These companies should give you an instantly diversified dividend portfolio that should generate a steady income whatever the weather.

Steady income

BHP has transformed itself over the past few years from a struggling, inefficient mining group to what I believe is one of the best income stocks in the FTSE 100. 

The group has aggressively cut costs, which has pushed profit margins higher, and a tight control on commissioning of new projects means that the business is no longer wasting shareholder capital on expensive, inefficient projects.

These efforts are now really starting to pay off. For the year ending June 30, the company reported free cash flow of $12.5bn, which allowed management to pay a record final dividend. 

It looks as if the company will repeat this performance in 2019. Management is expecting to achieve additional productivity savings of $1bn in 2019, freeing up more capital to return to investors. The business is planning to increase the amount it spends on capital projects during 2019 and 2020 by around $1.2bn per annum, having paid down more than $15bn in debt over the past two years. But BHP has, in my opinion, plenty of flexibility to both increase capital spending and hike cash returns to investors. 

With this being the case, it is no surprise that City analysts have pencilled in a dividend yield of 8.6% for 2019

Put simply, with its global operations, strong balance sheet and cash generation, BHP is an excellent dividend investment. Manx shares many of these attractive qualities. 

Monopoly business

As the largest telecoms provider on the Isle of Man, it has a large, captive customer base, which translates into impressive profit margins. For 2017, the company reported an operating profit margin of 17% and a free cash flow of £11m. I expect the group to unveil a similar performance for 2018. Manx’s end-of-year trading update, which was published today, confirms that the firm will meet City expectations for 2018.

Looking at the update, I reckon the company will report yet another year of strong cash generation and progress towards its key goals of diversifying outside the Isle of Man and improving its offering for existing customers, primarily through the rollout of fibre infrastructure.

City analysts think the company will pay out 12p per share for fiscal 2018, rising to 12.6p for 2019. At the current share price, this translates into a dividend yield of 7.8% for 2018 and 8.1% for 2019. On top of the 7.8% yield, the shares are changing hands at a relatively undemanding valuation of just 11.6 times forward earnings. 

In my opinion, this undervalues the group’s bright prospects and cash generative business. As long as Manx maintains its leading position in its key Isle of Man market, I think this company can continue to produce steady income returns for investors for many years to come.

The post Have £3k to invest? Here’s a FTSE 100 income leader I think you should buy appeared first on The Twelfth Magpie.

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

The first company I’d like to consider is payment processor PayPoint (LSE: PAY).

You’re probably used to seeing this company’s yellow logo outside convenience stores and newsagents. PayPoint’s electronic terminals allow customers to use cash to pay their bills, top-up pre-paid mobile phones and drop off Collect+ parcels. It also operates a similar business in Romania.

What’s interests me about this business is the way it’s becoming embedded in the business model of convenience stores. The company now has terminals in 29,043 shops in the UK and Ireland, and 19,802 in Romania.

There’s obviously a risk that the number of ‘unbanked’ customers who pay bills with cash will fall. To address this, PayPoint is moving ahead with newer systems that provide a wider range of point-of-sale functionality.

For example, the firm’s flagship product, EPoS Pro now allows retailers to order stock electronically from wholesaler NISA. Sales reporting and inventory can be managed through an app.

I’m going to buy more

This business generated an operating margin of 25% last year on revenue of £213.5m. Net profit of £42.9m was backed by free cash flow of £48.8m, all of which was returned to shareholders.

The group continues to maintain a net cash balance, some of which is also being returned to shareholders via special dividends.

Looking ahead, the stock trades on a 2018 forecast price/earnings ratio of 15 with a prospective dividend yield of 8.1%. I already own this stock, but intend to buy more over the next few weeks.

Small company, big ideas

The next company I want to look at is Manx Telecom (LSE: MANX). As its name suggests, this is the main telecoms provider on the Isle of Man. But it also offers services to users off the island, including a specialist mobile roaming service and data centre solutions.

Today, the company announced the planned launch of a new mobile service, Goshawk. This will target customers with hearing loss and will be operated as a UK-wide virtual mobile operator.

Manx says that there are 11m people in the UK with hearing loss. So the potential target market could be quite large.

Dialling up a 7.1% yield

In the meantime, the group’s regular business appears to be performing quite well. Half-year results published today showed that pre-tax profit rose by 4.9% to £5.5m during the first half of the year.

Importantly for dividend seekers, the group’s cash conversion remained strong. Underlying operating cash flow was almost unchanged at £10.1m, and operating cash flow after exceptional costs rose from £5.4m to £8m. The group’s net debt of £64m is a little higher than I’d like to see, but it shouldn’t be a problem and is expected to fall later this year.

Underlying earnings were almost unchanged at 5.9p per share, while the interim dividend will rise by 5% to 4.1p per share. This performance suggests to me that Manx Telecom is on-track to hit analysts’ full-year forecasts for earnings of 14.1p per share and a 12p dividend.

This dividend looks safe enough to me. And with the shares trading on 12 times forecast earnings with a prospective yield of 7.1%, I’d have to rate this stock as a buy.

The post Forget the State Pension: These 7%+ yield dividend stocks could help you retire in comfort appeared first on The Twelfth Magpie.

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• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Roland Head owns shares of PayPoint. The Motley Fool UK owns shares of PayPoint. The Motley Fool UK has recommended Manx Telecom. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

But although the media giant’s core business has been performing well of late, this dramatic increase in share price is almost entirely thanks to the three-way bidding war for Sky that was initiated by Rupert Murdoch’s 21^st Century Fox and has now embroiled Disney and Comcast.

The latest twist in this long-running saga has been Comcast’s improved offer of 1,475p per share tabled earlier this month that would value the whole of Sky at £26bn – or a rather full-looking 12 times full-year 2017 EBITDA. But what does this mean for current and prospective shareholders?

For current shareholders, there’s little downside to holding their shares as they currently trade at just a 4% premium to Comcast’s latest bid. Considering Disney’s apparent willingness to engage in a bidding war for a ready-made pipeline for distributing its content to European households, I wouldn’t rule out another offer. But at the same time, with a full valuation and no guarantee of further bids, more conservative investors may want to take their profits and run.

Indeed, as a non-shareholder, I can’t say Sky’s current price appeals to me. Comcast’s latest bid values the company quite highly so buying its shares right now is pretty much nothing more than a bet on further bids being made for the business. In the end, Disney-backed Fox may decide to improve its latest offer, but as a long-term investor focused on buying great companies at attractive prices, not betting on M&A activity, I can’t say I find Sky a tempting target right now.

An under-the-radar income star 

One telecom whose shares haven’t been enjoying a bumper run-up like Sky’s, is Isle of Man-based Manx Telecom (LSE: MANX). Manx, which is the island’s largest fixed line operator, has seen its share price fall back 14% over the past year.

This puts the company’s valuation at just 11.6 times forward earnings while offering investors a whopping 8.8% dividend yield. This valuation and well-covered dividend payout alongside decent opportunities for earnings growth make the company an interesting investment opportunity in my eyes.

Firstly, the company’s competitive position on the Isle of Man puts it in a great position as the island is small enough not to attract large competitors, but also large enough to sustain healthy profits after investment for Manx. Last year, the company’s generated underlying EBITDA of £27.1m off of £78.5m in revenue, which allowed it to both invest in future growth opportunities and increase its dividend payout while leaving net debt at a healthy 2.1 times EBITDA.

These growth opportunities centre around domestic-focused activities such as providing faster, and pricier for the customer, internet connections and providing data centres for businesses, as well as international growth opportunities such as its agreement with Chinese behemoth Unicom to provide UK roaming services for its customers. These expansion opportunities are unlikely to lead to rapid growth. But I reckon they offer the possibility of sustainable growth over the long term that should fund both investments in the business and increased payouts for shareholders – more than enough reason for me to consider Manx Telecom as a buy-and-hold income option. 

The post How Sky’s share price jumped 50% in the first half of 2018 appeared first on The Twelfth Magpie.

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• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Walt Disney. The Motley Fool UK has recommended Manx Telecom. 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.

At the time of writing, shares in Vodafone are trading with a dividend yield of 6.5% which, compared to the average interest rate of 0.5% available on most savings accounts, is extremely attractive. 

That said, Vodafone’s lack of dividend cover is always given as the reason why the company cannot support the current payout. Specifically, for full-year 2018 analysts estimate that only 70% of the €0.15 distribution will be covered by earnings per share of €0.10. 

However, I believe the above figures are highly misleading because Vodafone’s income statement is full of non-cash charges such as depreciation/depletion that depress the bottom line. Stripping out these costs, the company earned €14.2bn in cash from operations last year, against a total dividend payout of €3.7bn. Free cash flow, excluding dividends, was €5.3bn. 

These figures show that not only is Vodafone’s dividend safe for the time being, but there’s also room for growth. 

Exploring the international market

As well as Vodafone, Manx Telecom (LSE: MANX), the leading communication solutions provider on the Isle of Man, is another cheap dividend stock I believe deserves a place in your portfolio. 

A crucial part of Manx’s growth strategy is expanding outside of its home market through several international partnerships including China Unicom, one of the world’s largest telecoms companies, to sell SIM cards to Chinese tourists. Today the firm reported, alongside figures for the 12 months to the end of December, that the Unicom agreement is “now fully operational ahead of the 2018 travel season“. And while overall revenue for the period declined slightly from £80.8m to £78.5 year-on-year, I believe the China initiative, among others, should help the group return to growth in 2018. 

Indeed, after incurring some costs in 2017, a transformation programme designed to deliver operational improvements should begin to pay off this year. Meanwhile, excluding costs associated with the firm’s new roaming product SmartRoam, mobile revenue grew 3.1% in 2017 and is set to continue expanding in 2018. Further, data centre revenues were impacted by customer consolidation in 2017, which pushed revenue down by 19% for the year. But during the second half, when the concentration was complete, revenues rebounded 5%. Once again, it looks as if this growth is set to continue in 2018. 

Robust dividend 

Overall, Manx’s reported profit for the year jumped 35% to £11.9m and reported earnings before interest, tax, depreciation and amortisation ticked higher by 1.8% to £23.1m. Underlying free cash flow, which I believe is one of the best metrics to use to value any business, rose 22.1% to £20m, giving management room to increase Manx’s full-year dividend payout to 11.4p per share. 

Following this hike, shares in the telecoms business currently support a dividend yield of 6.1% and trade at a free cash flow yield of 9.2%.  

So overall, Manx’s growth outlook gives me confidence that the company can maintain its current market-beating dividend yield, and even grow the payout for the foreseeable future. This leads me to conclude that the stock, along with Vodafone, is a perfect buy and hold investment for your ISA.

The post 2 bargain dividend stocks I’d buy for my ISA with £2,000 today appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Manx Telecom. 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.

Reassuringly boring

Manx Telecom (LSE: MANX) is the main telephone, internet and mobile provider on the Isle of Man. It also provides international mobile services for customers who need high levels of roaming coverage.

The group said this morning that 2017 trading was in line with expectations, “with strong underlying cash flow continuing to support our progressive dividend policy”. This suggests to me that shareholders can expect a small dividend increase this year. Broker forecasts suggest a payout of 11.4p, which would give a yield of around 6%.

However, the emphasis on underlying cash flow is significant. Manx is in the middle of a transformation programme aimed at updating its services and business processes. I suspect this will pay off, but in the meantime it’s consuming cash. During the first half, transformation costs took £4.8m out of the firm’s underlying operating cash flow of £10.2m.

A wrong number?

This leads me to the only part of today’s trading update I was unsure about. The company says that full-year revenue should be broadly in line with last year, but warns underlying earnings before interest, tax, depreciation and amortisation (EBITDA) will be “moderately lower” than last year.

My reading of this is that it’s a borderline profit warning. Broker forecasts prior to today suggested a slight increase in revenue and earnings this year.

However, this spending is expected to start delivering benefits later this year. In my view this is a short-term headwind that should soon clear. I’m inclined to see this situation as a potential buying opportunity for dividend investors.

Great name, great income?

High street stalwart Marks and Spencer Group (LSE: MKS) was one of the weaker performers over Christmas. The group’s UK like-for-like sales fell by 1.4% during the 13 weeks to 30 December, due to a 0.4% fall in LFL food sales and a 2.8% decline in LFL clothing and home sales.

Although total food sales did increase thanks to additional store space, the company said it was forced to rely on price-cutting and seasonal lines before Christmas to “help late trading”.

My experience as a shopper is that M&S Food no longer has the premium appeal over regular supermarkets that it used to. If even I’ve noticed, then it’s unsurprising that in November’s half-year results the company said it would “increase the pace of … innovation” in its Food business and adapt its ranges.

Don’t be discouraged

Although M&S boss Steve Rowe faces some tough challenges, November’s interim results make it clear that this is still a profitable and cash generative business. Adjusted free cash flow for the first half of the year was £218.4m, roughly level with the group’s adjusted pre-tax profit of £219.1m.

What’s significant about this is that it highlights the retailer’s excellent cash conversion — turning profits into surplus cash.

If you share my view that the group should be able to solve its current problems, then I believe these shares could be of interest. With a P/E of 10.7 and with a prospective yield of 6.2%, Marks’ long-term income potential looks tempting to me.

The post Two 6% dividend stocks I’d buy and forget today appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Manx Telecom. 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.

Of all the dividend plays out there, Royal Dutch Shell (LSE: RDSB) is one of my favourites. The oil behemoth has a tremendous dividend record, having paid one every year since the Second World War and management’s actions during recent years, as the price of oil has plummeted, shows that the company is committed to maintaining this record no matter what.

Taking action 

When oil prices started to fall, Shell’s management immediately jumped into action. The group slashed capital spending, cut operating costs and introduced an all-share (scrip) alternative to the cash payout, which removed some pressure from cash flows.

To make the most of the prevailing environment, it also pounced on smaller peer BG Group, a $50bn deal that attracted plenty of criticism at the time, but now looks to have been a stroke of genius.

The enlarged Shell is now one of the primary hydrocarbon producers and traders in the world. At the end of November, management announced that the company would discontinue its script payout as efforts to control costs over the past few years start to pay off.

Cash cow 

At an investor presentation at the time, Shell’s CEO announced that the group now expected to generate between $25bn and $30bn of annual free cash flow by 2020 assuming a relatively modest oil price of $60 a barrel. Previously, the company had been forecasting only $5bn of free cash flow during this period. 

These figures give me confidence that the company can maintain its current dividend yield of just under 6% and possibly increase it in the years ahead. And even if the payout is not raised, shareholder returns are expected to rise as management is planning to buy back at least $25bn of shares between 2017 and 2020 — a promise made at the time of the BG takeover.

Monopoly income 

I’m also positive on the outlook for Manx Telecom (LSE: MANX) as a dividend stock. Unlike Shell, which has been held hostage by the global oil market, Manx operates a monopoly telecoms business on the Isle of Man. The company’s monopoly position means cash flows are relatively stable, and management can plan ahead for the dividend.

Shares in Manx yield around 6% and the payout, which amounts to £12m a year, is easily covered by cash generated from operations, which was £22m last year. Next year, the company is expected to see a £3m boost to profits after a multi-year transformation completes and management is also branching out overseas.

In December last year, Manx won a deal to provide roaming services to China Unicom, one of the world’s largest telecoms companies, to sell SIM cards to Chinese tourists. As well as this landmark deal, it sells a SIM card called Chameleon in the UK that roams networks to find the best signal for customers. These two initiatives (as well as its established base on the Isle of Man) should help the company grow steadily in the years ahead, and this growth should filter through to the dividend — great news for shareholders.

The post Royal Dutch Shell plc isn’t the only dividend stock I’d hold for the next decade appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns shares in Royal Dutch Shell B. The Motley Fool UK has recommended Manx Telecom and Royal Dutch Shell B. 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.

Well, the bears certainly have plenty of arrows in their quiver suggesting that the stock price won’t be soaring upwards any time soon. First off is the Italian accounting scandal that continues to damage the company.

The latest hit came in the form of a £225m payout to shareholders Deutsche Telekom and Orange related to its falling share price in order to forestall legal actions. Settling the payout to its two former telco investors is good news, but with a class action lawsuit in the US moving forward, it may not be the last.

The second, and much larger, issue that’s worrying me is the company’s push into consumer-facing services. In the quarter to June BT added 18,000 TV subscribers, which is a far cry from the 59,000 added in the same period in 2016. Now, this is still positive momentum and consumer revenue did rise 7% year-on-year to £1.2bn in the period. However, operating costs rose 9% to £1bn in the three months due to payments for sports rights and investments in improving customer service levels.

A third worry looking ahead is Openreach, which in Q1 posted £614m in EBITDA, or more than a third of group total. Although regulator Ofcom decided against requiring BT to divest Openreach entirely in its latest industry review, I fear this is becoming more likely as politicians, consumers and corporations continue to pressure for a completely independent Openreach.

While BT’s 5.6% dividend yield and relatively low valuation of 10 times forward earnings will interest many investors, I simply see too many clouds on the horizon to make me comfortable buying its shares.

A more reliable option?

One telco that does interest me is Manx Telecom (LSE: MANX), the largest provider of such services on the Isle of Man. The £220m market cap firm pays out a very traditional telco dividend yield of 5.7% and has a very defensive position in its market.

On top of this attractive income, the company offers decent capital appreciation. One way Manx is pursuing growth is through the traditional method of investing in its offerings and then raising prices. In H1, investments in faster broadband connections led to revenue rising 4% in the division.

In the half year to June, total revenue did fall from £39.2m to £38.5m but this was mostly due to the loss of one contract with a data centre customer and the rest of the business continued to perform well.

This was especially true of the Global Solutions division, which provides SIM cards to tourists that allow them to connect to multiple wireless networks. Revenue from this division rose 13% in H1 and the long-term growth potential is very high. The company expects the effects of an agreement with China Unicom to provide SIM cards for Chinese travellers to begin paying off in H2.

With a killer dividend yield, growth potential and a reasonable valuation of 13 times forward earnings, Manx Telecom looks very attractive to me.

The post Is BT Group plc’s 40% share price slump set to continue? appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has recommended Manx Telecom. 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 in Character are trading down by around 10% today after the company issued a quasi-profit warning last night. The collapse of Toys R Us, one of the group’s biggest customers, has muddied Character’s outlook for 2018 and as of yet, management does not “know the extent to which this will impact our trading position with them.” As a result of this uncertainty, the company has no “reliable visibility on the important 2017 Christmas trading period.” 

Worryingly, the update also noted that “conditions in the wider market generally remain challenging.“

The market hates uncertainty, and that’s why shares in Character have plunged in early deals. However, I believe that this decline presents an opportunity for value hunters. 

Value in cash 

The decline of Toys R Us is a headache for Character, but it’s not the end of the world. The company, which is swamped with more than $5bn in long-term debt, hopes that by entering Chapter 11 bankruptcy, and gaining protection from its creditors, it will be able to restructure and bring its “vision to fruition.” In other words, this isn’t the end of the company and orders for Character’s products are unlikely just to vanish overnight. 

That’s why I believe that today’s declines present a great opportunity for investors. The shares now support a dividend yield of 3.7%, and there’s more than £18m of net cash (18% of the market value) on the balance sheet to support the business and dividend, which costs £2.8m per annum.

The shares currently trade at a forward P/E of 9.4 on estimates for the year ending 31 August 2017. As it’s not possible to gauge how much of a headwind Toys’ bankruptcy will prove to be for the business, this valuation offers a margin of safety for investors. Even a 15% decline in earnings per share would only bring the valuation back up to the sector median of 15.2. 

Slowing growth 

Growth concerns have also held back shares in telecoms company Manx Telecom (LSE: MANX) over the past 12 months. 

Last week the company, which provides communications services on the Isle of Man, reported a pre-tax profit for the first half of £5.2m, down from £6.3m in the prior period as revenue slipped to £38.5m from £39.2m. Investors responded to these results by sending the shares lower by 3%. 

Nonetheless, despite slowing revenue growth, I believe shares in Manx look attractive based on the company’s income potential and valuation. 

Defensive income 

Manx currently returns the majority of its income to investors via dividends. For example, over the past two years, the firm has generated free cash flow from operations of £30.8m and returned £23.4m of this to investors. This generous cash return policy looks set to continue with City analysts predicting a dividend payout of 11.4p for 2017 and 11.9p for 2018, indicating a dividend yield of 6% for 2018 at current prices. 

As well as this market-beating dividend yield, shares in Manx also look cheap compared to the rest of the telecoms sector. Specifically, shares in the telecoms firm trade at a forward P/E of 13.6, based on City estimates for 2017 while the rest of the sector trades at a median P/E of 14.2. 

The post 2 bargain value and income stocks I’d buy right now appeared first on The Twelfth Magpie.

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• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Rupert Hargreaves does not own shares in any company mentioned. The Motley Fool UK has recommended Manx Telecom. 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.

I agree completely with Mr Buffett’s view that a passive fund with low costs is likely to outperform a more expensive actively-managed fund. But I also believe that investors who build a diversified portfolio of income stocks still have the opportunity to beat the market.

Not great value

One of the main attractions of owning a slice of the FTSE 100 is that it should provide a reliable long-term dividend income. But the collective dividend payout of these mega-cap companies is starting to look a little stretched to me.

According to the latest published figures, the FTSE 100 offers a dividend yield of 3.9%. However, this yield is only covered 1.02 times by earnings. In other words, these companies are collectively paying out almost all of their earnings as dividends.

Of course, this isn’t true for all companies. One factor behind this low level of cover is that some of the index’s largest dividend stocks — such as BP and Vodafone — have been paying dividends that are not covered by earnings.

The risk here is that earnings will fail to recover quickly enough at some of these big companies. If that happens, one or more of them could be forced into a dividend cut. I’m not sure how likely this is. But with the FTSE 100 also trading on a P/E of 25, I don’t see much value here. I’d rather focus my attention elsewhere.

A 6% yield?

Investing in dividend stocks requires a balancing act between dividend yield and dividend growth. I prefer to focus on stocks with a yield of between 3% and 6%, and a growth rate slightly ahead of inflation.

One stock that fits this description is Isle of Man telecoms operator Manx Telecom (LSE: MANX). The group’s shares currently offer a forecast yield of almost 6%. This dividend has grown by an average of 4.9% per year since the group’s flotation in 2014.

You might expect a telecoms operator on a small island to have limited growth potential. But Manx serves an affluent business and residential market, and also offers a number of high-margin specialist services to customers further afield. Sales have grown from £69m in 2011 to £80.8m in 2016.

Manx shares fell by 4% this morning, after the group said its pre-tax profit fell by 17% to £5.2m during the first half of this year. However, much of this reduction is the result of a two-year transformation programme. The aim of this is to cut costs, upgrade IT technology and improve the group’s customer offering.

Stripping out these costs and focusing on cashflow gives a more stable picture. The group’s underlying operating cash flow was £10.2m during the period, compared to £10.1m last year.

Today’s results confirmed that management expects full-year results to be in line with current forecasts. That puts the stock on a forecast P/E of 13.1 with a prospective yield of 6%. In my view, Manx Telecom could be a decent long-term buy for income investors.

The post One dividend knockout I’d buy instead of the FTSE 100 appeared first on The Twelfth Magpie.

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• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended BP and Manx Telecom. 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.

Positive update

Reporting on Wednesday was Isle of Man communications provider, Manx Telecom (LSE: MANX). The company released a pre-close trading update for the first six months of its financial year, with it performing in line with market expectations.

The company’s core domestic business of fixed line, broadband, data and mobile has performed relatively well and provides growth potential for the long run. Greater availability of high speed broadband means that Manx Telecom has seen its user base expand to 45% of the island’s population. Its mobile business has also enjoyed solid growth, with 4G capacity now at 99% of the island’s population.

Looking ahead, benefits are set to be realised from the transformation programme which was put in place in October 2016. This is aimed at improving competitiveness and the customer experience. Alongside improving levels of cash flow, this should put the company in a strong position to deliver improving profitability and rising dividends in future.

In terms of its income appeal, Manx Telecom currently yields 6% from a dividend which is covered 1.3 times by profit. This suggests that its income return is highly likely to beat inflation – even if the price level moves higher at a faster pace in the future. And since dividends are well covered by profit, they could rise at a brisk pace.

Growth potential

Also offering a high income return at the present time is McColl’s Retail Group (LSE: MCLS). The convenience store operator faces a somewhat uncertain future due in part to the rise of inflation. Consumer spending may come under pressure, since wage growth now lags price rises. This could cause a squeeze on pricing, leading to lower than expected profitability over the medium term.

Despite this, the company seems to offer investment potential. It trades on a price-to-earnings (P/E) ratio of 12.8 and yet is forecast to record a rise in its bottom line of 8% this year, followed by growth of 29% next year. This means it has a price-to-earnings growth (PEG) ratio of only 0.7, which suggests capital growth could be high.

The company’s dividend yield of 5% is expected to be covered twice next year by profit. This suggests dividend growth could be higher than profit growth without hurting the financial strength of the business. With a wide margin of safety and high income potential, McColl’s could be worth buying even though the outlook for the UK economy is uncertain.

The post Two high-yield dividend stocks I’d buy today appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Peter Stephens owns shares of Manx Telecom. The Motley Fool UK has recommended Manx Telecom. 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.