11%-yield dividend stock 

With the Imperial Brands (LSE: IMB) share price falling below £20 and its yield rising up to the 11% level, I couldn’t help but add a few more shares to my dividend portfolio. Normally, when a yield is that high, I’d run a mile.

However in Imperial’s case, the dividend payout doesn’t look vulnerable to a cut in the near term, in my view. I don’t think management would have increased the interim payout by 10% in May if it was considering a dividend cut in the near future.

Of course, there are plenty of risks associated with IMB shares. Cigarette volumes continue to decline and regulators continue to make life difficult for the tobacco companies. Just last week, the city of San Francisco banned sales of e-cigarettes. A number of institutions are also dumping tobacco stocks, which is putting pressure on their share prices. Additionally, Imperial’s debt is higher than I’d like it to be.

However, with the stock trading on a P/E of under seven and offering a colossal yield, the value/contrarian investor in me couldn’t help but have another nibble here. I don’t think it’s game over for Imperial Brands just yet.

Super growth stock

At the other end of the spectrum, I also purchased a few shares in small-cap growth stock Keystone Law (LSE: KEYS) for my growth portfolio. The £165m market-cap company screened up on my high-quality small-cap growth screen and I think it looks very interesting, despite the fact it has a high valuation.

Keystone is a law firm that has a unique business model. It hires lawyers who then work from home or from their own offices while Keystone provides them with all the back office support they need.

The company currently has around 300 lawyers on its books but says its addressable market is potentially 47,000 lawyers, meaning there’s potential for significant growth. Clients include high-profile names such as Tesco, Siemens, and RBS, so the group is clearly doing something right.

There are a number of reasons Keystone shares appeal to me. First, I like the business model as it seems very scalable. Second, revenue and profits are rising rapidly. Over the last three years, revenue has increased by 105%, while net profit has surged nearly 600%. Third, cash flow appears to be strong and the stock is already paying a dividend. Fourth, return on equity (ROE) was 27% last year, which suggests that this is a very profitable business. Fifth, founder and CEO James Knight owns around 35% of the shares, meaning management’s interests are likely to be aligned with shareholders’ interests.

On the downside, the shares currently trade on a P/E of around 35, which is no doubt a high valuation and doesn’t leave much room for error. For this reason, I’ve only taken a small position to start with. I will look to boost my stake if the valuation comes down a little.

The post A FTSE 100 dividend stock and a small-cap growth stock I’ve just bought for my ISA appeared first on The Twelfth Magpie.

More reading

• How much do you need in an ISA to target a £9,999 second income that rises every year?
• 6.7% yield! Is Imperial Brands an irresistible FTSE 100 share to consider?
• Here are the stunning returns I’m targeting from £20,000 in this high-income FTSE star
• State Pension of £12,548 not enough? How much would be needed in an ISA to match it?
• How to invest £20k in FTSE 100 stocks and target a 6% dividend yield

Edward Sheldon owns shares in Imperial Brands and Keystone Law. The Motley Fool UK has recommended Imperial Brands. 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.

Thing is, that level of freedom — a.k.a. financial independence — could be achieved by many of us. We either don’t know it or opt not to believe it. 

It requires sacrifices, of course. That daily coffee, expensive holiday, brand new TV… the more you spend, the less you can invest.

To reach financial independence quickly, however, you also need to pick stocks delivering high levels of growth. Here are some examples I like. 

High-growth stars

Keystone Law (LSE: KEYS) has made many friends since coming to the market. The legal company’s share price is now well over 150% higher than back in November 2017.

With a market cap of just £150m, I think there’s room for it to go even higher. 

Back in January, the company announced that it had “continued to trade strongly” in H2 and that it was likely that profits would be “comfortably ahead of current market expectations”.

Confirmation of this is expected on 8 May. Regardless of how the market reacts in the short term (some profit-taking might ensue), I think this is one company that should definitely be on growth-focused Fools’ radars.

Ongoing investment in its infrastructure and ability to attract new lawyers and clients should allow it to continue grabbing share from other mid-market law firms going forwards. 

My next pick is robotic process automation specialist Blue Prism (LSE: PRSM) – a company I bought a stake in not long after it listed.

It’s clear that the AIM-listed company’s software solutions — which help perform boring, repetitive tasks previously undertaken by a human (freeing the latter to do something more worthwhile) — are proving exceedingly popular. Revenue was £55.2m in FY18 — up 125%. 

But it’s not just about the amount of time that companies are able to save. Blue Prism’s ‘robots’ never get sick, never need holidays and, let’s be honest, never complain. 

With firms such as Coca Cola and Lloyds Bank already reaping the benefits of using its services, I continue to think this company will thrive.

Investment platform AJ Bell (LSE: AJB) is my final pick of stocks that I think will go from strength to strength.

The Salford-based business is one of the few IPO success stories in recent times with shares now trading for almost double the price they were back in December.

With interest rates on savings likely to remain low, it’s unsurprising that AJ Bell has more people signing up to its services and investing their money to generate better returns.

Total customer numbers increased 5% (to almost 215,000) in the three months to the end of March. Total assets under administration also climbed 8% to £47.7bn. 

Interim results are due next month with the company predicting its financial performance will be “slightly ahead of current market expectations”.

Warning!

Nothing is guaranteed in investing. That’s why it’s vital to mention that all of the above trade on lofty valuations, making them arguably more risky to hold given that high expectations are easily dashed.

Keystone and AJ Bell trade on 40 and 58 times earnings respectively. Blue Prism doesn’t make a profit but is still valued at £1.5bn.

So, while I rate all three (and own stock in one), that’s not to say I wouldn’t prefer to wait for another general market wobble before buying.

The post Dreaming of financial independence? I think these 3 growth stocks are just getting started appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Blue Prism. 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.

Even market darlings such as Boohoo and ASOS have been hammered after having failed to meet investors’ already-lofty expectations, despite raking in the cash. 

Notwithstanding this, some companies — and their share prices — have bounced back hard. The question, however, is whether there’s any more upside ahead. 

Unlocking growth

I’ve not looked at small-cap challenger law firm Keystone Law (LSE: KEYS) since October. Back then, I was bullish on the minnow’s future. Three months later, I’m just as positive. 

To recap, Keystone’s goal is to become a leading mid-market firm. It aims to attract both lawyers and clients using its “distinctive platform model“. Rather than operate from a set of offices, the former can work from home and use the support and administrative services provided by the company, with Keystone taking a cut of their fees.

According to last week’s update, the AIM-newbie has “continued to trade strongly” in H2, so much so that management now predicts profits will be “comfortably ahead” of what the market was previously expecting when it provides full-year numbers in May. 

Keystone is clearly in a purple patch. Returns on capital employed are increasing and there’s no debt on the balance sheet. Despite ongoing investment, it even pays a dividend (the predicted 8.25p per share cash return in the current year equates to a yield of almost 2.1%). 

The only trouble with all this is that Keystone’s shares now trade on a pretty punchy valuation. Assuming the company is able to achieve the 15% rise in EPS expected in the next financial year (beginning February 1), the stock trades on 29 times forecast earnings. This clearly leaves little room for error. And if further upgrades don’t come, many investors will probably head for the exits and ask questions later. Such is the difficulty of managing expectations.

If you really must take a position now, scaling-in may be the way forward.

Still on song

Like Keystone, junior market peer Focusrite (LSE: TUNE)  can do no wrong at the moment. 

In a very short update released just before Christmas, the supplier of hardware and software products to musicians stated that revenue for the financial year to date was “now ahead of the comparative period last year“, following strong trading in November. This builds on impressive numbers from 2017/18, including a 13.7% rise in revenue to £75.1m and 18.1% rise in EBITDA to £15.5m. The firm is debt-free and had cash of almost £23m at the end of the last financial year. 

Headquartered in High Wycombe, Focusrite was my top pick all the way back in November 2017.  Since then, its share price has climbed a very satisfying 82%, highlighting just how profitable smaller stocks can be for investors over a short period of time. 

As a result of this, however, the shares are nowhere near as cheap to acquire as they used to be and currently change hands for almost 28 times earnings. When it’s considered that those in the city are still only expecting low single-digit EPS growth this year and next, I’m inclined to think that it might be best to wait for things to cool a little. 

The post These small-cap growth stocks have been absolutely flying. Is it too late to buy in? 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?

Paul Summers 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.

That’s why, in addition to building up my cash reserves, I’ve started drawing up a list of ‘expensive’ looking businesses I might just buy a slice of if they were to come on sale in a general market meltdown. Here are just three I’ve got my eye on.

Not cheap enough…yet

£700m cap ticketing and virtual queuing solution firm Accesso Technology (LSE: ACSO) has thoroughly earned its market darling status. Had you bought the shares five years ago and learned to sit on your hands, the value of our capital would have grown by 300%. 

Given the growth opportunities available — such as providing solutions for music concerts and sporting events, in addition to building on its established presence at many tourist attractions — I still think the company warrants attention from growth investors. Last week’s announcement of a strategic partnership with Groupon is yet another positive development. 

Nevertheless, all this promise comes at a price. On 46 times earnings, it could be argued that the company still looks priced to perfection, even if this valuation is set to become far less punchy next year if analyst targets are hit. 

Having looked at the business back in June, challenger law firm Keystone Law (LSE: KEYS) continues to grab my attention. I’m not alone. Even after taking into account the market’s recent wobble, the shares are still worth twice what they were when it listed on AIM in November last year. 

Keystone continues to grow at a rapid pace, so much so that it’s already smashing its own earnings estimates. Revenue rose just under 30% in the six months to the end of July with profit before tax soaring 40.3% to £2.3m. As evidence of its growing profile, the £120m cap also increased its number of lawyers by more than 50% to 31 over the reporting period and continued investing in its IT platform. 

A forecast price-to-earnings (P/E) of 33 is too hot for me in the current political and economic climate, but with first mover advantage, the defensive qualities of its work, and CEO James Knight describing the UK legal services sector as “ripe for disruption“, I’m keen as mustard to add the company to my portfolio. 

Doubled in value

Fryer management firm Filta Group (LSE: FLTA) is certainly the least glamorous of the trio, not that you’d know by the performance of its stock.

Since coming to the market in 2016, the Rugby-based business has more than doubled in value — further evidence that backing market minnows can seriously improve your wealth, so long as you can accept greater volatility and are fortunate/skilled enough to get in early.

It’s not hard to see why growth aficionados have warmed to it. Last month’s half-year results revealed a 22% rise in both revenues (£6.6m) and pre-tax profit (£1m). Currently expanding into Canada and Germany at a fair clip, Filta added 10 new franchises and 28 mobile filtration units in the period, bringing the total in operation to 192 and 422 respectively.

Right now, the stock is trading on 28 times earnings for the current year — too punchy for my liking. That said, a general market sell-off could be just the ticket to get me involved.

The post 3 quality growth stocks I’d consider buying if the market crashes 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?

Paul Summers 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.

With this in mind, let’s take a look at two new(ish) stocks on the block and ask whether they are likely to perform strongly over the short term.

Driving returns

Specialising in driving titles — including the Formula 1 franchise — developer and publisher Codemasters Group (LSE: CDM) is the latest option available for those wanting to take advantage of a booming gaming sector after coming to market only a few weeks ago. 

Although the shares have lost some of their early momentum, the current price of 252p still represents a 26% gain on the IPO, suggesting that many are attracted to the company’s desire to bring in more staff and potentially undertake an acquisition spree with the money it’s received.

Given the resilient nature of the industry and the growing popularity of eSports, it seems reasonable to assume that Codemasters could do well for investors. That said, it’s important to go in with eyes wide open.

With stock-specific risks not disimilar to those of other new market entrants Sumo and Team 17, the company has been transparent in stating that its success depends heavily on the popularity of its titles and the renewal of licences going forward. Prospective buyers should also bear in mind that a market cap already in excess of £350m means that doubling the Warwickshire-based business’s share price in a single year is no mean feat. 

Personally, I still believe that the best (and least risky) way of gaining exposure to this industry remains diversified ‘picks and shovels’ services provider Keywords Studios — a firm whose stock continues to mock the concept of gravity.

Unlocking profits

Although not quite as fresh on the market as Codemasters, challenger law firm Keystone Law (LSE: KEYS) is another intriguing option for growth-focused investors, especially those who may have missed the huge gains achieved by AIM-listed litigation finance specialist Burford Capital.

Shares in the strongly cash-generative 16-year-old company, whose clients include Nationwide, Royal Bank of Scotland and Wonga, have been on sparkling form since coming to the market last November, rising 67%. How many FTSE 350 firms can top that?

April’s full-year results suggest this might be only the beginning.

Revenue jumped a little under 24% to £31.6m in the 12 months to the end of January with underlying earnings before interest, tax, depreciation and amortisation (EBITDA) coming in at £3.27m — almost 43% higher than the £2.29m achieved in the previous financial year. Perhaps unsurprisingly, these numbers were recognised as being “comfortably ahead” of what the market was expecting. 

CEO James Knight is certainly bullish on the small-cap’s outlook, having remarked that the £100m cap is“well-positioned to take advantage of the significant market opportunity in the UK legal services market”. The fact that it operates a Purplebricks-like model of allowing staff to work remotely is clearly turning heads with the number of fee earners increasing from 228 to 266 over the reporting period.

Trading on 31 times earnings for the current financial year, there’s little room for error. Nevertheless, should the company continue to outperform, I think it certainly stands a chance of doubling in value within the next year. 

The post Can these new small-cap growth stocks double your money in a year? 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?

Paul Summers owns shares in Keywords Studios. The Motley Fool UK has recommended Keywords Studios. 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.

Revenue was almost 24% higher than the previous year and earning per share shot up 71%. The firm has a “strongly cash generative business model” and achieved organic growth during the year because of its “reputation as a leading, quality mid-market law firm.” The company increased its fee-earning personnel count from 228 to 266.

Challenging the big law firms

The firm sees itself as a challenger law firm and chief executive James Knight said: “Keystone is well-positioned to take advantage of the significant market opportunity in the UK legal services market, which we believe is ripe for disruption.”

The firm’s expertise relies on its fee-earning lawyers, of course, and the big fear with this type of set-up is that the business could walk out the door on the legs of the employees one day. Yet that’s exactly how Keystone plans to disrupt the sector, by attracting fee-earning practitioners to the firm – along with their clients! That’s why the figures relating to the fee-earning personnel count will be such an important test of the company’s growth strategy going forward.

City analysts following the firm expect earnings to grow 60% for the year to January 2019 and 26% the year after that, which is a tempting rate of growth. Today’s share price of around 258p throws up a forward price-to-earnings (P/E) ratio just over 21 for the year to January 2020 and the forward dividend yield sits a little higher than 2.3%. Those forward earnings should cover the payment more than three times. I think the growth proposition here looks interesting and that the stock could sit well in a portfolio if balanced by a defensive dividend payer such as FTSE 100 firm National Grid (LSE: NG).

Attractive quality and valuation

The operator of Britain’s electricity and gas transmission systems looks appealing to me when measured against quality and value indicators, after the fall in the share price over the past year. Today’s 805p makes the forward dividend yield 6% for the trading year to March 2020. And that’s the main attraction. The directors have pushed the dividend yield up a little annually for years, and that situation looks set to continue.

The stock has crept back up since early March, which could indicate that negative sentiment is starting to turn, with investors shrugging off fears about over-valuation and potential nationalisation of the industry. National Grid’s privileged monopoly position means the company will always be subject to fierce regulation — both in Britain and with its US business — and demands on its capital will remain high. But I think there’s a good chance the business will rumble on, paying its dividends to investors for years to come.

The defensive, cash-generating qualities of National Grid make the stock an ideal companion in a portfolio alongside more racy holdings, which target capital growth, such as Keystone Law Group, I reckon. Although there’s handy dividend income available from Keystone, too.

The post I’d buy and hold this 6% FTSE 100 dividend stock and this growth stock right now appeared first on The Twelfth Magpie.

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Kevin Godbold 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.

Rising expectations 

Shares in this challenger law firm have ripped higher since the IPO in October. At the time of writing the shares are trading at 255p, up around 30% from the IPO price of 190p. And it looks as if these gains are set to continue as today the company reported that for the financial year to January 31, results are expected to be “comfortably ahead” of market expectations. 

In the weeks after hitting the market, the company’s profile has only improved, and this has translated into higher sales and profits. Management believes Keystone is uniquely positioned in the UK law market to consolidate its position and use technology to push ahead of its competitors. Today’s trading update makes several references to the group’s “distinctive platform model” and “infrastructure and recruitment capabilities,” which continue to attract both new clients and employees.

Using tech to boost growth 

Keystone bills itself as more of a tech company with lawyers than a pureplay law firm. It seems as if the business is doing something right as its client list is full of blue-chip names such as RBS, RSA and Siemens.

City analysts are highly excited about the prospects for the group. Earnings per share are expected to rise 124% to 6.4p for fiscal 2018, although considering today’s news, it looks as if these forecasts are now too low. Analysts have been expecting it to go on to earn 9.6p for fiscal 2019, but once again, considering today’s news, it would appear as if this is a conservative estimate. 

With profits set to roughly double every year for the next two years, shares in Keystone currently look cheap as they’re currently trading at a PEG ratio of 0.8. Considering this,  it’s easy to see how the shares could double over the next 12 months — something I wouldn’t rule out as City analysts revise their estimates for growth higher. 

International expansion 

Another small-cap that I believe could double in value during 2018 is clothing and design business Joules Group (LSE: JOUL). 

Joules has already achieved an impressive return of 13% for investors so far this year.  City analysts are expecting it to report 56% growth in earnings per share for the current fiscal year and 18% for 2019. However, I believe that these figures could be conservative as the company recently announced that its critical Christmas trading period performed ahead of expectations and following this, management now expects full-year profit to be ahead of the City’s estimates. 

The most important part of the group, and where I believe most of the growth will come from over the next few years, is its international division. International sales expanded by 26.4% for the 26 weeks to the end of November and now account for 11.3% of group revenue. 

As Joules continues to grow overseas, its bottom line should benefit significantly and this could drive further outperformance. In other words, even though the shares look expensive trading at a forward P/E of 24, I believe that this fast-growing retailer deserves your attention as it continues to attract customers and register healthy earnings growth.

The post 2 stunning small-cap growth stocks that could double in 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 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.