So, here are two income stocks with dividend yields of 4% or more that should be able to continue to return chunks of cash to investors for many years to come.

Timely deal

BCA Market (LSE: BCA) might not be a household name, but it’s more than likely you have heard of the company’s flagship We Buy Any Car Brand. 

Since changing its name from Haversham Holdings plc, BCA has consolidated its position in the vehicle re-marketing business both here in the UK and overseas. In many ways, the company has almost no competitors in this market, so over the past five years growth has exploded. Since its IPO at the end of 2014, it has surged from a loss to a net profit of £41m for 2017. City analysts have pencilled in a net profit figure of £85m for 2018. The business is going from strength to strength.

With profits surging, and its virtual monopoly over the vehicle re-marketing market in the UK, it was only a matter of time before the company attracted takeover interest. And today we’ve had confirmation that private equity firm Apax Partners is now running its rule over the business. 

Following rumours that emerged over the weekend, according to a press release issued today, Apax offered 200p to buy BCA at the beginning of May. This initial deal was rejected, and so far, there have been no further approaches.

Income play 

It is rare for investors not to welcome a takeover offer at a premium to the prevailing market price, but in this case, I believe BCA has more potential as an independent business — as the recent price action in the stock shows. 

Shares in the firm are currently changing hands at just under 230p, 15% above Apax’s offer price. Clearly, the market believes the company is worth more, something I agree with.

According to City figures, BCA’s earnings per share are expected to leap 114% for 2018, followed by growth of 11.2% for 2019. Based on these figures, shares in the company are trading at a forward P/E of 18 for 2019, which may look expensive, although considering its growth history, in my view, it won’t be long before the stock grows into this multiple. 

What’s more, the dividend is set to grow in line with earnings per share, rising to 4.1% by 2019. The distribution is covered 1.4 times by earnings per share.

With BCA’s earnings set to surge and buyers circling, it certainly looks to me as if this is one income stock that’s worth a place in any income portfolio.

Beating the market 

Staying in the automotive sector, another income play that has recently caught my eye is Marshall Motor Holdings (LSE: MMH). This is a traditional car dealership business. The company sells vehicles through franchise agreements with vehicle manufacturers.

Last year the company reported revenue growth of 19.5%, or 3.5% after stripping out the positive impact of newly acquired sites during the year. Set against the backdrop of falling new car sales (sales fell 6.2% for the UK market as a whole), this performance is highly impressive. The bulk of the growth came from its used car division. Here sales grew 7% for the year (compared to a market decline of 1.1%) with after-sales revenue (the firm’s most profitable line of business) rising 2.3%.

The City believes its strong performance compared to the rest of the car market will continue throughout 2018. At the beginning of the year, the UK Society of Motor Manufacturers and Traders was forecasting a decline of 5.6% for the UK new car market in 2018. Despite this forecast, analysts believe the company can chalk up earnings growth of 15% in 2018 as it doubles down on the used and after-sales market.

Management has also taken action to reinforce Marshall’s balance sheet by selling the group’s leasing division for just under £50m. The sale enabled the enterprise to materially reduce net debt from £119m to £2m at the end of fiscal 2017, giving the company more flexibility to handle market weakness and, more crucially, support its dividend.

The shares currently support a dividend yield of 4%, and the payout is covered 3.5 times by earnings per share. As well as this market-beating dividend yield, the stock trades at a discount valuation of only seven times forward earnings.

The post These two 4% dividend bargains could help you beat the FTSE 100 appeared first on The Twelfth Magpie.

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

Indeed, over the past three months, shares in leading industry groups Pendragon (LSE: PDG) and Marshall Motor (LSE: MMH) have declined by around 10%, as new car sales have slumped. 

However, despite the dour market sentiment, the underlying businesses seem to be holding up relatively well. Today, Marshall Motor reported that during the first half of 2017, the group outperformed the UK market reporting a marginal 0.4% decline in like-for-like unit sales to retail customers against the overall UK new car market average decline of 4.8%. 

During the second half the company also reportedly “maintained its outperformance of the market” but no specific figures have been given. In the second half, overall total new vehicle registrations to retail customers decreased by 9.2%.

Still, as new car sales come under pressure, the firm is making impressive progress in the used car and aftersales markets. Used car sales expanded 5.8% in the first half and aftersales expanded by 2.3% for the year. 

Mixed outlook 

2017 was a bad year for the UK car industry, and 2018 is not expected to be much better with forecasts suggesting that new car registrations will decline by 5.4% due to political and economic uncertainty. Nonetheless, Marshall’s management is optimistic about the future based on the firm’s market-beating performance during 2017. What’s more, the group has a healthy balance sheet. The disposal of its leasing business during the second half has “effectively eliminated” total net debt of £101m reported at the end of June. 

Overall, Marshall is outperforming in a harsh environment and right now, the shares are very cheap. At the time of writing they are trading at a forward P/E of just 6.1, a valuation that seems to suggest the market expects this business to go bust in the near future. As well as this lowly valuation, the shares also support a dividend yield of 3.8%, which is unlikely to be cut anytime soon as it’s covered four times by earnings per share. 

The market has given Marshall’s peer, Pendragon a slightly higher valuation, but the business’s multiple still suggests that the market has written off the company. 

Too cheap to pass up? 

Pendragon currently trades at a forward P/E of 8.6 and yields 5.2%. Earnings per share are projected to drop by 19% for full-year 2017, which is disappointing, but management is taking steps to steady the ship. 

Advisors have been appointed to dispose of the group’s US business, which is expected to go for around £100m before tax and management is working to streamline the firm’s UK dealership portfolio, unlocking another £100m in estimated savings. As well as these efforts, Pendragon is aiming to double revenue generated from used car sales by 2021. These efforts should eliminate group debt and improve margins. 

Overall, I’m optimistic on the outlook for both Pendragon and Marshall’s. There’s already plenty of bad news baked into their valuations as if the market starts to improve; it won’t take much for the shares to stage an impressive rally. 

The post 2 dirt-cheap value and income stocks I’d buy 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 shares in Pendragon. The Motley Fool UK has recommended Pendragon. 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.

It takes an iron will to invest your money in a stock that everyone else is selling or avoiding. Unfortunately, investors’ general avoidance of stocks the rest of the market hates, is the reason why value investing has been so successful. So if you want to profit from this strategy, you’re going to have to take a few leaps of faith.

A leap of faith 

Marshall Motor Holdings (LSE: MMH) is one company it appears the rest of the market hates but could be a great value play. At the time of writing, shares in the motor dealer and vehicle leasing company trade at a forward P/E of 5.2, an exceptionally depressed multiple. The shares also support a dividend yield of 4.5%. The question is, why is the market avoiding this company?

Marshall isn’t the only motor company trading at a discount valuation. All of the company’s listed car dealership peers are trading at P/Es of 10 or less, despite steady sales and profit growth. Still, it seems that investors are avoiding these businesses due to the uncertainty surrounding Brexit. Consumers usually give up high ticket items first during an economic downturn, which means that if the economic environment does deteriorate further, car sales might collapse. 

On the other hand, if the Brexit fall-out isn’t as severe as expected, then Marshall will continue to grow steadily.

Room to double 

If car sales remain robust, then shares in Marshall could double as investors bid the company up to a valuation that’s more suitable. Even if there is no substantial growth in sales, the market might also bid the shares up off the back of a better-than-expected trading performance.

As the shares are currently trading at such a deeply discounted valuation, it seems that there is already a lot of bad news baked in and any good news could lead to a quick re-rating of the stock.

Cheap growth

International Personal Finance (LSE: IPF) is another deeply discounted stock the market appears to be avoiding. Shares in the personal finance company currently trade at a forward P/E of 5.6. City analysts aren’t expecting any growth from the business this year, but next year earnings per share growth of 14% is projected. Based on this forecast the shares look exceptionally cheap, and they also support a dividend yield of 7.8%. The payout is covered two-and-a-half times by earnings per share. 

Considering International Personal Finance’s projected growth rate and the company’s dividend yield, it looks to be a great value investment, but its business of unsecured lending across Eastern Europe is relatively unpredictable. While the company may be cheap, the shares are only suitable for those investors with a high risk-tolerance.

The post These 2 value stocks could double your money 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.