Harshly treated

Go back roughly 18 months and fashion/lifestyle retailer Ted Baker (LSE: TED) saw its share price riding high. Since then, a perfect storm of consumer jitters, bad weather, product issues and allegations of ‘forced hugging’ made against (and vehemently denied by) founder and former CEO Ray Kelvin have sent the value of the company crashing. At the close last Friday, the very same shares that were trading around 3,000p back in March 2018 could be yours for just 952p.

I still think the market has been a little too harsh on the company. Ted Baker remains a great brand with solid growth potential overseas and a history of generating high returns on the capital it invests. The recent product licence agreement reached with FTSE 100 clothing stalwart Next is another positive that many seem to have quickly forgotten about. 

That’s not to say I’d throw caution to the wind just yet. Ted reports to the market this Thursday. If there’s more bad news on trading (we’ve already had two profit warnings since February) the share price will likely continue its journey southwards for a while yet. Of course, any glimmer of recovery and the stock could soar.

Should the former be the case, I think this would only increase the likelihood of the company being taken back into private hands, possibly involving Kelvin himself. In the meantime, Ted starts the week valued at just 10 times earnings and yielding 5%. 

Woodford-inspired sell-off

Another small-cap that could turn out to be a great contrarian buy is doorstep lender Morses Club (LSE: MCL). Like Ted Baker, the market minnow’s shares have been on a downward trajectory for a while now, falling by a third in value since March. 

Why the big fall? At least some of this can surely be attributed to Neil Woodford’s decision to offload a proportion of his £13m holding in the company in an effort to raise cash to cope with the huge number of redemptions his flagship Equity Income fund will surely receive when it returns from suspension.

Such is the way the market works, a number of other investors are likely to have followed his lead in order to preserve their capital and not because there’s anything wrong with Morses per se. Indeed, this month’s update stated the company is trading in line with expectations and “continues to make strong progress” on the strategy of diversifying its product portfolio.

On a positive note, this surely gives prospective investors an ideal entry point. The business is now valued at nine times forecast FY20 earnings and has a price-to-earnings-growth (PEG) ratio of 0.5 — far below the 1.0 threshold legendary growth investor Jim Slater said investors should be looking for. The balance sheet looks solid and the stock comes with a massive 6.8% yield.

With concerns the UK economy may slip into recession in the near future, and the consequences this could have for our finances, Morses Club could suddenly find itself in something of a purple patch. 

The post Is this cheap small-cap stock a perfect contrarian buy? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Ted Baker. 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 well-known share research website classifies some shares as super stocks. To qualify, a share must score well against value, quality and momentum indicators. I think picking shares like that can be a decent strategy. Here are three of my favourites right now.

Infrastructure investment

3i Infrastructure (LSE: 3IN) is a closed-ended investment company that invests in infrastructure businesses and assets in the UK and Europe. The company aims to deliver shareholders a sustainable total return of 8-10% per annum, with some of that coming from its progressive dividend policy.

A glance at the share price chart reveals the stock has been moving steadily up for some time, which I find encouraging. At the recent 287p, the share price is just over 30% higher than it was a year ago. But even now, the valuation isn’t excessive with the forward-looking price-to-earnings multiple for the trading year to March 2020 running just below 13. There’s also a dividend yield sitting a little over 3%.

The company manages its assets in sectors such as transportation, power, utilities, energy and healthcare, buying and selling businesses and investments at optimum times. I think such nipping and tucking looks set to keep the total returns rolling in for shareholders in the coming years.

Credit lending

Morses Club (LSE: MCL) is a UK-focused, home-collected credit lender operating via a network of self-employed agents who collect repayments on the doorstep on a weekly follow-up basis. The firm provides non-standard credit, which is usually unsecured, for borrowers who have difficulty obtaining credit from mainstream lending institutions.

At 175p, the stock has risen a little over 10% since the beginning of the year, which is a handy return when combined with the forward-looking dividend yield of almost 5% for the trading year to February 2020. City analysts following the firm expect double-digit percentage advances in earnings and in the dividend for the current trading year. And the directors expressed a confident outlook with an update at the end of February.

Meanwhile, the valuation looks undemanding with the forward-looking earnings multiple running just below 12 for the current trading year. I think the shares are attractive.

Education services and products

RM (LSE: RM) supplies products and services for the education market in the UK and abroad. At the end of March, the company released a steady-as-she-goes trading update and City analysts following the firm expect single-digit increases in earnings and the dividend going forward.

At 231p, the stock is around 14% higher than it was at the start of the year. The forward-looking dividend yield is also running just below 4% for the trading year to November 2020. But the dividend is a real success story. Over five years, the payment has increased by just over 100% and I think the firm is capable of delivering a similar return from the dividend in the years to come.

Meanwhile, the valuation looks undemanding with the forward-looking earnings multiple running just below nine for the trading year to November 2020. That looks attractive to me, given the sector has defensive qualities.

The post 3 ‘super stocks’ I’d snap up for my Stocks and Shares ISA appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any 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.

Their shares have fallen by 75% over the last two years, as the firm has struggled to recover from a botched restructuring and regulatory problems. A once-generous dividend has been cut by about 90%.

This sad story has now taken an unexpected twist. As I’ll explain, I think it might be time for shareholders to move on.

Woodford backs surprise takeover

Fund manager Neil Woodford owns 25% of Provident Financial. He also owns nearly 24% of the firm’s much smaller rival, Non-Standard Finance (LSE: NSF). This company was founded in 2014 by John van Kuffeler, who was previously Provident Financial’s chief executive.

NSF has been a disappointing investment so far. Since floating on the market in 2014, it’s reported losses every year. The firm’s shares have fallen by about 40%.

Woodford appears to think that Provident and NSF would do better if they pooled their resources. Along with his former employer Invesco, he’s backed a takeover offer by NSF for Provident Financial.

NSF has a market-cap of about £183m — it’s roughly 15% the size of Provident, at £1.3bn. So the deal will be an all-share affair. NSF is planning to issue Provident shareholders with 8.88 new NSF shares for each Provident share they own.

At the time of writing, the deal valued Provident stock at 532p, a premium of less than 5% to Thursday’s closing price. The deal already has the backing of Woodford, Invesco and another firm. Collectively, they control 50% of Provident shares, so this takeover seems almost certain to proceed.

My view

Provident’s recovery hit a stumbling block in January when it warned losses from bad debts would be worse than expected. The group’s turnaround was certainly taking longer than expected, but progress was being made. Analysts had pencilled in a 10% rise in earnings for 2019, and forecast a dividend yield of about 7%.

Van Kuffeler claims that Provident has “lost its way.” But, in my opinion, combining two under-performing companies is not generally a good way to create one good company. A complicated restructuring will now be required, along with several divestments.

In my view, there’s too much risk and complexity in this deal. I’d avoid NSF and Provident Financial.

This is what I’d buy instead

I don’t own every stock I write about favourably. But one stock I do own is sub-prime lender Morses Club (LSE: MCL). Woodford Funds also has a stake in this firm, but it’s only 9.3%. Woodford’s investors may wish that the fund manager had taken a larger stake in Morses Club’s flotation. Since floating in 2016, the firm’s shares have risen by about 45%, and paid a string of generous dividends.

The business took advantage of Provident’s problems in 2017 to increase its market share. Profit margins have improved too, and it generates a return on equity of about 25%.

The shares currently trade on 11 times 2019 forecast earnings, with an expected dividend yield of 5.1%. The business has very little debt and continues to look good value to me. I hold the shares and continue to rate them as a buy.

The post I’d avoid this Neil Woodford 7% dividend stock and buy this 5%-yielder instead appeared first on The Twelfth Magpie.

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

With its stock already trading on a low multiple, is this simply another example of an already-skittish market overreacting?

Growth and dividends

The initial 6% fall in the share price certainly seems a bit harsh, particularly as revenue rose 10% over the interim period to just under £24m.

Ramsden’s jewellery business was arguably the best performer, growing revenue by 27% to £4.5m.  The fact that this included a 126% rise in online sales is encouraging, particularly given the all-important festive trading period that lies ahead. Elsewhere, income from pawnbroking rose 5% and gross profit in its precious metals division climbed 6% to £2.6m.

On the downside, income from its currency exchange service — the biggest part of the market minnow’s diversified offering — declined 2% to £7.3m, due in part to the superb weather experienced across the UK in the summer motivating more people to stay at home.  

All told, earnings before interest, tax, depreciation and amortisation (EBITDA) fell 3% to £5.7m — something the company attributed to “the absence of peak Easter holiday FX trading“, ongoing investment and new store openings. Hardly the stuff of nightmares.

Positively, the four new stores added to Ramsdens estate over the six months are already “trading ahead of initial expectations” when combined with those opened in the second half of the last financial year. Four more stores have been added since the end of September. 

As mentioned, shares in Ramsdens were already looking pretty cheap at under 10 times earnings before this morning. In contrast to some listed companies, dividends are also growing with today’s interim payout, at 2.4p per share, 9% higher than in 2017. At the current share price, the 7.13p total cash return expected by analysts this year equates to a yield of 4.7%, covered more than twice by profits. 

The above, when combined with the fact that Ramsdens continues to boast a solid net cash position of £12.4m, means that I’m in no hurry to sell my holding just yet. 

Bargain for Brexit?

Another small company whose shares trade on a low earnings multiple while also offering a more-than-decent dividend is the UK’s second-biggest home collected credit lender Morses Club (LSE: MCL). 

Back in October, the company reported a 6% increase in statutory revenue (to £57.5m) and a 20.6% rise in adjusted pre-tax profit (to £10.5m) over the six months to 25 August. Customer numbers remained stable at 230,000 and the number of live Morses Club Cards was 145% higher (at 27,000) than at the same point last year. 

In addition to its growth potential, the business should also appeal to income hunters. A hike of 18.2% to the interim payout (to 2.6p per share) was over double that rewarded to Ramsden’s owners today. If analyst projections prove correct, the stock will yield 5.8% in the current financial year.  

Having fallen over 20% in value since July, you can now pick up the shares for 10 times earnings. If you believe that the UK economy is likely to suffer post-Brexit (assuming, of course, we do end up leaving the EU) and that demand for the company’s services could rise, the current price of just over 137p looks a pretty attractive entry point.  

The post Why I’m sticking by this cheap small-cap dividend stock appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Ramsdens Holdings. 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.

High-frequency lending

Morses Club operates as a home-collected credit lender and today’s half-year results report some decent figures. Revenue rose 6% compared to the equivalent period last year and adjusted earnings per share shot up almost 25%. The firm earns its living by lending money to people via an “extensive” network of self-employed agents who then collect repayments on the doorstep on a weekly follow-up basis.

The firm is classed as a non-standard credit provider, which means it serves those borrowers who usually can’t get (or don’t try to get) credit through mainstream lending institutions, and most loans are unsecured. Morses Club reckons the majority of its borrowers are repeat customers who borrow on a “high-frequency” basis. The net loan book grew 4.3% over the 12-month period to the end of August to £68m, suggesting that the firm’s offering is popular with its clients and the business is growing. The directors expressed their own confidence in the outlook by pushing up the interim dividend by more than 18%.

Growth is high on the agenda

Chief executive Paul Smith explained in the report that the good figures reflect “The success of last year’s territory builds”. He sees opportunity in the changing regulatory environment that is affecting the industry and said he expects Morses Club “to benefit from further consolidation as regulatory changes force smaller players out of the market”. That may sound a little mercenary, but I think it has always been the case that strong, efficient businesses survive, expand and prosper while weaker players fold, whatever the industry.

It seems clear why Neil Woodford likes Morses Club. City analysts following the company expect robust growth in earnings over the next couple of years measured in the mid-teens in terms of percentage. Yet, the valuation is modest. At today’s share price around 141p, the forward price-to-earnings ratio for the trading year to February 2020 is a shade over nine and the forward dividend yield more than 6%. Forward earnings look set to cover the dividend payment more than 1.7 times.

Morses Club only listed on the stock market as recently as May 2016 and the industry has been in regulatory upheaval most of that time, which could be keeping the firm’s valuation compressed. I think the firm falls squarely into the category of “unloved and undervalued”  UK-facing companies that Neil Woodford favours right now.

Another way of looking at it is that Morses Club offers growth at a reasonable price. If investor sentiment starts to improve, we could see an upwards valuation re-rating combining with the firm’s operational progress to drive the share price higher in the months and years ahead. I think the stock is attractive.

The post Why I’d pile into this Neil Woodford favourite right now appeared first on The Twelfth Magpie.

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

Having recently endured heavy criticism for some of his stock picks, star fund manager Neil Woodford must have been fairly pleased with the performance of home collected credit lender Morses Club (LSE: MCL) before today. Occupying a position in his Income Focus fund, the stock was up 20% since the start of the year.

While news that payday lender Wonga is on the brink of collapse following a huge rise in compensation claims has stolen away a huge chunk of this gain, I continue to agree that the stock is a great option for dividend hunters.

Bumper yield

Performance over the 26 weeks to 25 August has been “strong” and in line with expectations, with the amount of credit issued by the small-cap up 4.3% to £85.7m. The company’s gross loan book increased 6.1% while its cashless lending product — the Morses Club Card — is proving increasingly popular with more than 27,000 customers and £13.1m of loan balances on the cards. The overall number of customers remained steady at 229,000.

A beneficiary of Provident Financial’s struggles, Morses revealed that new members of staff had now been “successfully integrated” and that territory builds were now “more normalised” following attempts to steal market share in the previous financial year. Personally, I regard its decision to prioritise the quality of its agents over just chasing new customers rather reassuring given the government’s new-found desire to punish those engaged in irresponsible lending. 

Commenting on results, CEO Paul Smith reflected that management was “confident” on the outlook for the remainder of the financial year and “positive” on opportunities available to Morses Club going forward.

Perhaps the biggest draw for investors, however, is the dividend. An expected 7.6p per share payout in 2018/19 translated to a near 5% yield before today, covered 1.7 times by profits. With the stock now a whole lot cheaper than it was, I think this could be a great opportunity for prospective owners.

Growth potential

Also reporting today was industry peer Amigo Holdings (LSE: AMGO). Hailing a “strong start” to its financial year, the newly-listed firm saw revenue jump 47% to £62.9m in the quarter to the end of June. At £21.8m, adjusted pre-tax profit was 31% higher. 

Offering a single guarantor loan product to those unable to get finance from traditional providers (a concept far more likely to appease regulators), Amigo’s net loan book stood at a little over £638m by the end of the reporting period — a 37% increase year-on-year. 

According to CEO Glen Crawford, the 13-year-old £1.4bn cap has “significant growth potential” in the UK and — with a commanding 88% of the market — already occupies “an unrivalled first mover position” in the mid-cost credit segment.

Unfortunately, all this good news appears to have been overshadowed by the debacle over at Wonga with Amigo’s stock down by over 7% in early trading. While some may wish to take advantage, I’d probably continue to favour Morses Club for now. 

Priced at 13 times forecast earnings before the markets opened, the shares were more expensive than those of its peer. Moreover, an expected 5.62p per share dividend for the current financial year equated to a yield of just under 2% — far lower than that offered by the Woodford-backed stock. 

It’s early days, of course. With the consequences of our EU exit for the UK economy (and ultimately our personal finances) still unclear, however, Amigo goes on my watchlist.

The post Why I’d still buy this Neil Woodford dividend stock despite today’s big share price fall appeared first on The Twelfth Magpie.

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• Forget meal deals! Here’s how £8 a day could be worth £357,000
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

However, this doesn’t make me more interested in buying Barclays’ shares for their income. For one, the forward dividend yield based on a forecast full-year 2018 payout of 6.5p per share is only 3.4%. This isn’t terrible but it still lags well behind the one on offer from rivals such as Lloyds and, in my opinion, doesn’t adequately compensate for the greater risks one takes investing in this highly cyclical industry.

Second, there are still company-specific risks with Barclays that give me pause. Foremost are continuing litigation and conduct charges that totalled £2bn in Q1 alone, and high operating expenses that eat up a whopping 63% of all operating income. Indeed, including the effects of these litigation and misconduct charges led to statutory RoTE falling to -6.5% in Q1. Given the various regulatory bodies still pushing forward with investigations, I wouldn’t be surprised if there are further big charges in the future.

And while the bank’s massive investment arm finally turned a solid profit in Q1 with RoTE of 13%, one good quarter has not convinced me that this division can finally earn returns on a long-term basis.

While Barclays is going in the right direction, there are still enough red flags to leave me wary, and adding in a relatively low yield and uncertain economic environment makes me quite happy to not be a shareholder.

A lender consistently posting impressive returns 

I’m much more interested in sub-prime doorstep lender Morses Club (LSE: MCL), which offers investors a hefty 4.19% dividend yield. While the phrase ‘sub-prime lender’ will scare many investors, Morses Club is in quite good shape.

Unlike big banks such as Barclays that were brought to their knees in 2007 (in part thanks to very high exposure to sub-prime mortgages), Morses Club has a long history of lending profitably to non-prime borrowers. It actually knows what its exposure to these loans is, it is well capitalised to survive any downturns, and is very picky about its customers with a full 70% of loan applications rejected.

And despite this rather cautious approach to adding customers, its loan book is growing rapidly thanks to the self-inflicted woes of sub-prime giant Provident Financial, which changed its business model last year and sent many of its self-employed agents into the arms of Morses Club.

The full effect of these new agents will take a few quarters to flow through, but in the year to February, the group’s customer numbers bumped up 6%. And a strong focus on lending to its highest-quality customers saw total credit issued rising 21% and underlying pre-tax profits jumping 29%.

Looking ahead, I see plenty of reason for growth to continue at this pace as the company has secured additional capital from lenders, is branching out into offering related services and should be taking market share from wounded Provident. This growth, alongside a high dividend, makes me much more interested in Morses Club than Barclays.

The post Why I’d dump dividend dud Barclays for this high-yield lender 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 Barclays and 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.

That said, a disinclination to follow political events too closely should not mean turning a blind eye to your portfolio. Indeed, with already-wobbly consumer confidence and interest rates likely to rise at some point (although perhaps not just yet), it’s never a bad idea to consider how you might position your holdings in the event of the UK economy going through a rough patch.

Here are two counter-cyclical, dividend-paying stocks that might appeal.

Market leader

As a holder of stock in small-cap insolvency specialist Begbies Traynor (LSE: BEG), today’s final results made for fairly pleasant reading.

Revenue rose a little over 5% to £52.4m in the year to the end of April with adjusted pre-tax profit rising 14% to £5.6m.

Although levels of insolvency were “broadly in line” with that experienced in 2017/18, the company reported that it had managed to increase its share of the market, helping to maintain its position as “the largest UK corporate appointment taker by volume“. That’s an enviable position to be in if the economy does end up struggling over the medium-term. 

Elsewhere, a 9% rise in the total dividend (giving a yield of 3.5%) should be welcomed by those investing for income. The fact that Begbies’ net debt reduced from £10.3m to £7.5m by the end of the reporting period also suggests that this hike — the first since 2011 — won’t be the last.

So why is the stock down over 3% today? While I would be staggered if any holders were seriously disappointed by these results, such a reaction does suggest that the company was already fairly fully valued (at 18 times forecast earnings), at least for now. A fairly reserved outlook on trading may have also contributed to the slight dip.

Nevertheless, as a hedge against the UK plc, I maintain my positive stance on the stock and will continue to hold.

Big riser

Of course, Begbies Traynor isn’t the only stock worth considering for troubled times. Batley-based home-collected credit lender Morses Club (LSE: MCL) is a company I’ve liked for some time. Based on recent share price performance, it seems I’m not alone.

Since last August (and no doubt supported by the implosion at large-cap rival Provident Financial), the company has increased almost 55% in value. If last month’s pre-AGM update is anything to go by, I think there will be more to come.

Trading over the first four months of its financial year (beginning 25 February) has been robust with the company’s net loan book “well ahead of last year” and impairments being around the level expected.  Although the threat of increased regulation will always linger around this sort of business, Morses also appeared receptive to the outcome of the Financial Conduct Authority’s recent high-cost credit review and the proposals that came from it.

Like Begbies, the small-cap is an attractive option for those looking to receive income from their investments during difficult times. A yield of 4.4% already looks great, but this is expected to rise to an even more satisfying 5.1% in 2019/20 if earnings expectations are met.  

Trading at 13 times forecast earnings, I still think Morses is worth snapping up.

The post Bearish on the UK economy? These small-cap dividend stocks should see you through appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Paul Summers owns shares in Begbies Traynor. 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.

Topps saw like-for-like revenues backtrack 2.3% during the 13 weeks to July 1, continuing the steady top-line deterioration seen since the start of the fiscal year. Sales on a comparable basis rose 3.4% during quarter one and fell 2.2% in the second quarter.

The building materials business advised that “trading over the third quarter has been reflective of a weaker consumer environment,” though it added that “we continue to outperform the overall tile market.” This last point should come as little comfort to owners of Topps Tiles’ shares however, given the vast sums it is investing in improving its product ranges and store refurbishments and openings.

On the slide

Last time I covered Topps Tiles in March, I warned of the intense pressure on shoppers’ spending power that has damaged sales at the business. Today’s release again vindicates my concern and has reinforced my bearish take on the retailer’s fortunes.

City analysts have been scaling back their earnings forecasts in the weeks since my latest article and they are now predicting a 15% slump for the year to September 2019. With trading conditions still worsening I reckon further downgrades are just around the corner, making Topps Tiles’ low forward P/E ratio of 9.6 times something of an irrelevance.

I am also not tempted by it as a dividend stock. A 3.3p per share reward is currently anticipated by the number crunchers, and this figure — which yields an impressive 5.3% — is also covered 2 times by anticipated profits, bang on the company’s stated target.

But given the prospect of earnings also disappointing, as well as the predicted 3% profits bounceback forecast for fiscal 2019, I reckon the business, which of course already cut the dividend last year, could reduce shareholder rewards more than anticipated. Its hefty £25.1m debt pile (as of March) should give additional cause for concern. I would sell the stock without delay.

Join the club

There’s another 5% yielder I’d much rather plough my investment cash into today, namely Morses Club (LSE: MCL).

Assisted by predictions of further healthy earnings growth — rises of 14% and 16% are predicted for the periods ending February 2019 and 2020 respectively — the doorstep lender is anticipated to lift fiscal 2018’s 7p per share dividend to 7.8p in the current year and to 9p in the next.

Morses Club carries monster yields of 5.1% and 5.8% for these respective years as a consequence. And the company’s last market update last week, in which it advised that “trading in the first four months of our current financial year has been strong,” convinces me that it can meet such impressive profits and dividend estimates.

A forward P/E ratio of 11.5 times is much too cheap given the rate at which its loan book is swelling and its customer base improving. I reckon Morses Club is a great income share to buy today.

The post One 5% dividend yield I’d buy today and one I’d sell appeared first on The Twelfth Magpie.

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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.

Refinanced for the future

This month, Provident Financial concluded its 17-for-24 Rights Issue aimed at raising around £300m net. Some of the money will be used to meet the costs arising from the now-settled investigation by the Financial Conduct Authority (FCA) into the firm’s Vanquis Bank and its Repayment Option Plan (ROP). The rest of the money will make sure Provident has a high enough financial buffer after increased regulatory capital requirements kick in, “primarily due to an increase of approximately £100m in respect of conduct and operational risk assessments.”

Despite the refinancing, I’m avoiding the firm because the bottom fell out of its business model recently. There’s more to successful investing than plunging into the stock of firms that have just demonstrated their ability to fail.

No sign of trading weakness blights today’s full-year report from Morses Club, however. Revenue increased more than 17% compared to the previous year and adjusted earnings per share moved 8% higher. The directors expressed their confidence in the outlook by pushing up the final dividend for the year by 11.6%.

The firm provides what it describes as “vital” short-term funding for 10m people in Britain who can’t access mainstream sources of finance. Loans typically cover customers’ shortfalls in income and their “unexpected” household expenses. The firm said it offers transparent fixed interest rate products and does not charge its customers any fees or penalties for late payments, “ensuring they never pay more than their original agreement.”

Growth prospects

The business is growing. Customer numbers came in 6% higher than a year ago and the net loan book grew by 19%. Doorstep lending doesn’t look like it’s going out of fashion any time soon, despite the problems over at Provident Financial. Morses’ chief executive Paul Smith said that the company’s “advanced digital platform” improved the customer experience and “streamlined the lending process.” Benefits included the reduction of the operating cost ratio and enhancement of the firm’s regulatory compliance. Mr Smith reckons technology also enabled it to access a new customer base in the wider non-standard credit market and to expand its product offering to provide customers with “the flexibility they desire.”

Looking ahead, the company plans to pursue more organic expansion by “integrating new agents into the business.” City analysts following the firm expect earnings to grow 20% for the trading year to February 2019 and 18% the year after that, suggesting they remain unconcerned about recent calls from the media and consumer groups for tighter regulation in the HCC sector. However, with the share price close to 142p, there could be some negative speculation around with regard to the issue. The forward price-to-earnings ratio for the year to February 2020 runs close to nine and the forward dividend yield is around 6.5%, which looks like an undemanding valuation given the growth anticipated.

The post Why I’d shun Provident Financial for this attractive alternative stock appeared first on The Twelfth Magpie.

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