I’m currently looking for high-yielding dividend stocks to buy at bargain prices. In the stock market downturn, the share prices of many companies have taken a beating. This often results in rising dividend yields as a compensating factor.

Although there’s a risk of falling into a value trap, I think now could be an excellent time to take advantage of discounts on offer. Here are two dividend stocks — one from the FTSE 100 and one from the FTSE 250 — that I consider oversold at present.

Taylor Wimpey

The Taylor Wimpey (LSE: TW) share price is down 35% in 2022 following a difficult six months for developers, including competitors Barratt Developments and Persimmon.

Since reaching a five-year high just before the pandemic crash, the FTSE 100 housebuilder has surrendered over half its gains. Nonetheless, with a 7.4% dividend yield, the current share price of 115p looks tempting to me.

The FY21 results showed a return to strength, albeit not quite to pre-pandemic levels. The company’s operating profit margin was 19.3%, up from 10.8% the year before. Group completions, revenue and pre-tax profit were all considerably above 2020’s figures, but slightly trailed where the business was in 2019.

One highlight for me is the growing cash position. Net cash has consistently risen over the past three years to £837m. In my view, this is good news for the company’s future dividend payments after they were suspended amid the Covid-19 uncertainty.

There are macroeconomic risks facing Taylor Wimpey shares. Interest rate rises are impacting the UK’s mortgage sector. Furthermore, due to a conveyancing logjam, the average completion time has soared to 22 weeks. A housing market slowdown could suppress the company’s share price growth over the coming months. Despite this, I’m still bullish on the long-term prospects for housebuilders.

Talk of 50-year mortgages might be part of the solution to the UK’s housing crisis, but a lack of supply remains the number one challenge in my view. This situation should benefit Taylor Wimpey in the years ahead. I’d buy this dividend stock today.

Micro Focus International

The Micro Focus International (LSE: MCRO) share price has also suffered this year, falling 38%. However, the juicy 8.7% dividend yield offered by this FTSE 250 software management business caught my eye.

The interim results for the six-month period ending 30 April revealed some weakness. Revenue declined 6.8% and adjusted EBITDA was down 9.5%. This caused some jitters, resulting in a 16% slump in Micro Focus International shares on results day.

However, it wasn’t all bad news for this company. A 5.3% fall in operating costs and a $545m reduction in net debt were positive signs for me. What’s more, the group’s policy of declaring a full-year dividend level that’s covered five times by adjusted profit after tax, as well as its strong cash flow generation should ensure future dividend targets are hit in my view.

The software provider has strategic relationships with Amazon, Alphabet and Microsoft. It assists thousands of customers in 180 countries in managing core IT elements of their businesses.

I believe a US stock market recovery could lead to further investment from US tech giants in their partnerships with Micro Focus International. I’ll buy before that happens.

The post 2 dividend stocks that are dirt cheap right now appeared first on The Twelfth Magpie.

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Charlie Carman has no position in the shares mentioned. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Micro Focus, and Microsoft. 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.

What caused this recent surge? Why did the stock price fall in the first place? And should I be adding this business to my growth portfolio? 

Micro Focus’s land-sliding share price

Micro Focus is a software and technology company. It serves over 40,000 customers worldwide and provides software solutions designed to assist in operating digital infrastructure. This includes application delivery, cyber-security, and AI-driven analytics. It currently has a portfolio of over 300 products that suit the needs of various industries, including pharmaceuticals, aerospace, and telecommunications.

This vast collection of products has expanded over time, thanks to a series of strategic acquisitions. And at one point, Micro Focus was the UK’s largest technology company. So what went wrong?

Acquisitive growth strategies are risky and Micro Focus learned the hard way. In 2017 it completed the acquisition of Hewlett Packard Enterprise’s software business for $8.8bn. Unfortunately, the deal, which was supposed to propel Micro Focus into a new growth era, turned into a disaster.

The integration process was not as seamless as initially predicted and led to an additional $960m of exceptional expenses. What’s worse, since acquiring the business, total revenue has been declining at an alarming rate. Needless to say, this isn’t good news and appears to be the primary catalyst for Micro Focus’s collapsing share price. But is the company making a comeback?

Reasons to be cheerful

To fix the problems introduced with the Hewlett acquisition, the management team initiated a turnaround plan. Recently this has seemed to be having a positive effect. While total revenue is still falling, Micro Focus has slowed the fall faster than expected by analysts.

The firm reported a massive $2.97bn loss for 2020. However, $2.8bn of that was a goodwill impairment charge, confirming that it overpaid for the Hewlett acquisition. This is a one-time expense, and if its effects are ignored, the company is at a similar level of underlying profitability as 2019.

What’s more, its cash conversion ratio has increased from 0.95 to 1.13, indicating that internal investments are generating higher cash flows.

This is good news. I feel. And it makes the recent boost to Micro Focus’s share price understandable.

The bottom line

Overall, I think the worst might have passed, and it looks like the firm is finally getting back on track. Therefore, I believe the Micro Focus share price can continue climbing over the long term.

But there is still a problem that has yet to be resolved — its debt. Today, the market capitalisation of Micro Focus is around £1.7bn. But its total debt sits closer to £4.9bn courtesy of the Hewlett acquisition. While the next loan maturity isn’t due until June 2024, that is still a massive bill that the company might struggle to pay in its current state.

And so, for now, I’m going to wait and see how Micro Focus performs in 2021. Therefore, I’m not adding the stock to my portfolio today.

The post Can the Micro Focus share price keep climbing? appeared first on The Twelfth Magpie.

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Zaven Boyrazian does not own shares in Micro Focus. The Motley Fool UK has recommended Micro Focus. 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.

One of these is high-street retailer the Card Factory (LSE: CARD). Most investors wouldn’t touch a high street retailer with a barge pole in the current environment, but I believe the Card Factory deserves a second look.

Indeed, the company seems to be coping quite well at a time when so many other retailers are collapsing, or asking for creditor concessions to help keep the lights on.

Sector-leader

In its latest trading update, published at the end of September, Card Factory revealed sales grew 1.5% on a like-for-like basis during its fiscal first half.

Unfortunately, pre-tax profit declined 14.4% as higher costs hit profitability. Nevertheless, management is confident the company has what it takes to be able to grow at a time when so many other retailers are struggling.

The group is investing in its online business, focusing on personalisation and introducing newer varieties for seasonal festivities like Valentine’s Day. On top of these efforts, management is signing new retail partnerships in the UK and abroad as it grows its market share.

All of these indicate to me the company is well-positioned to navigate the current retail environment and could come out stronger on the other side.

With this being the case, I think the stock is an attractive investment at current levels as it trades at a discount forward P/E of just 9.7 and offers a dividend yield of 8.1%.

Distressed investing

As well as Card Factory, I think Micro Focus (LSE: MCRO) could also be worth your research time.

Following yet another poor trading update at the end of August, investors have been selling shares in this software giant over the past month. After these declines, the stock is currently changing hands at just 6.7 times forward earnings.

However, I think the market is missing something. Micro Focus has a history of issuing trading warnings but, for the most part, it has then gone on to outperform.

For example, following the company’s last major warning in March 2018, when the stock fell around 50% in a few days, it’s shares went on to double in value over the next 12 months.

And I think the same could happen this time around. Even though analysts have revised their growth forecasts for 2019 lower during the past few months, they’re still expecting the group to earn $2.03 (or around 170p) per share for the year.

If Micro Focus hits the City’s growth targets for 2019 without any further disappointments, that looks dirt cheap at current levels. On top of this, shares in the tech business currently support a dividend yield of 8.2%. The distribution is covered twice by earnings per share, so it looks exceptionally safe for the time being.

That’s why I think it could be worth snapping up shares in the business at the current price to take advantage of the market’s short term mentality.

The post £2k to invest? Here are two FTSE 250 dividend stocks I like yielding 8%! appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of Card Factory. The Motley Fool UK has recommended Micro Focus. 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.

In a trading update for the 12 months ending 31 October, the company announced that due to “the deteriorating macro environment” and “weak sales execution” it’s likely to miss revenue expectations for the full-year.

Management had been forecasting a full-year constant currency revenue decline of 4-6%. However after recent developments, the board has considered appropriate to revise the guidance to down 6-8%. Following this performance, management has decided to “accelerate a strategic review of the group’s operations” to optimise Micro Focus’ portfolio of products.

Focus on the long term

While today’s update is disappointing, I think the market reaction is a bit over the top. Yes, sales are expected to fall faster than anticipated, but the firm also says in its release that sales staff are pursuing “a significant pipeline” of business opportunities. Closing these deals by the end of the company’s fast-approaching financial year is the challenging part.

This isn’t the first time Micro Focus has run into problems. The good news is, in the past whenever the company has hit a speed bump, management has always managed to get the business back on track. I think there’s a high probability the same will happen this time around.

The company also has a strong track record of returning cash to investors. In fact, you could argue management has prioritised cash returns since its inception. I don’t think this is going to change any time soon and, after recent declines, shares support a dividend yield of around 9.5%. I think this dividend yield is here to stay.

I would even go so far as to say that based on its history of cash returns, Micro Focus is a stock you can buy and forget in your retirement portfolio for the long term. The City has not yet had time to reflect the lowered revenue target into their earnings forecasts, but I reckon the stock is trading at a mid-single-digit P/E after today’s slump.

Record returns

If software is not your thing, then another dividend stock I think will pay you for the rest of your life is mining group BHP (LSE: BHP). Two weeks ago, BHP declared a record dividend of $0.78 off the back of a 2% rise in underlying profit for its financial year to the end of June.

Underlying profit for the 12 months rose to $9.1bn from $8.9bn a year earlier. The record distribution comes after a year of record cash returns to investors. In the 2019 financial year, BHP has returned a total of $17bn to shareholders, excluding the final distribution.

With net debt at just $9.2bn at the end of the period, down from $26bn at the end of 2016, costs at record lows, and capital spending commitments for the next 12 months well-funded, I think there’s a good chance BHP will remain a dividend champion for the foreseeable future.

For fiscal 2020, City analysts have the stock yielding 7.5% and, based on current earnings estimates, it’s dealing at a forward P/E of 9.3.

The post 2 cheap FTSE 100 stocks I think will pay you for the rest of your life appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Micro Focus. 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.

For today’s article, I’ve been hunting through the FTSE 100 for the kind of stock I’d be happy to buy and hold with a £1,000 lump sum. The two companies I’ve found are profitable, pay attractive dividends, and form an essential part of modern economies. I reckon they’re worth a closer look.

Paper profits

The share price of FTSE 100 packaging group Mondi (LSE: MNDI) has risen by more than 300% since the firm’s flotation in 2007. The company has delivered a lot of value for shareholders, while expanding its operations through a mix of organic growth and acquisitions.

However, Mondi stock has come off the boil over the last year, as investors have started to price in the risk of an economic downturn. I accept this risk but, on the other hand, I think we need to recognise how essential this business is to modern life.

Packaging is an essential part of modern industry and commerce, especially online. Although I hope packaging will become more sustainable and efficient in the future, I believe demand is likely to continue to grow in most developed and emerging markets.

For this reason, I think the 20% fall we’ve seen in MNDI stock since last summer could be a decent opportunity to buy. At current levels, the shares are priced on 10.9 times 2019 forecast earnings and offer a dividend yield of 4%. I see that as an attractive valuation. Indeed, I would buy the shares myself, if I didn’t already own shares in another packaging company.

Rebooting the business

When banks and other large companies have IT problems, a common cause is that, behind the scenes, they are running very old systems. An industry has emerged that specialises in operating, supporting and developing older IT systems. One of the larger players in this sector is FTSE 100 firm Micro Focus International (LSE: MCRO).

Micro Focus shares have risen tenfold since the group’s flotation in 2005, as chairman Kevin Loosemore has guided the group through a series of acquisitions and growth opportunities.

Unfortunately Loosemore’s biggest deal to date, the 2017 acquisition of HP Enterprise’s software business, has caused serious indigestion. Things seem to be back on track now, but work is still underway to complete the integration, which has disrupted new sales.

Time to buy?

The market remains jittery about Micro Focus. So when the chairman cashed in £11.6m worth of stock last week, I wasn’t surprised to see the shares fall sharply. However, Loosemore still claims to have half his net worth invested in this company. And the results themselves were largely as expected, with revenue down slightly but profit margins and cash generation up.

I missed buying MCRO stock at the start of the year when I though it looked cheap. But after last week’s drop, the shares trade on less than 10 times forecast earnings and yield 5.5%. If the business can return to steady growth, I think the stock could command a much higher valuation. I’ve added the shares back to my buy list.

The post Have £1,000 to invest? 2 FTSE 100 dividend stocks I’d buy 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 Micro Focus. 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.

Growth returns 

I’ll admit I haven’t always been positive on the outlook for this technology business. Last year, I thought Micro Focus was struggling to survive and should be avoided following its multi-billion dollar acquisition of HP’s software business, which was failing to live up to expectations. 

As City analysts revised their growth expectations for the company lower, I was worried the group would soon be overwhelmed by its debt. 

Around a year on, it looks as if Micro Focus has successfully navigated this rough patch. 2018 turned out to be a landmark year for the company as, while growth wasn’t as robust as some analysts initially expected, earnings per share still lept 68% year-on-year.

And this year analysts are expecting the firm to report yet another period of robust growth. Analysts are now expecting Micro Focus’s earnings to hit $2.36, up 18% year-on-year.

Back in November, analysts were only predicting earnings of $2.00 for 2019, which tells me the City’s view of the business has improved substantially over the past eight-to-nine months. Current forecasts also suggest earnings could hit $2.63 by 2020.

It looks as if MCRO is well on the way to meeting this target. According to it first-half results, core group earnings rose 1.8% to $662m, as management squeezed more profit from the group’s legacy software products. However, more importantly, management believes the firm’s restructuring and growth plan is now firmly back on track. While revenue fell 5.3% to $1.7bn, that was in line with market expectations.

Double your money 

Based on the numbers above, shares in Micro Focus are currently dealing at a forward P/E of 11.1 for 2019, falling to just under 10 for 2020. In my opinion, these multiples undervalue the business and its prospects. Indeed, the rest of the UK the Software & IT Services Industry is currently dealing at a median P/E of around 19.1, nearly double the stock’s current multiple. 

According to my calculations, based on the City’s current growth estimates for the company, a sector-average multiple would leave it trading at more than 3,500p, around 70% above current levels.

If the company continues to report double-digit earnings growth, then I see no reason why the stock cannot hit this target over the medium to long term.

Income champion 

Growth is just one part of the equation here. There’s also the company’s dividend to consider. At the time of writing Micro Focus supports a dividend yield of 4.4% and analysts expect this to hit 4.9% by 2020. 

These estimates predict Micro Focus will distribute around $2.43 in dividends over the next two years, or around 190p. Including this income, I reckon this stock could produce a total return of 80% for investors over the next few years.

So, if you’re looking for an FTSE 100 stock that has the potential to nearly double your money over the next few years, I highly recommend taking a closer look at Micro Focus. 

The post I think this FTSE 100 stock yielding 4.9% could return 80% in the next two years appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Micro Focus. 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 that in mind, here are two large-cap shares that could provide a far more attractive income return than a Cash ISA. They may also be able to offer capital growth potential as a result of their valuations.

BAE Systems

While the prospects for the defence sector have improved in the last couple of years, the share price of BAE Systems (LSE: BA) has moved lower. In fact, it has declined by 23% in the last year, which suggests that investors are downbeat regarding its financial prospects.

Of course, the company relies on Saudi Arabia for a large part of its sales and profit. Although BAE’s recent update showed that it has exposure to a variety of other markets, its near-term performance could be significantly impacted by an increase in the geopolitical risks facing the country. As such, the risk of capital losses remains in place in the short run.

However, with the company having reported relatively stable financial performance over the last decade, it seems to be in a stronger position than many of its sector peers. As defence industry spending is forecast to rise at an increasing pace over the next handful of years, the stock could enjoy improved operating conditions. As such, with a dividend yield of 4.8% that is covered twice by profit, it seems to have an attractive risk/reward ratio.

Micro Focus

While Micro Focus (LSE: MCRO) may not appear to be an obvious choice for income-seeking investors, the company’s 3.5% dividend yield could become increasingly attractive over the long run.

In its recent update, the international software product group reported that it is making progress in delivering its turnaround plan. It is rationalising its asset base, while also seeking to return cash to shareholders where possible through dividends and share buybacks. Alongside this, the business is aiming to reduce leverage in order to offer a less volatile long-term shareholder experience.

With dividends being covered twice by profit, it seems to offer relatively high headroom compared to some of its index peers. Since the stock is forecast to post a rise in earnings of 4% in the current year, it could offer fair value for money while it has a price-to-earnings (P/E) ratio of 14.4.

Clearly, there are less risky income investing opportunities in the FTSE 100 than Micro Focus. But with the stock having continued recovery potential, it could be appealing for less risk-averse investors.

The post Why I’d ditch a Cash ISA and buy these 2 FTSE 100 dividend stocks right now appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of BAE Systems and Micro Focus. The Motley Fool UK has recommended Micro Focus. 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.

In fact, there are a range of companies operating in a variety of industries that currently yield over 4%. Buying them now could lead to impressive income returns in the long run – especially since many of them trade on fair valuations and offer the potential to deliver rising dividends in the long run.

With that in mind, here are two FTSE 100 dividend stocks that may be worth buying today.

Micro Focus

International software product company Micro Focus (LSE: MCRO) released a positive trading update on Thursday. The business is trading in line with previous guidance, and expects to report interim results that are in line with expectations.

Encouragingly, the collection of aged trade receivables has continued in line with management expectations. It expects its constant currency revenue range for the full year to be between minus 4% and minus 6% when compared to the previous year.

While the company has experienced a challenging period over recent years, it seems to be recovering well under a refreshed strategy. It currently has a dividend yield of 4.3%, which could increase at a brisk pace over the long run as its current strategy is implemented. It has dividend cover of 2, which suggests that a higher dividend could be affordable without putting pressure on the company’s financial standing.

With Micro Focus shares trading on a price-to-earnings (P/E) ratio of 12, they seem to offer good value for money compared to other FTSE 100 companies. As such, now could be a good time to buy them, with there being the potential for a high income return as well as capital growth over the long run.

Admiral

The performance of motor insurance specialist Admiral (LSE: ADM) in recent years has been impressive. The company has been able to raise dividends per share at an annualised rate of 23% over the last three years, and they are expected to rise by a further 23% in the current year.

This puts the stock on a forward dividend yield of 6.4%. Although its payout is made up of ordinary and special dividends, which means it may be less robust than other FTSE 100 dividend stocks, its track record of keeping costs down and offering highly competitive pricing to customers could mean that its prospects are highly attractive.

With Admiral set to benefit from possible changes to the Ogden discount rate on personal injury claims, its bottom line could deliver improved performance over the long run. Although the stock trades on a relatively high P/E ratio of 16 at a time when some FTSE 100 stocks have much lower valuations, its consistent financial performance and the potential for a rising dividend could mean that it is worth buying at the present time.

The post 2 FTSE 100 dividend stocks yielding over 4% I’d buy for my ISA today appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Admiral Group and Micro Focus. The Motley Fool UK has recommended Micro Focus. 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 that in mind, here are two FTSE 100 dividend shares that could be worth buying today and holding over the long-term.

Micro Focus

It’s been a rollercoaster ride for investors in Micro Focus (LSE: MCRO) over the last few years. The company experienced financial difficulties, as well as a change in management team, but now seems to be making encouraging progress in delivering on its revised strategy.

In the current year it is forecast to post a rise in earnings of around 5%. While not the highest growth rate in the FTSE 100, it represents a marked improvement from its recent financial performance. It means that its dividend may be becoming increasingly sustainable, with it currently covered 1.9 times by profit.

Since Micro Focus has a dividend yield of around 4%, it could deliver an impressive income return. Although its shares have become increasingly popular among investors this year, having risen 38% in 2019, it still trades on a price-to-earnings (P/E) ratio of 12.8. This suggests that alongside its income prospects, it could also offer capital growth potential as a result of an upward re-rating as its bottom-line growth improves.

Berkeley Group

The London property market’s performance in the last couple of years has provided a headwind for prime property developer Berkeley Group (LSE: BKG). As a result, its bottom line is expected to fall in the current year and next year, with this seeming to have impacted investor sentiment towards the company. In fact, its shares have fallen by 7% in the last year.

In the long run, the housebuilder seems to have a solid position within what could prove to be a strong growth market. The London property market has always moved in cycles, and there could be buying opportunities while it trades at a low ebb. Since Berkeley’s shares currently have a P/E ratio of 11.7 using next year’s earnings figure, they appear to offer good value for money relative to the wider FTSE 100.

Berkeley has a generous dividend outlook, with its return of capital expected to continue as per its long-term strategy. This means that it could have an annual dividend yield of as much as 5.3%, depending on whether it uses excess capital for dividends or share buybacks.

Therefore, while a relatively unpopular share that could struggle in the short run as the London property market experiences lower demand, it could offer long-term income and value investing potential. As such, now could be the right time to buy a slice of it.

The post 2 cheap FTSE 100 dividend stocks I’d buy and hold forever appeared first on The Twelfth Magpie.

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

Peter Stephens owns shares of Berkeley Group Holdings and Micro Focus. The Motley Fool UK has recommended Micro Focus. 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.

As a leading global cybersecurity provider, Avast is one of the first companies customers turn to when they require advice and software to stop cybercriminals, which in my opinion, makes this one of the best stocks investors can buy today to profit from the market’s growth.

Cash flow champion 

According to the group’s first quarter trading update, revenues increased by 6.1% in the first quarter of 2019. Excluding the impact of discontinued business and the sale of its Managed Workplace division, Avast’s revenue increased 8.5% year-on-year for the quarter. City analysts are expecting the firm to report revenue growth of around 6.2% for the full year, and it looks as if the company is on track to hit this target after those first-quarter numbers.

Revenue growth isn’t the only reason why I think Avast can double your money. This company is also exceptionally profitable. According to its first-quarter trading update, adjusted EBITDA increased 5.4% to $117.5m, resulting in an Adjusted EBITDA margin of 55.5%.

At the moment, most of the cash flow generated by the business is being used to reduce debt. At the end of March, the company had a net debt-to-EBITDA ratio of 2.3 and it paid off $200m of debt during the first quarter taking the total amount paid off in the past two years to approximately $700m, according to my calculations.

Despite the company’s steady growth and healthy cash generation, shares in Avast are trading at just 12.3 times forward earnings, compared to the UK tech sector average of 19.5. This looks too cheap to pass up and implies the shares should be dealing around 60% higher than they are today. Add in the stock’s 3.5% dividend yield, and potential for high single-digit earnings growth for many years to come, and I don’t think it is unreasonable to say that this investment could double your money over the next three to five years.

Special dividends 

As well as Avast, I reckon Micro Focus (LSE: MCRO) is an undervalued UK tech champion. City analysts are expecting this company to report earnings per share growth of around 32% for 2019, an impressive turnaround for the business which reported almost no growth between 2013 and 2017.

After growing 32% this year, analysts have pencilled in growth of 8.8% in 2020, leaving the stock trading at a 2020 P/E of 10.4. As mentioned above, this multiple is significantly below the UK tech sector average of 19.5.

What’s more, this is one of the most attractive income stocks in the FTSE 100. Shares in the company support a dividend yield of 4.4% at present and it has a history of returning cash to investors via special dividends and share buybacks.

Between 2011 and 2017 Micro Focus handed back close to 600p per share of cash to shareholders via special and ordinary dividends and it’s planning a further $1.8bn cash return during the next few months following the sale of its SUSE business to Swedish buyout group EQT Partners for $2.5bn.

Once again, with these return on offer, I do not think it’s unreasonable to say it’s possible Micro Focus could double investors’ money over the next two years.

The post £2k to invest? I think these two UK tech champions could double your money appeared first on The Twelfth Magpie.

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The Motley Fool UK has recommended Micro Focus. 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.