However, not all income stocks are created equal, and some are better suited for this task than others. So today, I’m going to outline two dividend stars that I believe can help you beat the State Pension.

Cheap income

My first pick is homebuilder Redrow (LSE: RDW). This company immediately looks attractive from an income perspective. It supports a dividend yield of 5.7% and trades at a for P/E of 6.4.

Usually, such a low valuation is a red flag, a signal from the market that the company’s outlook isn’t as bright as management might want you to believe. But in this situation, I don’t think there’s anything to worry about. You see, as one of the largest homebuilders in the UK, Redrow is currently witnessing a boom in demand for it services as the country struggles to meet the ever-increasing rise in demand for new homes. Over the past five years, net profits are up more than 200% as revenues have jumped from £864m to just under £2bn.

Rather than distributing all of the company’s profits to investors, management has adopted a conservative dividend policy. 

Even though City analysts expect the dividend to increase by 28% for 2019, it will still be covered 2.5 times by earnings per share, and is backed up by more than £100m of cash on the balance sheet. According to my research, for the financial year ending June 2018, the company’s total dividend distribution only amounted to £74m, which tells me that Redrow’s dividend is safe even if profits fall substantially.

After considering all of the above, I think Redrow’s impeccable dividend credentials make it the perfect income investment to help you beat the State Pension.

Best-in-class 

Another dividend star I’m recommending, and one you might not have considered before, is Morgan Sindall Group (LSE: MGNS).

Usually, I wouldn’t consider a construction and regeneration company as an income investment, but Morgan Sindall is, in my opinion, one of the best run companies in the sector. Net profit has doubled over the past five years, and management has rewarded investors with impressive growth in the dividend. 

Today, alongside its full-year results, the company announced yet another dividend increase of 18%, surpassing the City’s 12% target. After factoring in this dividend growth, the stock now supports a dividend yield of 4.7%, and the payout is covered nearly three times by earnings per share. 

On top of this, Morgan’s balance sheet is stuffed full of cash. In fact, unlike most other construction sector giants, the enterprise has reported a net cash balance in each of the past six years. At the end of 2018, cash on the balance sheet totalled £207m. With the dividend costing around £22m per annum, this year-end cash balance implies the company has more than enough funds to sustain the distribution for the foreseeable future.

As long as management maintains its financial discipline, I think Morgan Sindall will remain a fantastic income investment for many years to come.

The post I think these two dividend stars could help you beat the State Pension appeared first on The Twelfth Magpie.

More reading

• Could Andy Burnham derail these FTSE passive income stocks?
• How much should a 40-year-old invest each month to match the State Pension?

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Redrow. 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 recent weeks, some investors have suggested that Kier could be the next Carillion — a total failure. Having looked at today’s figures, I think the comparison with Carillion is probably unfair. But I can see a number of areas which concern me.

Good news and bad news

Underlying revenue at Kier rose by 5% to £4.5bn last year, while underlying pre-tax profit rose 9% to £137m.

This increase in profits generated adjusted earnings of 116.7p per share for the year, a 9% increase on last year. The dividend will rise by 2% to 69p, giving the stock a tempting dividend yield of 6.5%.

The firm ended the year with a record order book of £10.2bn and a £3.5bn housebuilding pipeline. That’s the good news.

The bad news is that year-end net debt rose by 69% to £186m last year. Daily average net debt for the year was £375m, up from £320m in 2016/17.

Chief executive Haydn Mursell is now on a mission to cut debt. He’s targeting average net debt of £250m, and a year-end net cash position by June 2021.

The company is aiming to deliver a £20m increase in free cash flow in 2019/20, and hopes to raise £30m-£50m by selling non-core businesses. Capital expenditure is also expected to fall by about £25m this year, as a major IT upgrade programme has been completed.

A dividend cut may be needed

My concern is that despite these savings, the group may not generate enough cash to reduce debt and support the current dividend. My sums suggest that excluding acquisitions, free cash flow available to shareholders was just £11.3m last year. However, last year’s dividend cost £66m.

When I wrote about this stock nearly a year ago, I was fairly positive. My view has changed. Although Mursell may manage to cut debt and improve profitability, I think he may need to cut the dividend to achieve this goal.

My top construction pick

My favourite stock in the construction and services sector is Morgan Sindall Group (LSE: MGNS). It’s run by founder John Morgan, who retains a 10% shareholding in the business.

Although Morgan Sindall carries out a similar mix of work to Kier, the smaller firm benefits from a much stronger financial framework.

During the first half of 2018, Morgan Sindall’s revenue rose by 9% to £1,423m. Pre-tax profit rose 29% to £29.9m and the group ended the period with net cash of £97m. The firm maintained an average daily net cash balance of £113m throughout the half year.

Morgan Sindall’s stronger balance sheet means that it generates a much higher return on capital than its larger rival, despite having similar profit margins:

A higher return on capital suggests to me that Morgan Sindall is more likely to generate real wealth for shareholders, outperforming the market.

This stock currently trades on a forecast P/E of 9.5 with a safe-looking dividend of 3.7%. At this level, I rate Morgan Sindall as a buy.

The post This FTSE 250 6%-yielder could harm your retirement savings. Here’s what I’d buy instead appeared first on The Twelfth Magpie.

More reading

• Could Andy Burnham derail these FTSE passive income stocks?
• How much should a 40-year-old invest each month to match the State Pension?

Roland Head 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.

From bull to bear

Then it occurred to me that US investing legend Peter Lynch’s warnings about cyclical firms could play out with Lloyds and I changed from bull to bear in January 2014. I’ve been bearish on the firm as an investment ever since. Such bearishness on LLoyds, and the other big London-listed banks, has proven to be broadly ‘correct’ since the beginning of 2014 because the share prices of the banks have remained stagnant, struggling to advance.

Yet earnings have risen in many cases, as with Lloyds, and dividends have reappeared. But even Lloyds’ fat dividend yield now doesn’t attract me back to the stock. My belief is that bank dividends are inherently risky and in danger of being cut down the line. Peter Lynch wrote in his books that valuations of cyclical firms tend to compress as macroeconomic cycles roll out, which could drag on share-price progress. The reason for that is that the market is trying to account for the next cyclical down leg, which will surely arrive – at some point.

So, Lloyds looks to me like it has limited upside potential and big downside risk, which is the wrong way around for my liking. That’s why I’d shun Lloyds and look closely at a dividend growth champion such as UK-focused construction and regeneration firm Morgan Sindall Group (LSE: MGNS) instead. The company carries out projects through its six divisions of Construction & Infrastructure, Fit Out, Property Services, Partnership Housing, Urban Regeneration and Housing. Such a mix of activities means the firm is “geared toward the increasing demand for affordable housing, urban regeneration and infrastructure investment.”

An impressive dividend record

The share price is perky today, up around 4% as I write on the release of the half-year report. Good trading figures include revenue 9% higher than a year ago and adjusted earnings per share up by 28%. The directors seem confident in the outlook and pushed the interim dividend 19% higher, which continues what has become an impressive record on dividend-raising from the firm. Since 2012, the annual dividend payment has risen by around 70%. But City analysts following the firm expect more and predict that the total yearly dividend will increase by more than 10% this year and around 7% next year. Meanwhile, today’s share price close to 1,488p puts the firm on a forward dividend yield for 2019 of around 3.6%.

Chief executive John Morgan said in the report the Fit Out and Construction & Infrastructure divisions have both “continued to deliver margin and profit growth” along with a good performance from the Urban Regeneration division. He talked of a “significant number” of opportunities in regeneration and reckoned the firm’s strong balance sheet and cash position leave it “well-placed to invest further in this key strategic area.” The second-half outlook for the Fit Out division is “very positive” and Mr Morgan expects Morgan Sindall to achieve a full-year financial outcome “slightly ahead of previous expectations.” I think the stock is well worth your research time right now.

The post Why I’d shun Lloyds Banking Group plc and buy this dividend growth champion instead appeared first on The Twelfth Magpie.

More reading

• Is there any value left in Lloyds shares now they’re over £1?
• Prediction: this UK growth stock will outperform Lloyds shares over the next 5 years
• Barclays, NatWest or Lloyds shares: which is the better pick for a UK retirement portfolio?
• Here’s how much I think Lloyds shares will be worth by the end of 2027
• How to target a tax-free passive income of £1,275 a month on top of your State Pension

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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.

VP’s share price is up by more than 5% at 990p at the time of writing, following a strong set of results. Sales at this £400m company rose by 22% to £303.6m last year, while adjusted pre-tax profit climbed 16% to £40.6m.

Adjusted earnings per share rose by 18% to 81.8p. The dividend was also increased by 18%. This lifted the total payout to 26p per share, while maintaining a conservative three times dividend cover.

These figures put the stock on a trailing P/E of 12.1 with a yield of 2.6%. That looks a reasonable valuation to me, but do today’s figures support an optimistic outlook?

Too much debt?

VP paid £68.8m in cash and debt to acquire rival Brandon Hire Group in November. Management plans to combine Brandon with VP’s Hire Station business to deliver economies of scale.

In total, the firm spent just over £80m on four acquisitions last year and invested a further £64.9m in its rental fleet. This spending resulted in year-end net debt of £179.2m, up from £98.9m one year earlier.

This level of borrowing represents 74% of the value of the firm’s fixed assets, such as property and its rental fleet. I’d normally look for debt to stay below about 50% of fixed assets, to leave room for depreciation and the risk of a market slowdown.

However, the group generated a return on capital employed of 14.8% last year and an operating margin of 11%. Both figures are roughly double those of rival Speedy Hire. These higher returns reflect the group’s specialist focus and suggest to me that this borrowing should be manageable for a short period.

I’d still buy

Analysts expect VP to deliver earnings growth of about 15% in 2018/19, as Brandon contributes a full year’s earnings.

This puts the stock on a forecast P/E of 10 with a prospective yield of 3.1%. Despite my reservations about debt, I’d be happy to keep buying at this level.

My top pick

Although I rate VP highly, my top pick in this sector is construction and regeneration specialist Morgan Sindall Group (LSE: MGNS). There are three reasons for this.

This group has regularly beaten expectations over the last couple of years, and this trend looks set to continue in 2018. Broker consensus earnings forecasts for 2018 have risen from 106p per share in June last year to 138p per share today.

This well-run firm is also operating without debt. A trading update in May confirmed that average daily net cash for the current year is expected to be at least £70m.

The final attraction for me is that the firm is run by part-founder John Morgan, who has a 10.1% shareholding. Having skin in the game means that Mr Morgan’s interests should be well aligned with those of his investors.

I’d buy

Analysts expect the firm’s adjusted earnings to climb around 15% to 139p per share this year. This puts the stock on a forecast P/E of 10.8, with a prospective yield of 3.3%.

Although Morgan Sindall would be exposed to a slowdown in the UK construction sector, my view is that the group’s owner-management and strong financial performance make it a buy at today’s prices.

The post 2 super dividend growth stocks I’d buy with £2,000 today appeared first on The Twelfth Magpie.

More reading

• Could Andy Burnham derail these FTSE passive income stocks?
• How much should a 40-year-old invest each month to match the State Pension?

Roland Head 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.

CMC Markets (LSE: CMCX) is an excellent example of a stock that can do just that. This financial business, which mainly provides contracts for difference and spread-betting trading services to high net-worth individuals, should profit from rising markets as investors try to buy into the rally, and it ought to benefit from a falling market as investors bet on further declines. The only time the company may struggle to make money is if markets flatline, which is unlikely to happen in my opinion. For CMC, volatility is good so, for long as financial markets exist, the business will be able to generate income.

Construction and regeneration group Morgan Sindall (LSE: MGNS) is another company that will be able to profit no matter what the market environment. After the collapse of contractor Carillion, investors have been cautious around the UK’s construction sector. However, Morgan is a standout operator. 

Unlike many of its peers, management prioritises cash generation, and according to the firm’s full-year results for 2017, the group ended the year with a net cash balance of £193m. Overall for the year, adjusted operating profit increased 14% to £68.6m as revenue rose 9%. Adjusted earnings per share leapt 43% to 121p, and this robust performance has given management the confidence to hike the full-year dividend by 29% to 45p.

Slow and steady wins the race 

Morgan might not be the most glamorous stock, but over the past five years the business has grown steadily, and City analysts are expecting more of the same in the years ahead, with earnings growth of around 7% of pencilled in for 2018.

Nonetheless, despite this outlook, investors are still giving the company a wide berth due to the pessimism surrounding the UK construction sector. The shares are currently trading at a forward P/E of just 10, which is a substantial discount to the wider market(which, as a whole, is trading at a forward P/E of 14). The shares also support a yield of 3.6% following today’s dividend hike.

Too cheap to pass up? 

CMC is also trading at a discount valuation of only 12.3 times forward earnings. The shares support a dividend yield of 5%, which is backed up by just under £33m of cash on the balance sheet. 

It seems that investors are avoiding CMC due to regulators’ threat to clamp down on the CFD industry, which has lead City analysts to conclude that the company’s earnings per share will decline by 17% in 2019. While this is a threat, I believe that any clampdown will not be as severe as the worst case scenario suggests because CMC targets high value, experienced clients, many of whom could be ‘elected professional’ (a designation that would allow them to keep trading with the group) relatively quickly. 

The post 2 steady growth stocks I’d consider buying even if markets fall appeared first on The Twelfth Magpie.

More reading

• Up 132% and surging, how is this FTSE 250 share STILL so cheap?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• Could Andy Burnham derail these FTSE passive income stocks?
• How much should a 40-year-old invest each month to match the State Pension?
• FTSE 250 stock CMC’s shares have rocketed 51%! What’s going on?

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.

It advised that group revenues jumped 8% during the 12 months to December, to £430m, and like-for-like sales (excluding recently-acquired drainage expert CPM Group) marched 6% higher in the period.

Sales in the Domestic end market chugged 12% higher in the period and sales in the Public Sector and Commercial end market (again, excluding CPM), which comprises 61% of group sales, rose by 2% in the period.

Reflecting current market turbulence, the FTSE 250 business alluded to the Construction Products Association’s (CPA) autumn update in which it downgraded its 2018 forecast.

Despite these troubles Marshalls still adopted a flowery tone, commenting: “To date the Group continues to outperform the CPA growth figures.” And it added: “The Board confirms it is confident of meeting its 2017 expectations… Marshalls’ innovative product range and strong market positions will continue to support our growth objectives and operational profit improvements through the delivery of its 2020 Strategy.”

A great all-rounder

Marshalls has a long track record of generating double-digit earnings growth and I am confident, like the City, that it has what it takes to keep the bottom line swelling at a rapid rate (the business is expected to defy current market turbulence and follow a predicted 12% earnings rise in 2017 with an 18% rise in the current period).

An added bonus is that the West Yorkshire business is in great shape to keep dividends sprinting northwards. For last year, a 12p per share total reward is forecast, which would represent a huge upgrade from the 11.7p paid in 2016. And this is expected to rise again to 12.3p in the current period.

Consequently Marshalls carries a 2.7% yield and, with its 2020 Strategy on track to keep driving growth through product development, extra M&A action and waves of cost-cutting, I expect dividends to keep tearing higher.

In my opinion the construction play is a terrific growth and income selection worthy of its slightly-toppy forward P/E ratio of 19 times.

About to impress

Morgan Sindall Group (LSE: MGNS) is, like Marshalls, also tipped by the Square Mile to remain a solid earnings generator in the years ahead.

City analysts are expecting growth to cool a little in the near-term — a 7% rise is forecast for 2018. By comparison, profits are expected to have jumped 36% last year, broadly matching the advances of recent years.

But latest trading details from the firm suggest that brokers could be upscaling their expectations very soon. In November the small-cap said that full-year expectations for 2017 should surpass previous expectations thanks to further margin progression over at its Construction & Infrastructure and Fit Out divisions. Accelerating progress here bodes extremely well for the current year and beyond.

In other news, Morgan Sindall marked up its cash expectations for the full year (it expects average daily net cash of £100m+ versus prior expectations around £75m), providing the firm’s dividend picture with extra rocket fuel. At the moment, a 44.1p per share dividend for 2017 is expected to move to 47.6p this year, resulting in a chunky 3.4% yield.

At the moment Morgan Sindall can be picked up on a forward P/E multiple of 11.4 times. This is far too cheap in my opinion given the company’s impressive bottom-line momentum.

The post 2 stunning growth stocks to watch in 2018 appeared first on The Twelfth Magpie.

More reading

• Could Andy Burnham derail these FTSE passive income stocks?
• How much should a 40-year-old invest each month to match the State Pension?

Royston Wild 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.

The share was last dealing 4% higher on the day after advising: “Trading in the second half of the year has continued to be strong” and, as a result, “the group is on track to deliver a full year performance slightly ahead of its previous expectations.” The firm said that margin improvements at its Construction & Infrastructure and Fit Out divisions were responsible for the upgrades.

In other good news, it advised of a further improvement in its committed order book. This stood at £3.8bn at the close of September, up 5% from the start of the year, and up 1% from three months earlier. Its regeneration & development pipeline was up 2% from the first half, it added, at £3.3bn.

And to round things off, the construction and regeneration giant said that it expected average daily net cash for the full year to come in above £100m, smashing its prior forecasts of not less than £75m.

A growth and income superstar

Yet despite its strong trading momentum Morgan Sindall remains undervalued by the market right now.

Earnings at the London business have been growing by strong double-digit percentages in recent years, and a further impressive advance, this time by 29%, is predicted by City brokers for 2017. And Morgan Sindall is anticipated to follow this with an extra 8% advance next year.

But despite its relentless share price ascent — today’s release sent Morgan Sindall to fresh record tops above £15 and means it has now doubled in value since the start of 2017 — a forward P/E ratio of 13.8 times, and a corresponding PEG multiple of 0.5, shows that the construction colossus remains brilliantly cheap.

And offering up another reason to invest, dividends are expected to keep rolling higher at a blistering rate too. Last year’s 35p per share payment is anticipated to rise to 43p in 2017, and again to 46.9p in 2018. Yields for these years clock in at a healthy 2.9% and 3.1% respectively.

I reckon Morgan Sindall is a share that could make you brilliantly rich in the years ahead.

Another scintillating share

Macfarlane Group (LSE: MACF) is another terrific all-rounder that could deliver stunning shareholder returns now and in the future.

The Glasgow business, which has also taken flight in recent weeks and struck its own record tops above 73p on Wednesday, saw turnover rocket 10% in January-July to £89.3m and pre-tax profit 27% to £2.5m. And it advised the seasonal uplift in the fast-growing e-commerce marketplace should underpin further progress in the second half of the year.

Reflecting these favourable conditions, City brokers expect the packaging specialist to record earnings jumps of 31% and 13% in 2017 and 2018 respectively. And as a result the business also emerges as a brilliant value play, sporting a prospective P/E multiple of 12.1 times and a sub-1 PEG reading of 0.4.

Meanwhile Macfarlane’s progressive dividend policy is expected to dish out rewards of 2.1p per share this year and 2.3p in 2018, meaning that yields for these years stand at a chunky 2.8% and 3.1%.

The post 2 growth and dividend bargains that could help you retire a millionaire appeared first on The Twelfth Magpie.

More reading

• Could Andy Burnham derail these FTSE passive income stocks?
• How much should a 40-year-old invest each month to match the State Pension?

Royston Wild 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.

Fortunately, yesterday’s warning will not have come as a surprise to those who follow Carillion. There have been rumours that the company would issue a profit warning for some time. Indeed, it has been the London market’s most shorted stock for more than six months, and over the past 12 months, almost all of its peers have issued similar profit warnings. Many traders believed it was only a matter of time before it followed suit. 

After yesterday’s declines, shares in the company have lost around 70% since their 2014 high, excluding dividends. Dividends have softened the blow slightly with returns including dividends at minus 51%.

More losses ahead?

They say history doesn’t repeat itself, but when it comes to outsourcers, almost all of the UK’s listed firms have issued multiple profit warnings over the past 24 months, and I don’t think this will be Carillion’s last. As the company untangles itself from legacy contracts, there may be further pain for shareholders ahead. Moreover, as it sells non-core assets, revenue will decline further, and a new initiative to be “highly selective” in taking on new contracts and doing so via “lower risk” routes may mean the business will never return to its former size. 

Also, with the future uncertain, City forecasts are mostly redundant until the company can get its house in order.

Carillion’s construction business could have benefitted from some of the large infrastructure projects currently underway in the UK, but now the company’s problems are public, it may be best to avoid the firm.

A better buy? 

On the other hand, peer Morgan Sindall (LSE: MGNS) might be a great alternative pick. It provides specialist infrastructure and design services, as well as property services such as strategic asset management and cyclical maintenance to social housing providers.

Business has taken off in recent years, and the company’s shares have responded well, gaining 121% over the past 12 months. That said, over the previous five years, earnings per share have remained relatively static, falling from 92p in 2012 to 85p for 2016. Over the same period, revenue has grown from £2bn to £2.6bn. Over the next two years, City analysts expect the group’s earnings per share growth to pick up, with growth of 15% pencilled-in for 2017, followed by 10% for 2018, taking earnings to 107.4p per share. 

Based on current forecasts, shares in Morgan trade at a forward P/E of 12.7, which looks cheap considering the company’s projected earnings growth.

During the next two years, analysts are also expecting management to hike the company’s dividend payout per share by around a third or 10p to 44p. The shares currently support a dividend yield of 3.2%.

With double-digit earning growth pencilled-in for the next two years, Morgan looks to be a much more attractive investment than Carillion. 

The post One construction turnaround stock I’d sell and one I’d buy appeared first on The Twelfth Magpie.

More reading

• Could Andy Burnham derail these FTSE passive income stocks?
• How much should a 40-year-old invest each month to match the State Pension?

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.