed from 72.4% in 2016 to 76.4%.

The group’s asset management and wealth and investment businesses were boosted, supported by favourable equity markets and combined net inflows of £3.6bn, while its specialist banking businesses enjoyed “good growth in loan portfolios and client activity” despite macro uncertainty. Statutory adjusted earnings per share rose 17.2% to 26.6p, or 5.7% on a currency-neutral basis.

Crashing buy

Management said that Investec’s UK business put in a strong performance, although earnings in South Africa were hit by lower brokerage volumes. The group is now available at a bargain 9.7 times earnings on a forecast yield of 5%, covered twice. However, red hot wealth manager Rathbone Brothers could prove more tempting.

Investec has delivered steady EPS growth for the last five years, and that is forecast to continue at 7% in 2017 and 8% in 2018. By then, the yield is forecast to hit 5.6%. Investec looks well set, although I should add that asset managers can get smashed if stock markets fall. Maybe one to buy in the crash that everybody keeps threatening us with?

The post These 2 bargain stocks could still make you brilliantly rich appeared first on The Twelfth Magpie.

More reading

• Aiming for a yearly second income of £19,850? Here’s how it could be done from this newly-promoted FTSE gem
• With a 6% yield and a P/E of just 7.4, is this share a screaming buy for a second income?

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.

In this article I’m going to look at two of my preferred picks in this sector.

Overlooked quality?

FTSE 250 specialist bank Investec (LSE: INVP) offers private banking to wealthy individuals and investment banking services to businesses. The group’s two largest markets are the UK and South Africa.

Investec shares have risen by 42% over the last five years, almost double the 22% gain delivered by the FTSE 100 over the same period. But despite this gain, the shares don’t look expensive. They currently trade on a forecast P/E of 10.5, with a prospective dividend yield of 4.5%.

Friday’s half-year trading update was also encouraging. Third party assets under management rose by 6.1% to £160bn during the six months to 30 September, while customer deposits rose by 1.3% to £39.5bn.

Interestingly, the group expects 75% of its operating income to have been recurring, up from 72% during the same period last year. I’m always attracted to businesses with high levels of recurring income, as it’s often ‘sticky’ and more profitable than one-off income.

Management expects half-year operating profit to be “comfortably ahead” of the same period last year. Use of “comfortably” suggests to me that broker forecasts for earnings per share growth of 12% this year are about right.

Although Investec’s management remains cautious about the economic outlook in the UK and South Africa, I think the bank’s shares are reasonably valued at the moment, and could be an attractive income buy.

The ultimate turnaround?

In recent years, many investors have treated Royal Bank of Scotland Group (LSE: RBS) as a lost cause. This may have been true for a while, but I think that the situation has changed significantly.

A huge amount of progress has been made in strengthening the bank’s balance sheet and disposing of bad assets. RBS is expected to move back into the black this year for the first time since 2009. Analysts are expecting the bank to report a profit of £2.8bn, giving adjusted earnings of 23.8p per share.

If that’s correct, it puts the stock on a very reasonable P/E of 10.7. Value investors may want to consider that the shares also trade at a discount of about 16% to their net tangible asset value of 300p per share. If profitability continues to improve, I’d expect this discount to close.

Of course, RBS still has two big problems from an investment point of view.

The first is that the government still owns nearly 71% of its stock. But this number is falling. I suspect further share sales will be made in 2018, not least because selling its stake in RBS could provide the Treasury with a £21bn windfall.

The second problem is that the bank has not yet restarted dividend payments. But this is also expected to change in 2018. Broker consensus is for a dividend of 8.8p per share next year, giving the shares a potential yield of 3.5%.

In my view, RBS is one of the more attractive banking stocks in the FTSE 100 at the moment.

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Roland Head owns shares of Royal Bank of Scotland 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.

Domestic retailers of all stripes have fallen out of favour with many investors in recent months, but for contrarian investors this fear has created what appears to me to be a slew of bargains across the FTSE 250. One of the most glaring is big box home furnishings retailer Dunelm (LSE: DNLM), whose shares trade at just 13.5 times forward earnings while offering a dividend yield that was over 9% last year.

And while Dunelm has had its rough patches in recent quarters, a 2.2% year-on-year (y/y) decline in like-for-like (LFL) sales in Q3 caused a big sell-off, the company’s dividend is well-covered by earnings, debt levels are low and the company has surprisingly solid growth prospects.

On the dividend front, the company paid out 25.1p in ordinary dividends last year and threw in an additional 31.5p special payout at year-end thanks to surplus cash balances. We won’t know until early September what level of special distribution will be made this year but the fact that pre-exceptional profits this year are expected to be around £110m, or £18m less than last year, does suggest a smaller payout. That said, last year’s ordinary dividend alone represents a solid 4% yield, so there’s little reason to panic if the special payout is slightly lower.

And unlike many large retailers, Dunelm isn’t swimming in debt. Management targets a net debt level between 0.25 and 0.75 times EBITDA, which provides plenty of freedom to spend the majority of free cash flow on store expansion and shareholder returns without threatening the health of the business.

Store expansion is one way the company is growing, but management isn’t solely relying on new stores to boost growth. In fact, a renewed focus on online sales and sprucing-up stores led to LFL sales rising 3.8% in Q4. This, along with profitability and free cash flow metrics, becomes more impressive once the newly-acquired Worldstores brand that management is revitalising is stripped out.

All told, with its shares cheap, good growth prospects and a huge dividend yield on offer Dunelm is one income share I’d keep my eye on.

Diversification is the name of the game 

Another high yielder trading at a great valuation that’s caught my eye is banker and asset manager Investec (LSE: INVP). The dual London- and Johannesburg-listed firm trades at a sedate 10.7 times forward earnings and provides investors with a 4% dividend yield.

Driven by double-digit growth from its specialist banking services and asset management arm the firm’s operating profits last year rose 18.5% y/y to £599m at actual exchange rates and 8% at constant currency rates. Earnings per share rose in line at 16.9% to 48.3p, which allowed for a 9.5% rise in dividends to 23p per share.

In the years to come this level of growth looks to be quite repeatable as the company invests heavily in new IT infrastructure and additional personnel to support future growth, particularly in the UK. The fact the company has been able to post very impressive growth rates in South Africa despite the weak economic environment is also encouraging over the long term.

With a valuation measurably lower than historic levels, impressive growth potential and a growing dividend, Investec looks like a very good income option to me.

The post 2 cheap FTSE 250 income stars I’d buy today appeared first on The Twelfth Magpie.

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Ian Pierce 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.