However, could further gains be ahead for the company after such a strong period? Or is another growth stock worth buying ahead of it?

Changing outlook

The performance of easyJet from a business perspective has been rather mixed in recent years. The company posted a fall of 23% in its earnings last year, with this following a decline of 22% in the prior year. This means that in just two years it has recorded a fall in net profit of around 40%, with challenging operating conditions being the key reason.

Terror attacks in Europe and an increasingly competitive industry outlook meant that the company was struggling to generate improving sales and profitability. However, with consumers now seemingly more willing to travel and higher fuel costs causing unsustainable competition to recede, the prospects for the business seem to be improving.

Investment potential

In the current year the company is expected to report a rise in earnings of 35%, followed by further growth of 16% next year. Increasing passenger numbers are set to provide a clear catalyst for the business over the medium term, and investors appear to be factoring this in to the company’s valuation.

However, with the stock trading on a price-to-earnings growth (PEG) ratio of 0.9, it seems to offer value for money at the present time. Meanwhile, a dividend yield of 3.8% is forecast for next year, with shareholder payouts expected to be covered twice by profit. As a result, a further rise in its share price to 2,000p seems to be likely over the medium term.

Growth potential

Also offering strong growth potential at the present time is telecoms company KCOM (LSE: KCOM). It reported positive results on Tuesday for the full year, with it continuing to invest in its operations in order to drive future growth. It anticipates that full-fibre deployment will be available to 100% of its addressable market by March 2019. And with more customers opting for full-fibre over copper, it could be a growth area for the business.

KCOM is expected to deliver earnings growth of 20% next year. Its consumer division seems to be performing well, while it is making improvements to its enterprise business. Despite its strong growth outlook, the company trades on a PEG ratio of 1.1. This suggests that it offers a wide margin of safety.

Furthermore, with a 6.1% dividend yield that has the capacity to rise if profit growth can meet forecasts over the medium term, the total return potential of the stock seems to be high. As such, now could be the right time to buy it.

The post Can the easyJet share price reach 2,000p in 2018? appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of easyJet. 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.

Shares of telecoms company KCOM Group (LSE: KCOM) dropped by as much as 5% on Tuesday after the company reported a bigger than expected fall in revenues in the six months to 30 September.

KCOM said group revenues during its first half fell by 8% to £151m, due to a continued decline in its legacy activities within National Network Services. Pre-tax profits also declined by 8% to £83m during the first half, following incurred losses of £1.7m and provisions of £4.5m relating to ongoing issues with previously identified software development contracts in its Enterprise division.

Despite the downbeat headline performance, management is confident going forward. Chief Executive Bill Halbert said that in the context of the economic and political uncertainties, the results demonstrate “encouraging progress”. The group is seeing “particularly strong growth” in the residential market, and notwithstanding the issues affecting its Enterprise division, there was “underlying growth alongside new contract wins and renewals”.

Disruptive challenger

On the face of it, KCOM’s positioning as a disruptive challenger to the established traditional businesses, allied with the heavy investment it has made in its fibre network, should bode well for its long-term prospects.

However, I’m more concerned about the near-term headwinds affecting the company. I reckon KCOM’s recent issues with its Enterprise division could mask a deeper problem for the firm. For years, the company has struggled to drive top-line growth as the revenue from new services failed to offset the decline in legacy revenues.

These troubles are unlikely to abate any time soon, with City analysts forecasting a 12% fall in underling earnings this year, and a further 2% decline for 2018/9. This means shareholder payouts are expected to be higher than earnings for some time, with further increases in net debt likely to strain its balance sheet.

Dividend investors may still be drawn in, however, attracted by its massive yield of 6%. But I won’t be buying until dividend cover improves.

A better pick?

Shares in Royal Mail (LSE: RMG) have been out of favour with the market for much of the past year. But following the recent strong performance in its parcels business along with continued progress on its cost front, the shares have gained more than 10% over the past two weeks. Has investor sentiment towards the postal company finally shifted?

Sure, Royal Mail is doing better than previously expected, following new contract wins in the parcels business and a stabilisation in letter volumes. But on the flip side, the UK parcels market remains highly competitive and visibility over its near-term outlook remains poor.

Worth the yield?

Royal Mail’s underlying earnings are forecast to fall by 8% to 40.6p this year, although this is expected to be a low point. Analysts have pencilled in a 2% increase in earnings per share for 2018, putting the stock on a modest 10.1 multiple on its expected 2018/19 earnings.

And the group’s dividend is also expected to remain secure. Net debt has been falling steadily over the past few years and cash generation remains strong. A dividend of 24p per share is forecast for this year, giving investors a tempting prospective yield of 5.8%.

The post Are these 5%+ yielders worth the risk? appeared first on The Twelfth Magpie.

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Jack Tang 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.

Encouraging update

Updating the market on Friday was telecoms specialist, KCOM (LSE: KCOM). The business has made an encouraging start to its current financial year, with it trading in line with expectations. Its fibre deployment in Hull and East Yorkshire is on schedule to reach 150,000 premises. This represents around two-thirds of its addressable market and should be completed by December 2017, with customer take-up continuing to be high.

The company’s overall strategy to deliver a fibre rollout, focus on higher-margin/capital-light operations, and launch ‘over the top’ services that focus on building average revenue per user is progressing well. However, the transition away from commoditised services is expected to result in a fall in revenue and margins associated with the company’s legacy activities. This could be a reason why the company’s share price has declined by 3% since the start of the year.

With a dividend yield of 6.5%, KCOM appears to be an attractive income play at the present time. Although shareholder payouts are expected to be higher that earnings this year, the company’s potential to deliver improving financial performance under its new strategy means that its prospects as an income stock remain high.

Difficult outlook

Also proving unpopular among investors in 2017 have been shares in Stagecoach (LSE: SGC). The transport company has recorded a decline in its valuation of 16% since the start of the year. This has pushed its dividend yield higher so that it now has an income return of 6.5%. This is 2.5 times greater than the current rate of inflation.

As well as beating inflation in terms of its yield, Stagecoach also has the potential to deliver dividend growth which exceeds the rate of inflation in future. It has a dividend coverage ratio of 1.8 at the present time, which suggests that it could raise dividends at a brisk pace without hurting its overall financial standing.

Of course, Stagecoach faces a difficult outlook. Its bottom line is expected to fall by 14% this year and by a further 10% next year. This is due to subdued trends in its bus division and difficulties regarding its East Coast operations. While disappointing, the company remains upbeat about its long-term outlook. And with it trading on a price-to-earnings (P/E) ratio of just 8.6, it seems to have a sufficiently wide margin of safety to merit investment at the present time.

The post 2 massive yielders most investors haven’t considered in 2017 appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended Stagecoach. 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.

Reckitt Benckiser (LSE: RB) has been one of the fastest growing companies in the FTSE 100, having delivered a compound annual growth rate (CAGR) in adjusted EPS of 11.0% over the past 10 years. Through continued innovation, investment in marketing and a focus on “power brands”, the company now has a dominant market position in a significant number of pharmaceutical, home-care and food markets.

Growth has been slowing down recently, as weak global growth, particularly from emerging markets, has dampened demand of premium brands. On top of this, competition has been intensifying in the sector and the market is becoming increasingly saturated. This has led Reckitt’s adjusted EPS compound annual growth rate (CAGR) to slow to just 3.3%, over the past five years.

But, although growth is slowing, Reckitt is at least still growing modestly. Analysts reckon underlying EPS will grow by 3% this year, and 7% in 2016. In addition, Reckitt has a prospective dividend yield of 2.5%.

KCOM Group

Investors should also look beyond the usual blue chip companies to find growth and income opportunities. Many mid-cap and small-cap shares offer great yields and strong growth prospects, but are also often better value than their large-cap peers.

Recent earnings growth from KCOM (LSE: KCOM) has been disappointing, with adjusted EPS growing just 5% last year, and 2% in the preceding year. A combination of declining revenues from its legacy services and slowing smartphone growth has put pressure on the telecoms group’s top- and bottom-line. But, as these revenue sources are declining, growth from new business users, especially for cloud and collaboration services, should more than offset the declining legacy revenues in the longer term.

The company is set to raise its dividends by 10% for the sixth consecutive year, and its shares have a very attractive prospective dividend yield of 6.5%. In addition, its forward P/E ratio is just 11.4.

Dairy Crest

Dairy Crest (LSE: DCG), which has long been suffering from top-line troubles with its fresh milk dairy business, appears to be turning a corner, with the recent sale of its loss-making dairies to Müller. The company has now been focussing on the fast growing market for global infant formula milk and more profitable markets in cheeses and spreads.

A global milk oversupply and Russian sanctions on European dairy products has led to falling milk prices in the UK. Conditions have only worsened since the turn of this year, and the continued pressure on milk prices is set to drag earnings lower this year. Analysts expect this will push underlying EPS 2% lower this year, to 37.2p, which implies a forward P/E of 15.7.

However, Dairy Crest is expected to bounce back with underlying EPS growth of 10% in the following year. Furthermore, its shares have a prospective dividend yield of 3.6%.

Manx Telecom

Manx Telecom (LSE: MANX), the Isle of Man telecoms group, operates as a monopoly in the fixed-line communications market. In addition to this, it has a 76% market share of the wireless market on the island, and has only one wireless competitor, Sure, which is owned by the Bahrain Telecommunications Company.

With such a dominant market position, Manx Telecom is highly profitable and generates very high levels of free cash flow. Its EBITDA margin has been in the mid-30s, and it can afford to pay shareholders a juicy dividend, which currently yields 5.3%.

With the roll-out of 4G services and increasing take-up of high speed broadband, earnings is set to climb steadily over the next two years. Analysts currently expect underlying EPS will grow 10% in 2015, and 9% in the following year. This implies its shares have very attractive forward P/Es of 14.0 and 12.8, respectively.

The post Should You Buy Reckitt Benckiser Group Plc, KCOM Group plc, Dairy Crest Group plc & Manx Telecom plc For Growth And Income? appeared first on The Twelfth Magpie.

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Jack Tang 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.

This makes them perfect additions to almost any portfolio. But each company has its own key advantages and disadvantages, and which firm you chose is down to your own personal investment preference.   

Size is key

BT’s main advantage is the company’s size. It would be hard for BT to disappear overnight, as the company is an essential part of the UK’s telecommunication infrastructure. 

However, there is one thing that’s holding the company back — BT’s debt, specifically the company’s pension deficit, is one of the largest in the UK. 

BT’s pension deficit currently stands at around £7bn. The telecoms giant has committed itself to £2bn in scheme funding payments over the next three years. The company has a 16-year deficit reduction plan in place, but cash commitments to the scheme will hold back shareholder returns. 

Still, the company’s dividend yield of 3.2% looks safe for the time being. The payout is covered two-and-a-half times by earnings per share. 

Fending off the competition

SKY’s key advantage is also size. Moreover, the company’s purchase of exclusive rights to broadcast sports events, like the £4.2bn deal to broadcast the Premier League for three seasons, will pull customers towards the group.  

That being said, Sky’s dominance is being threatened by low-cost online streaming companies like Netflix. Sky will need to show that it can hold its own against these companies during the next few years.  

For the time being, however, Sky seems to be fending off the competition. Revenue has grown by a third since 2010 and sales are expected to expand a further 50% by 2016.

Sky’s dividend yield currently stands at 3.1% and the payout is covered 1.7 times by earnings per share. 

Small and mighty

Unlike Sky and BT, Talktalk Telecom doesn’t have the key advantage of size on its side. Luckily, this hasn’t hampered the company’s ambitions. 

According to current forecasts, at the end of this year, Talktalk’s pre-tax profit will have tripled since 2011. Excluding exceptional costs, Talktalk’s statutory profit after tax jumped 157.1% year on year last year to £72m. 

Current figures suggest that Talktalk’s pre-tax profit will jump 59% next year. After that, management believes that the company’s sales will settle into a long-term growth rate of 5% per annum. 

Talktalk currently supports a dividend yield of 3.6% and trades at a forward P/E of 25.9. The payout is set to rise around 10% per annum for the next three years. 

Income pick

KCOM’s greatest strength is the company’s cash generation, and most of this cash is returned to investors. At present, the company supports a dividend yield of 5.5%.

Unfortunately, while KCOM is an income champion, the company’s growth leaves much to be desired. Revenue has fallen by 13% during the past five years, although pre-tax profit has increased by 49%. KCOM has expanded into the higher-margin telecoms services market. 

Nevertheless, next year analysts believe that KCOM’s yield will hit 6.0%. The payout is currently covered one-and-a-half times by earnings per share.

The post Why You Can’t Go Wrong With SKY PLC, BT Group plc, Talktalk Telecom Group PLC & KCOM 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 and Sky. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Ladbrokes

If you’re looking for a great potential dividend, look no further that the 7.2% forecast for Ladbrokes (LSE: LAD) after the shares fell 21% in the past year to 103p. With the the mooted 2015 payout not expected to be covered by earnings, there’s cause for caution, even if an 11% EPS rise expected for 2016 would improve things for that year’s predicted 7% yield. But it’s all down to the firm’s longer term potential, so how’s that looking?

Well, it looks uncertain right now after CEO Jim Mullen, in a Q1 update delivered today, said “I will complete my review of the wider business quickly and I will present some of the principal changes that I intend to make, in June, earlier than planned“, but that’s a dividend worth watching.

Kier

Shares of troubled construction company Kier Group (LSE: KIE) have recovered since the start of the year, but they’re still down 7% over 12 months to 1,633p. But we do have two years of dividend growth forecast, with yields of 4.7% and 5% forecast for this year and next.

The firm is building up some impressive projects, and has just been named the preferred bidder for a £170m regeneration development in the Ram Quarter, in Wandsworth, London, and I see no real risk to those attractive dividend prospects.

KCOM

Shares in KCOM Group (LSE: KCOM) have climbed 20% since January’s low, and we’re looking at forecast dividend yields of between 5.7% and 6.4% between now and March 2017, on a price of 94p. A recent pre-close statement told us that “trading remains in line with market expectations“, so I really don’t see any justification for KCOM’s low share price right now. Dividend cover is perhaps a bit thin at around 1.5 times, but the firm’s future in fibre broadband looks enviable.

Amlin

Are there any great undiscovered dividends to be had from insurance companies? The 6% yield forecast for Amlin (LSE: AML), on a share price of 468p, looks pretty tasty, and it should be covered around 1.4 times. The risk is that it that could be rebased in the same way as others in the sector, and with earnings expected to drop this year that can’t be discounted. But forecasts have been stable for some time, and we could be looking at a neglected bargain.

City of London

City of London Investment Group (LSE: CLIG) is up 36% over the past 12 months to 348p, but even after that we still have a forecast dividend yield of 6.9% for the year to June 2015, upped to 7.5% on 2016 forecasts. Cover would be stretched, so how’s the company doing? In its latest quarterly update, the company reported a 5% rise in funds under management, to $4.2bn, so there doesn’t seem to be any pressure on the dividend.

The post 5 Tasty Smaller Cap Dividends: Ladbrokes PLC, Kier Group plc, KCOM Group PLC, Amlin plc And City of London Investment Group PLC appeared first on The Twelfth Magpie.

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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.

Look at former growth darling Telecom Plus (LSE: TEP) for example. In the four years to the end of January 2014 the shares soared by 530%, but in the past 12 months the price has crashed back by 40% to a 52-week low today of 1,122p.

At KCOM Group (LSE: KCOM) we saw a more modest rise in the same four years to last January, but still an impressive 83%, while the FTSE managed only 30%. But again, over the past 12 months things have turned bad with the shares down 21% to a low of 78.5p. What’s gone wrong?

Beware the growth story

At Telecom Plus I think the answer is actually not much at all. In fact, we have have an expected rise in earnings per share (EPS) of 27% for the year to March 2015, after a couple of years of accelerating earnings growth. After that, however, EPS growth forecasts drop to 18% for 2016 followed by 15% for 2017.

Those are still very impressive forecasts, but once growth starts to slow at a new growth company, the share price usually suffers a fall. In this case, 2014’s results left the shares on a pretty stretching P/E of 35, but that’s down to around 18 now, dropping to 13 by 2017. With dividend yields above 4% and rising, Telecom Plus looks good, but there’s a lesson for growth investors here.

Falling revenues

How about KCOM? Well, declining revenues perhaps make it look like the Hull-based operator is not going to overtake BT after all, and with stagnant EPS shareholders must be fearing a dividend cut. There are forecast yields of 6.4%, 7% and 7.3% for this year and the next two, but declining earnings would take cover down as low as 1.2 times by 2017.

Telecoms companies need to retain cash to reinvest, and KCOM doesn’t look capable of doing that right now.

The real secret to telecoms success comes from exploiting the blurring distinction between service and content, and it’s the big guns like BT who have the financial clout to get seriously into the content pie. KCOM, for example, just wouldn’t have been in the running to secure Premier League football and launch its own channels to show it.

Bigger is better

And it wouldn’t have the means to bid for EE and get a serious foothold in the mobile phone market either.

No, when it comes to telecoms these days, bigger usually is better. And with modest but hopefully sustainable growth and P/E multiples of around 13, BT looks the best of the bunch to me.

The post BT Group plc Climbs While KCOM Group PLC And Telecom Plus PLC Plunge To 52-week Lows appeared first on The Twelfth Magpie.

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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.