Indeed, since 2012 the company’s net profit has fallen from £38m to £25m for the last fiscal year. Over the same period, revenues have declined by 15%. However, as an income play, Kcom ticks all the boxes. 

Right now, the shares support a dividend yield of 6.8%. while this distribution is not covered by earnings per share, on a cash flow basis for the past six years, the total dividend payout has been covered an average of twice by cash generated from operations. What’s more, the firm’s balance sheet is also strong. Net debt is currently less than 58% of fixed assets. 

Beating expectations 

According to a trading update published by the company today, management now expects the firm to beat City expectations for growth for the full year thanks to a multi-year rebate on its Hull and East Yorkshire network infrastructure. This reimbursement is expected to total £3m, which is substantial considering the City had been predicting a pre-tax profit figure of £29m for the fiscal year ending 31 March 2018. 

That being said, despite this rebate, shares in Kcom seem relatively expensive compared to the broader market and telecoms sector. The stock currently trades at a forward P/E of 19 and earnings per share are expected to shrink for the next two years as the firm continues to invest in its fibre network rollout. Growth is currently scheduled to return for the year ending 31 March 2020. 

So if you’re not worried about growth, and you’re looking for bond-like income in today’s low-interest rate world, Kcom seems to me to be an excellent buy for 2018. 

Cash cow 

Another top income stock I’d buy for 2018 is payment network operator Paypoint (LSE: PAY). This is my favourite kind of dividend stock, it’s a cash cow. The company’s asset light, high-profit-margin business means that the group was able to achieve a return on equity of over 90% for fiscal 2017. that’s a return most other companies can only dream of. Total cash generated for the year was just over £47m, which helped fund a £79m special dividend. £82m of cash on the balance sheet from a significant asset sale helped fund the remainder of the payout.

And going forward, City analysts are expecting Paypoint’s cash return strategy to continue. A payout of 83.2p per share is slated for the fiscal year ending 31 March, rising to 84p for the following fiscal period. These payouts translate into yields of 9.6% and 9.7% respectively. 

As well as the attractive level of income on offer. Paypoint’s shares trade at a relatively attractive forward P/E of 14.1, which is hardly expensive considering the group’s level of profitability and return on equity. 

All in all then, if you’re looking for a cash-rich company with a market-beating yield that’s returning most of its income to investors, I believe Paypoint could be the investment for you. 

The post Two 7% monster yielders I’d consider buying for 2018 appeared first on The Twelfth Magpie.

More reading

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

Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of PayPoint. 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.

Kcom (LSE: KCOM) has all the hallmarks of an excellent dividend stock and at the time of writing shares in the telecommunications company support a dividend yield of 6.5%.

Return to growth

Over the past few years, Kcom has struggled with rising customer churn thanks to increasing competition, two factors that have weighed heavily on the company’s share price. Management has also been investing heavily in the group’s offering. For the year to the end of March, the company reported a pre-tax profit of £30.5m, down from £88.7m in the year-ago period as operating costs rose to £299m from £257m.

This restructuring is expected to simplify the group and improve profit margins. Management has aligned all of Kcom’s businesses under one brand and is focusing on the operational performance of two segments, Hull & East Yorkshire and Enterprise. In these two markets, the company has almost no competition. It is now focused on investing in its fibre network within these two regions which should drive long-term growth for both the company and shareholders, without distractions.

Excluding last year’s poor performance, between year-end 31 March 2013 and 31 March 2016, the company generated an average annual pre-tax profit of £51m compared to a total dividend cost of around £30m. If the company can return to this historic level of profitability, it looks as if the group’s highly attractive dividend yield is here to stay.

Cash is king

Insurance services provider Redde (LSE: REDD) also appears to be a top dividend stock. At the time of writing, shares in the company support a dividend yield of 6.3%. For the year ending 30 June, analysts have pencilled-in earnings per share of 10.5p, the same level as the dividend payout, giving a dividend cover of just one. These figures may not suggest that Redde’s dividend is really all that sustainable but just like Kcom, looking at the company’s cash figures gives a different picture.

Cash flow from operations is a more reliable indicator of dividend strength than earnings per share, as the latter metric is easily manipulated. If a company does not have the cash to fund a dividend, no matter how strong its earnings are, the payout is not sustainable. For the six months to the end of December, Redde earned cash from operations of £22.3m; dividends paid cost the group just under £15m, easily covered by operational cash flows.

Based on these figures then, Redde’s 6.3% dividend yield looks safe and highly attractive in the current low-interest rate environment.

The post Two 6% dividends to help you achieve financial independence appeared first on The Twelfth Magpie.

More reading

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

Rupert Hargreaves 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.

Today’s modest decline, however, suggests that investors see nothing alarming in KCOM’s latest release, helping the stock remain comfortably off 2017’s troughs of 87.5p per share struck last month.

KCOM announced today that revenues slumped 5.1% during the 12 months to March 2017, to £331.3m. This forced pre-tax profits at the firm to shrink 65.6% during the period, to £30.5m.

KCOM has attributed the bottom-line fall to the “continuing decline in legacy business and additional cost of the national fibre network outsource,” after the firm had sold off certain network assets last year.

A poor connection

Despite this adverse result, KCOM elected to raise the full-year dividend to 6p per share from 5.91p in the prior period.

The broadband and telephone giant has undergone vast restructuring in recent times, the business shuttering numerous brands to operate under one fascia concentrating on the Hull and East Yorkshire region. It is also taking steps to develop its Enterprise arm which provides IP-related communications and IT services to business.

Irrespective of these measures however, the City expects KCOM to continue to toil for some time yet. For fiscal 2018 a further 8% earnings decline has been projected, and an additional drop — of 3% — is pencilled-in for the following period.

Against this backcloth the City expects KCOM to annex its progressive dividend policy and keep the dividend locked at 6p this year. While this projection still yields a juicy 6.6%, I reckon investors should give such a figure short shrift.

Not only does this forecast payout outstrip predicted earnings of 5.4p per share, but KCOM is also battling a serious deterioration in the balance sheet. The telecoms giant swung from net funds of £7.4m in 2016 to net debt of £42.4m last year.

With KCOM also warning today that it expects “a further decline in revenues and margins associated with our legacy activities,” I reckon the business is far too risky for dividend chasers right now.

In a hole

Like KCOM, I believe FTSE 100 mining giant BHP Billiton (LSE: BLT) is another big yielder, which investors should steer clear of.

Having been forced to cut the dividend to 30 US cents per share in the last fiscal year, from 124 cents in the year to June 2015, BHP is expected to get onto the front foot again this year with an 81 cent reward. Such a figure yields a chunky 5.4%.

Supported by resurgent iron ore values more recently, City brokers expect earnings at BHP to explode 468% in the period to June 2017. Still, share pickers should bear in mind that this figure is still covered just 1.6 times by predicted earnings, some way below the safety yardstick of two times.

And looking further out, the threat created by swelling oversupply across many commodity markets, allied with patchy demand data from China, threatens to slam raw materials values back into reverse once again. This view is shared by many analysts, a point underlined by forecasts of a 2% bottom-line slide at BHP during fiscal 2018.

I believe the alarming fundamental signals from BHP’s major markets make it a risk too far right now.

The post Are these 5%+ yielders too risky right now? 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?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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

Solid telecoms

My first pick is KCOM Group (LSE: KCOM), which serves the Hull and East Yorkshire area, while providing domestic and business telecoms. This actually isn’t one I’d overlooked, as I’ve had my eye on it for some years. The share price hadn’t really gone anywhere much over the past decade, but at 90.5p as I write it’s doubled over the past 12 months.

EPS is forecast to drop this year and next, before stabilising, as the firm is restructuring to simplify its branding and operations. With first-half results, chief executive Bill Halbert said that “capital expenditure is likely to peak over this year and the subsequent year” as the firm’s fibre network is rolled out.

The key attraction for me is KCOM’s dividend, which is expected to yield 6.7% this year. It will be barely covered, but Mr Halbert promised us 6p per share for this year and next, and I can see KCOM maturing into a desirable cash cow.

Power to India

OPG Power Ventures (LSE: OPG) is one I didn’t really know, but I’m intrigued by what I see. The shares have fallen over the past couple of years, to 61p, but that gives us a prospective P/E ratio of only 7.5 for the year to March, and if growth forecasts come good, we’ll see that dropping as low as five by March 2019.

A PEG ratio of just 0.1 this year, rising only as far as 0.3 over the next two years, also puts the shares firmly into the range that growth investors look for — anything under 0.7 is typically seen as a good sign.

But what does it do? OPG develops and operates power plants in India, and first-half results released in December suggest we could be at a transition point. Revenue more than doubled, EPS rose by 41%, free cash flow came in at £20.6m, and gearing came down to 55% (from 58% six months previously). That led the company to declare its maiden dividend — only 0.26p per share, but it’s a healthy start.

I’ll need to investigate further, but OPG looks promising to me.

Cash from fibre

Shares in industrial thread manufacturer Coats Group (LSE: COA) have soared since September, to 60p, taking them up 170% over the past 12 months.

An October trading update told us that earlier “challenging market conditions” are improving, and that 2016 operating profit should be ahead of previous expectations — the results should be with us on 24 February. And after having been stopped in 2012, the dividend should be back this year — only a 1.4% yield, but it should be subsequently progressive.

The falling pound has helped Coats too, making its exports cheaper. And the firm has very little exposure to the EU, so Brexit shouldn’t really be a problem.

News that the UK Pensions Regulator will cease regulatory activity regarding two of the company’s pension schemes also gave the shares an extra boost, in December.

Even after this year’s gain, we’re still only looking at a P/E based on 2017 forecasts of 10.4, dropping to 9.5 next year. Definitely worth a closer look, I say.

The post 3 attractive small-cap stocks for less than a pound appeared first on The Twelfth Magpie.

More reading

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

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

Looking under-the-radar for the best dividend stocks is the strategy I like to follow. The great thing about uncovered income champions is that they usually offer a higher dividend yield than better-known candidates. What’s more, because these companies are out of the limelight, management usually takes a more conservative approach to dividend growth, which may lead some investors to take a step back. But for long-term payout growth, a conservative approach is always best. 

Out of fashion 

Photo-Me International (LSE: PHTM) is one dividend stock that’s been on my radar for some time. Photo-Me runs photo booths and automated washing machines around the world — hardly glamorous businesses. 

The company’s flagship photo booth business has been going downhill for some time as most consumers are now armed with a camera-ready smartphone at all times. 

But despite the rise of the smartphone, Photo-Me has continued to grow through innovation and select acquisitions. As revenue has stagnated, pre-tax profit has doubled since 2012 and this year City analysts are forecasting a dividend payout of 7p per share, up nearly 200% from 2012’s 2.5p per share payout. 

Also, the company announced today that it has snapped up Asda’s photo business for up to £6m, another bolt-on acquisition to boost growth. City analysts are forecasting 6% earnings per share growth for the group this year to 8.2p, indicating that the shares trade at a forward P/E of 18. 

At the time of writing shares in Photo-Me support a dividend yield of 4%,and  the payout is covered 1.2 times by earnings per share. As of April 30, 2016, the company had net cash of £60m. 

Defensive income 

KCOM (LSE: KCOM) is a traditional income investment. The company provides telecoms services, a highly defensive business where income is predictable and management has a certain degree of clarity over cash flows. 

This outlook clarity has given management the ability to hike Kcom’s dividend payout to shareholders by 10% per annum since 2012. City analysts are forecasting a dividend payout per share of 6p this year for a yield of 5.1% at time of writing. 

Unfortunately, Kcom has struggled to grow its earnings over the past few years, so the company might not appeal to growth investors. For 2016 City analysts are forecasting that the group’s earnings per share will decline by 7%. However, over the past five years, earnings per share have remained relatively stagnant, bouncing between 7.9p and 7p as the company moves away from legacy businesses and diversifies into new growth markets. 

The shares do look slightly expensive as they trade at a forward P/E of 17.5 even though earnings are set to fall for the next two years. 

The post Two under-the-radar income stocks ripe for the picking appeared first on The Twelfth Magpie.

More reading

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

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

Scan the FTSE 250 and you will find a broad range of businesses at low P/E multiples, with high and rising dividend yields. Dig a little deeper and you will see that these are robust, profitable concerns that have just been neglected by investors.

And in this article I have picked 3 of what I feel are the current best mid-cap bargains.

Consistently churns out profits

Carillion (LSE:CLLN) is a building services company that is one of Britain’s leading infrastructure firms. It employs 40,000 people, and has overseen a range of projects including the construction of the Tate Modern, Liverpool FC’s Anfield stadium expansion, and Union Station, Toronto. It also builds roads, hospitals, and carries out track renewals for Network Rail.

What appeals to me about this business is that it consistently churns out profits year after year. Yet, despite this, its shares are undervalued, and have been on the slide recently.

Currently the P/E ratio is just 9.16, and the dividend yield is a stonking 7.43%, yet is well covered by profits. That makes Carillion a strong value and income play.

Flying under the radar

KCOM Group (LSE:KCOM) is a telecoms and IT services provider based in Kingston-Upon-Hull that serves UK residential and business customers.

Ever since the share price rocketed during the tech boom of the late nineties, this company has largely been flying under the radar. Yet it has been quietly making money and paying out dividends to its investors.

The share price has been edging gradually upwards since the Credit Crunch, and at the current level of 101p, it is on a P/E ratio of 16.73, with an annual income of 5.55%.

While we are not going to see rapid growth from this telecoms operator, a steady stream of dividend cheques should keep investors happy.

Massive yield

N Brown Group (LSE:BWNG) is a British shopping group based in Manchester. It owns retail names such as JD Williams, Jacamo and Simply Be, and many of its brands target women over 50.

It sounds a rather uninteresting company, but the reason it has caught my eye is the steep fall in its share price in recent years. After peaking at 591p in 2014, the shares now sell for just 186p.

Check the fundamentals and you will see how cheap this business is. The current P/E ratio is just 7.28, and the dividend yield is a massive 7.71%. The company’s turnover of £866m is far higher than its market capitalisation of £577m.

Yet this is not a firm that is in trouble. Instead, it has been consistently profitable. That’s why I think N Brown Group is worth a further look as a value and dividend play.

The post Why Carillion plc, KCOM Group plc and N Brown Group plc are my 3 FTSE 250 mid-cap marvels 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?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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

Having cleared its debt by selling its national business for £90m last year, KCOM now plans to invest heavily in its local infrastructure. The firm believes this will support future growth and cut operating costs significantly.

These improvements won’t come cheap. Capital expenditure is expected to be more than £40m per year in 2017 and 2018. To keep shareholders happy, KCOM has promised a minimum annual dividend of 6p per share during this period. That’s a 5.5% yield at today’s price.

The company’s capex, pension and dividend commitments for the next two years now total nearly £150m. That’s four times next year’s forecast profits. This programme of spending will also have to be managed by a new pair of hands, as the firm’s chief financial officer announced his departure today.

In my view, KCOM shares look fully priced on a 2017 forecast P/E of 15. I think there’s better value elsewhere.

Steer clear

Watchstone Group (LSE: WTG), formerly known as Quindell, published its 2015 results this morning, revealing a staggering £178m pre-tax loss. Much of this related to £113.5m of non-cash impairments relating to acquisitions during the Quindell period. I’ll gloss over this and focus on the performance of the firm’s continuing business. Is there any value here?

The group generated an operating loss of £22.2m on revenues of £58.3m from its ongoing businesses. These activities generated an operating cash outflow of £67m, which suggests to me that a substantial amount of growth will be required just for Watchstone to break even.

The firm’s £103.2m cash balance means that it can support losses for a certain period of time. However, Watchstone’s house broker is forecasting a loss of 36.8p per share for 2016. The group also confirmed this morning that it’s facing a Serious Fraud Office investigation relating to past accounting practices at the firm.

In my view Watchstone shares are a clear sell at current prices. The chance of further losses seems high to me.

A speculative buy?

Shares in Kurdistan oiler Genel Energy (LSE: GENL) fell by 7% this morning after the firm admitted that the Kurdistan Regional Government (KRG) had only paid half of Genel’s invoices for April 2016 oil sales.

For the last few months, the KRG has managed to make payment in full each month. Investors were hoping that this pattern would continue, but with the KRG’s finances under severe pressure from the low oil price and IS conflict, a shortfall in payments was always a big risk.

A second problem is that Genel’s oil reserves aren’t as big as we previously thought. The firm announced a major reserve downgrade for the Taq Taq field in February, following production declines seen in 2015.

Low oil prices and falling production mean that Genel isn’t expected to return to profit until 2017. Although the firm still has a strong balance sheet and could benefit from takeover activity in the region, I’m not convinced the risks are worthwhile at the moment. At best, this is a very speculative buy.

The post Are KCom Group plc, Genel Energy plc and Watchstone Group plc a buy after today’s news? appeared first on The Twelfth Magpie.

More reading

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

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

And it’s highly likely that these companies could outperform again next year as demand for the two companies’ services continues to trend higher. 

The cheaper pick 

Choosing between BT and Vodafone depends on your investment style. Value investors are likely to sway towards BT, as it’s the cheaper of the two. On the other hand, income investors might prefer Vodafone. Here are the key figures. 

BT currently trades at a forward P/E of 15.5. Earnings per share are expected to fall by 3% this year but rebound 7% during the company’s next fiscal year. BT currently supports a dividend yield of 2.6%, and analysts expect the company to hike the payout by 5% per annum for the next two years, leaving the company with a dividend yield of 3.5% for 2016/17. 

Vodafone currently trades at a forward P/E of 45.6. City analysts expect Vodafone’s earnings per share to increase 20% during 2017, which indicates that the company is trading at a 2017 P/E of 38.7. Vodafone’s dividend yield stands at 5.3%. 

However, if you’re not attracted to either of these companies, their smaller peer, KCOM (LSE: KCOM) might peak your interest. 

Surprising move

Kcom recently surprised shareholders by announcing that it was selling its national network infrastructure outside of Hull and East Yorkshire to AIM-listed CityFibre Infrastructure Holdings PLC for £90m.

This was a game-changing deal for Kcom for two reasons. Firstly, the cash infusion will allow the group to pay down debt and rebuild its balance sheet. For the six months to the end of September, Kcom reported net debt of £103m and a pensions liability of £16.1m. Pension contributions are set to cost the group £2.7m per annum for the next few years while debt interest costs are around £3m per annum. So, depending on how Kcom’s management splits the cash infusion, it’s clear that the group’s income will receive a boost from the lower financing costs. Management has already pointed out that on a proforma basis, group net debt has dropped to £13m following this deal. 

Better returns

As well as reducing debt, Kcom will be able to reinvest some of the cash received from the sale of its network infrastructure. It’s highly likely that Kcom will be able to reinvest the capital into assets that generate a higher rate of return than was possible with the network infrastructure. Indeed, telecoms infrastructure is notoriously expensive to build, but margins tend to be razor-thin. Selling low-margin networks to free up cash to reinvest in higher-margin services is quite common in the telecoms industry. 

Kcom’s shares currently trade at a forward P/E of 13 and support a dividend yield of 5.9%. The company’s shares could be in for a significant re-rating as the group pays down debt and reinvests in higher margin services. 

The post Could Vodafone Group plc, KCOM Group PLC And BT Group plc Jump Start Your Portfolio’s Returns?  appeared first on The Twelfth Magpie.

More reading

• Here are 2 FTSE shares I’m excited about this July — and 1 I’m avoiding
• Why has the BT share price almost doubled – yet gone nowhere?
• Down 16% in 5 weeks, are BT shares just too good to miss?
• Down 16% to around £2.03! Here’s where BT’s bargain-basement shares ‘should’ be trading right now
• Which will reach £2 first, Lloyds or Vodafone shares?

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

TalkTalk Telecom (LSE: TALK) must be a candidate, with its forecast dividend of 16p suggesting a yield of 6.8% for the year ending March 2013. It’s true that would not be covered by earnings predictions for this year, which come in at 12.4p per share, but a strongly rising EPS forecast for the following year coupled with a penny fall in the prospective dividend to 15p (but still yielding 6.3%) would turn that into a modest 1.2 times cover.

And with the shares currently trading around 215p after a collapse triggered by the firm’s recent data security breach, we’re looking at a 2017 P/E of under 14 with two years of very strong growth expected to follow from a 21% rise last year. And the hack proved far less dangerous than people initially feared.

Is this a great future cash cow that can be bought at a knockdown price today? It just might be.

From tiny acorns…

Telecom Plus (LSE: TEP) is a company I’ve been following for years. It trades as the Utility Warehouse, and bundles phone and broadband together with gas and electricity, and it has a rare strategy of engaging its customers as word-of-mouth promotional agents while refusing to spend vast amounts of shareholders’ money on expensive advertising.

The shares got a little overheated in typical growth fashion, and reached close to £20 in early 2014. But after what I see as a sensible correction, you can get them for around £10.15 apiece now, providing a forward P/E of 19 for the current year falling to 17 the year after, still with decent growth on the cards. The key thing for me is that Telecom Plus’s business model means it can convert the bulk of its earnings into dividends, and there are yields of 4.3% and 4.7% penciled in for this year and next.

Those are not top yields right now, but they represent rises of 15% and 11% respectively — and that kind of dividend growth, if continued, means you could lock in very attractive future yields on your purchase price today.

An old hand…

Then I turn to KCOM Group (LSE: KCOM). As Kingston Communications it was the private exception to BT’s monopoly in the old days, and I still fondly remember its famous cream-coloured phone boxes when the rest of the country was red. Over the past five years KCOM has been doing pretty well, growing its earnings and continuing with its progressive dividend policy.

And in that time the shares have gained 80%, to 105p, while the FTSE 100 has managed a less-than-magnificent 1.4%! Yet that still leaves us with a forward P/E of 13, a bit below the FTSE long-term average of around 14, but with dividend yields of around 6% (approximately twice the FTSE average). Cash flow is perhaps a little erratic, but long term it looks good enough to sustain those dividends.

The post Are Talktalk Telecom Group PLC, Telecom plus PLC & KCOM Group PLC Dividends Unmissable? appeared first on The Twelfth Magpie.

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• A 7.8% forecast dividend yield! 1 income share I wish I could buy today!

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

Overall, BT’s shares have had a great run since 2011 but the company’s growth rate is starting to cool, and BT’s shares are beginning to look expensive. On the other hand, shares in KCOM (LSE: KCOM) don’t come with a rich valuation, in fact, compared to the rest of the telecoms sector, KCOM looks drastically undervalued. 

KCOM’s shares currently trade at a forward P/E of 12.5 while the wider fixed line telecommunications sector trades at an average P/E of 20.9. But KCOM’s most attractive quality is the company’s dividend payout, which management has been increasing at a rate of 10% per annum for the past few years. And now, KCOM’s dividend yield is set to hit an impressive 6.1% next year, based on the current share price. The payout is on track to be covered one-and-a-half times by earnings per share, so even though KCOM’s yield is above the market average, it doesn’t appear to be under threat. 

Still, having said all of the above, KCOM’s growth leaves much to be desired. Group earnings per share have hardly moved since 2012 as the company has struggled to attract customers. Revenue has contracted by 10% over the same period. City analysts don’t expect KCOM’s fortunes to improve anytime soon. Earnings per share are set to contract 4% for the year ending 31 March 2016 but then increase by 2% the year after. 

However, even though the City believes that KCOM will struggle to find growth going forward, the company struck an upbeat note recently when it reported its results for the six months to the end of September. Pre-tax profit increased 2.5% to £24.2m and revenue expanded 2.8% driven by 4% growth in the group’s Kcom enterprise segment and 2% growth for its SME-focused unit. The group plans to continue investing in its network throughout the rest of the year and into 2016, if this leads to a similar level of growth as seen during the first half of the year, there’s a change KCOM could outperform City expectations. Nevertheless, even if KCOM continues to report lacklustre growth, investors are still set to receive a dividend yield of 6.1% next year. If anything, KCOM shares are worth buying for the income alone. 

The post Could KCOM Group PLC Be A Better Investment Than BT Group plc? appeared first on The Twelfth Magpie.

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