Yet ignoring the pandemic’s impact, the business appears to have done relatively well throughout that period. Petrofac became profitable, total debt dropped by 40%, and its liquidity grew stronger. So why is the Petrofac share price falling? And is this a buying opportunity for my portfolio? Let’s take a look.

What’s going on with the Petrofac share price?

Petrofac is an international services company for the energy sector. It designs, builds, manages, and maintains infrastructure on behalf of its clients, providing far more flexibility for leading energy companies like BP.

The Petrofac share price began falling in 2013 due to rising debt and weakening revenue concerns. However, the real problems began in April 2017. The serious Fraud Office (SFO) announced an investigation into the firm, which led to the immediate suspension of Marwan Chedid – the chief operating officer at the time.

Since then, things only appear to have got worse. In 2019, David Lufkin, the former head of sales, pleaded guilty to 11 counts of bribery. He was found guilty of another three counts in January this year, which ultimately led to the stock sell-off on Monday this week.

Why? Because beyond the reputational damage, this latest conviction led the Abu Dhabi National Oil Company (ADNOC) to suspend Petrofac from competing for any new contracts indefinitely. In other words, Petrofac just lost access to one of its key growth markets.

Is there a chance of recovery?

This is undoubtedly terrible news that will significantly impact the future of Petrofac and its share price. At least that’s what I think.

But it may not be a complete catastrophe. Due to the nature and complexity of Petrofac’s services, it has created some substantial switching costs for its clients. And so I don’t believe its existing projects will be significantly affected by this latest development in the scandal. Even ADNOC has agreed to allow Petrofac to continue its projects already under way before the recent suspension.

Also, as I mentioned before, the financials of the business have seen some improvement. Even with all the disruptions from Covid-19, Petrofac still managed to reduce its total debt by $200m thanks to its substantial cash reserves.

The bottom line

The investigation into Petrofac is still ongoing and may uncover more criminal activity in the future. However, these investigations typically last four years, indicating it may soon be over. At which point, the company will have to begin the long journey of repairing its reputation.

If successful, the Petrofac share price may recover to its pre-scandal levels over the long term, and thus potentially become a classic turnaround story. But for now, it serves as a good case study of how much damage can be inflicted when a business breaches regulations. It’s a risk all investors should consider, I feel.

Personally, I’m waiting to see how much impact the ADNOC contract suspension has on the business throughout 2021. So for now, I won’t be adding the stock to my portfolio.

The post Why did the Petrofac share price crash this week? appeared first on The Twelfth Magpie.

More reading

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

Zaven Boyrazian does not own shares in Petrofac. 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 following two FTSE 250 companies both operate in the sector and recent share price performance has been poor. At some point they will recover, but you may need to show a bit of patience with these two. 

Weir Group

Glasgow-based engineer and hydraulic pump maker Weir Group (LSE: WEIR) gives you exposure to global oil, gas, mining and energy markets, with 15,000 staff operating in more than 50 countries. Investors have been served less well than its customers, with the share price trading 40% lower than five years ago, and down 15% in the last year.

Today’s positive interim statement nudged the share price up by 3%, as it reported Q3 growth was underpinned by its expanded mining equipment offering. Chief executive Jon Stanton said the highlight was the record £100m order for an industry-leading crushing solution for the Iron Bridge Magnetite Project in Australia, which reflects the group’s “growing technology offering and focus on making mining smarter, more efficient and sustainable”.

Weir’s project pipeline in mining remains “encouraging”, despite deferred projects “due to negative macro sentiment”, while the group has been forced into a £30m cost reduction programme due to falling demand from its North American oil and gas markets.

Stanton said full-year 2019 operating profits are below previous guidance in its Oil & Gas division, while both Minerals and the recently acquired ESCO division remain unchanged. The £3bn turbine and valve maker currently trades at 15 times earnings, despite its recent share price disappointments and lower earnings projection growth estimates. The forecast yield is a steady 3.4%, with cover of 1.9. With no sign of an immediate oil sector resurgence, I’m in no rush to buy it today.

Petrofac

Investors in oilfield service provider Petrofac (LSE: PFC) have had an even bumpier ride, with the stock down 65% over five years, and 33% over 12 months. As well as the oil sector slowdown it has also been hit by a Serious Fraud Office (SFO) investigation into Middle East bribery allegations, which is still ongoing. This means prospective buyers have no idea what the ultimate cost will be in terms of fines, penalties and market reaction.

Risk takers might want to take advantage of the uncertainty, which leaves the Petrofac share price trading at just 6.1 times forward earnings. The forecast yield is a whopping 7.4%, generously covered 2.1 times.

Petrofac is a “capital-light business”, especially since the recent $276m sale of its remaining interest in its Mexican operations to Perenco International, with the proceeds used to reduce gross debt. I can’t say the £1.4bn group looks particularly tempting today, with earnings forecast to fall 22% this year and 7% in 2020. Although by then the dividend will be a thumping 7.9%.

If you are a contrarian investor who is bullishly expecting an oil price recovery and doesn’t mind the bribery investigation, then Petrofac could be a good way to play it. If so, good luck, because I won’t be joining you.

The post These 2 FTSE 250 dividend stocks could make great turnaround plays. If you’re patient appeared first on The Twelfth Magpie.

More reading

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

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Weir. 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 FTSE 250 stocks I’m going to look at today are good examples of this, in my opinion. All three face some kind of risk. But each one also has a solid track record, strong finances and a forecast dividend yield of more than 7%. Is now the right time to buy?

Reputation risk

The share price of oil services group Petrofac (LSE: PFC) has fallen by more than 50% since the Serious Fraud Office opened a bribery investigation into the firm in 2017. So far, only one former employee has been prosecuted, but the investigation remains ongoing.

As far as I can see, the first risk facing investors is that the company will eventually be prosecuted and hit with a big fine by the SFO. The second risk is that damage to its reputation could make it harder to win new work.

A trading update today seems to hint at this problem. Chief executive Ayman Asfari says that although trading is in line with guidance, the firm is facing “challenges in Saudi Arabia and Iraq”. These are the two countries involved in the SFO investigation.

The rate of new orders seems to be falling, with new orders of $1.7bn so far this year, compared to $1.8bn during the same period last year.

However, Petrofac shares now trade on about six times forecast earnings, with a 7.1% yield. If was to bet on this situation, I’d guess that the firm will weather this storm and return to growth. If I’m right, the shares could be good value at around 400p.

Safe as houses?

Big housebuilders continue to report record profits and pay generous dividends. FTSE 250 firm Redrow (LSE: RDW) is no exception. Pre-tax profit rose by 21% to £380m last year and has continued to rise this year. In April, shareholders were rewarded with a 30p per share cash return on top of the regular dividend.

RDW shares look affordable to me, trading at 1.2 times net asset value and on around six times forecast earnings. The total dividend payout (including one-off payments) for the current year is expected to provide a yield of more than 9%. The forecast dividend yield for 2019/20 is 7.4%.

What’s the risk? Well, many believe the UK housing market may be slowing. And the planned end of Help to Buy in 2023 could put pressure on profits.

My view: I’d be happy to buy Redrow today and then buy more shares at a lower price during the next market downturn.

Are you insured?

Motor insurer Sabre Insurance (LSE: SBRE) specialises in providing cover for high-risk drivers. These pay much bigger premiums.

This company’s smaller size and specialist focus has helped make it highly profitable. In 2018, only 70% of its premium income was needed for operating costs and claims. The figure for most mainstream rivals was over 90%.

However, growth was non-existent in 2018 and profits are expected to be flat again this year. Rising repair costs are also a problem.

Despite all of these risks, I’d suggest that this company’s specialist niche and high profit margins could make it a good buy at current levels. Trading on 13 times 2019 forecast earnings and offering a 7.7% yield, the shares look temptingly priced to me.

The post 3 FTSE 250 dividend stocks with yields of 7%+ I’d buy today appeared first on The Twelfth Magpie.

More reading

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

Roland Head has no position in any of the shares 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.

A gold star?

FTSE 250 gold miner Polymetal International (LSE: POLY) is knocking on the door of the FTSE 100, with a market-cap of £4.1bn. The latest news from the firm suggests to me that it may not be long until this company joins the big-cap index.

Revenue from the group’s gold mines in Russia and Kazakhstan rose by 4% to $1,882m in 2018, while net after-tax earnings rose by 8% to $394m, excluding the impact of currency exchange rates. Production rose by 9% to 1,562,000 gold equivalent ounces.

Rising reserves

Mining profits can vary with gold prices. In my view, a company’s reserves can be a better guide to long-term value. Polymetal’s proven and probable gold reserves rose by 21% to 22.3m ounces last year.

The company also logged a 44% increase in mineral resources, which rose to 26.3m ounces. Some of these should be converted to commercial reserves in the future, as the firm completes appraisal and development work.

Profits to rise in 2019?

Production is expected to be flat in 2019, as new production is offset by the sale of older, less profitable mines. But analysts expect this focus on cost to help lift the group’s profit margins.

Underlying earnings are expected to rise by 11% to $1.11 per share in 2019. This puts the stock on an undemanding forecast price/earnings multiple of 10.1, with a 4.8% dividend yield.

Production is set to rise from 2020, and this firm has delivered solid results in recent years. I rate the shares as a long-term buy.

A contrarian play

Oil services group Petrofac Limited (LSE: PFC) is unloved by the market at the moment. It’s the subject of a long-running Serious Fraud Office bribery investigation which started in 2017, which has yet to reach a conclusion.

So far, one former employee has admitted bribery and investors have no idea how the remainder of the SFO investigation will turn out.

For shareholders like me, the big risk seems to be that the company itself may still be prosecuted, resulting in financial pressure and reputational damage.

Petrofac has done what it can to protect against this. The group ended last year with a net cash balance of $90m and says it has changed its business arrangements in some countries to reduce the use of third-party agents.

My verdict

In my view, Petrofac is likely to have the financial resources needed survive a prosecution without any lasting damage. On a five-year view, I think the shares are probably cheap at current levels.

Trading on 6.6 times forecast earnings and with a 6.8% yield, I believe a fair amount of bad news is already reflected in the share price. I rate the shares as a special situation buy.

The post 2 FTSE 250 dividend stocks I’d buy for my ISA with £5,000 today appeared first on The Twelfth Magpie.

More reading

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

Roland Head owns shares of Petrofac. 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.

Positive theme

This worked its magic on the bottom line, as revenues climbing 5.9% to £1.69bn helped underlying earnings rise 4.3% at £494m. The group’s attractions, which include Madame Tussaud’s, London Dungeon, the London Aquarium and London Eye, had been hit by a drop in tourism in the capital since the 2017 terrorist attacks. Now the crowds are back, and Merlin is reaping the benefit, with a 4.9% rise in pre-tax profits to £285m.

Its resort theme parks division did particularly well with organic revenues up 9.1%, “driven by successful product investment, favourable weather and another strong Halloween period.” LEGOLAND Parks’ organic revenue increased 6.4% due to the opening of a record 644 accommodation rooms, offsetting a broadly flat performance.

LEGO lands

CEO Nick Varney said the group continues to mitigate ongoing external cost pressures and expects to deliver up to £35m of annualised savings by 2022. He also said it’s well placed to deliver long-term growth and returns and benefit from long-term trends such as a rising consumer spend and the increased focus on shared experiences.

The group is planning to open new LEGOLANDs in New York in 2020, and South Korea by 2022, which will prove capital intensive so investors will want to keep an eye debt levels. However, the results are good for what is traditionally a quiet time of the year. Merlin needs to grow strongly, with a slightly pricey forward valuation of 17.1 times earnings, and a PEG of 4.2.

Investors are positive today, though. The dividend yield is just 2.2%, although with healthy cover of 2.7. Earnings forecasts look steady. Peter Stephens has previously backed it.

Troubled waters

FTSE 250-listed oil services company Petrofac (LSE: PFC) trades 70% lower than it did five years ago and today’s results will do little to convince investors it’s on the mend. Its stock is up just 0.79% today after  full-year 2018 results showed revenues fell 8.9% to $5.8bn, while underlying profits dropped 2% at $353m.

The group did make a reported net profit of $64m after impairments and exceptional items, against a $29m loss in 2018. It can also boast a new order intake of $5bn, with a $9.6bn backlog at 31 December 2018. Net debt has been eliminated and net cash now stands at $90m. However, net profit fell 21% to $285m.

Fraud fear

Petrofac remains subject to an ongoing investigation into alleged bribery and corruption by the Serious Fraud Office, and this continues to cast a shadow over the business. Investors have no idea what to expect, but prospective clients could be wary, which may hit future orders. This is an added worry as orders have been shrinking. However, Roland Head says the threat has been factored into the price.

Positives include a forecast yield of 7.4% with cover of 2.2, and a valuation of 5.9 times forward earnings. However, earnings forecasts seems bumpy. I won’t be rushing to buy this one.

The post One FTSE 100 stock I’d consider buying today, and one that can wait appeared first on The Twelfth Magpie.

More reading

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

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Merlin Entertainments. 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’s a good argument, but soaring house prices suggest to me that it’s harder to make money from buy-to-let than it used to be , especially as costs are rising for landlords.

In my view, now isn’t the time to be buying rental properties. I see much better opportunities for income and growth in the stock market.

A bulletproof 6% income?

I reckon most small landlords will do well to earn an annual yield on their investment of more than 6%, after subtracting the cost of repairs, tax, insurance, and empty periods.

On that basis, oil and gas giant Royal Dutch Shell (LSE: RDSB) looks a much better buy. Shares in this £195bn giant now offer a hassle-free yield of 6.2%, thanks to last year’s oil market sell-off.

In my view, the company’s financial situation is much stronger than this generous dividend yield suggests. Since the oil crash, chief executive Ben van Beurden has cut debt, reduced costs, and focused spending on projects that should be profitable at oil prices below today’s $60 level.

Cash generation has improved significantly. My sums suggest that the dividend should now be covered comfortably by both free cash flow and earnings. I believe this 6% payout is very safe indeed.

Oil demand should remain strong

Oil demand will probably start to fall at some point in the future. But the latest figures from the International Energy Agency suggest this is unlikely to happen before at least 2040.

In the meantime, Shell plans to maximise the cash generation of its oil fields and become the world’s largest producer of liquefied natural gas (LNG) — a fuel that’s likely to remain in strong demand for power generation.

Plans to buyback $25bn of shares by late 2020 should help to support future earnings and dividend. With the stock currently trading on 10 times 2019 forecast earnings and offering a 6.3% yield, I view Shell as an income buy.

What about growth?

For many buy-to-let investors, long-term capital growth is a key part of the attraction. If you’re looking for generous dividends and growth, one of my top picks would be oil services firm Petrofac (LSE: PFC).

This FTSE 250 company is currently the largest holding in my portfolio. I bought the stock after its share price collapsed in 2017 and believe it’s now on the cusp of delivering a strong recovery.

The firm’s latest trading update showed that new order intake in 2018 was stable at $5bn, while net debt fell sharply last year to about $250m.

I’ve also been encouraged by recent trading updates from US oil services giants Halliburton and Schlumberger. Both say that the global oil market is growing, but the US onshore market is slowing. That should be good news for Petrofac, which mostly operates offshore and in the Middle East, and doesn’t operate in the US onshore market.

Petrofac shares currently trade on just 8.1 times 2019 forecast earnings and offer a 5.3% dividend yield. This suggests to me that a lot of bad news is already in the price. I think the shares are a strong buy at this level.

The post Forget buy-to-let! I’d buy this FTSE 100 dividend stock for a second income appeared first on The Twelfth Magpie.

More reading

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

Roland Head owns shares of Petrofac. 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.

For investors with a medium-term view, I don’t see any reason to be alarmed. Recent updates from oil firms suggest to me that market conditions are continuing to improve, albeit slowly.

I’m backing this stock

Companies which provide engineering services to oil and gas companies can be a useful indicator of market conditions. I believe that after several years of heavy cutbacks, big oil producers will soon have no choice but to increase spending if they want to avoid production declines. Recent news seems to support this view.

On 12 December, energy services firm Wood Group reported “positive trading momentum” and “revenue growth of over 10%” for 2018.

Last week, FTSE 250 rival Petrofac (LSE: PFC) reported $5bn of new orders in 2018, and said its backlog of work was unchanged from one year ago, at $10.2bn.

Petrofac’s management expects the firm’s 2018 results to be in line with market forecasts. They say that the firm’s shift back to its roots as a provider of engineering and operating services is continuing to go to plan. I expect this to drive profit margins higher over the next few years.

The boss has been buying

One risk for Petrofac shareholders is that a Serious Fraud Office investigation into the firm which began in 2017 is still ongoing. A big fine is still possible, but as a shareholder, I believe this risk is already factored into the share price.

Ayman Asfari, the firm’s founder and chief executive, seems to agree. Back in March, Mr Asfari spent £10m on Petrofac shares, taking his total holding in the firm to 18.8% (worth about £296m).

Mr Asfari paid 494p per share in March. As I write, the share price is 452p. This values the firm at just six times forecast earnings for 2018, with a forecast dividend yield of 6.5%.

In my view this is too cheap. I rate the shares as a buy, and may soon add more to my own holding.

A speculative buy?

Back in October 2017, I rated Kurdistan oil producer Gulf Keystone Petroleum (LSE: GKP) as “a speculative buy“ at 95p. Today, the shares are trading 80% higher at around 170p.

I remain bullish about this business. Figures for the current year show that Gulf Keystone generated a record pre-tax profit of $26.7m during the first six months of 2018. Low cash operating costs of just $3 per barrel mean that the firm can produce oil profitably at almost any oil price.

Regular oil payments mean that these profits are matched by good cash generation.  By early September, Gulf Keystone had built a cash balance of $240m. This should be enough to fund next year’s planned upgrade to the Shaikan field, which will see production rise from 30,000 barrels of oil per day (bopd) to 55,000 bopd.

This business carries some political risk, as the Shaikan field is located in the Kurdistan region of Iraq. Despite this, I think the shares look good value at the moment. Based on broker forecasts, the shares currently trade at less than five times 2019 forecast earnings. Gulf Keystone remains a speculative buy, in my opinion.

The post Is the Petrofac share price a bargain or should I buy GKP for 2019? appeared first on The Twelfth Magpie.

More reading

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

Roland Head owns shares of Petrofac. 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.

Does a more attractive valuation, not to mention sizeable dividend, make this a company worth investing in? Based on the reaction to today’s pre-close update for the full year, at least some market participants think so. 

“Solid progress”

This morning, Petrofac said it was trading in line with expectations and that it had secured $5bn worth of orders from both core and growth markets in the year to date. Considering the competitive environment in which it operates, that’s not bad at all. 

In addition to winning contracts in markets such as in Thailand, India and The Netherlands, the company also said it was currently bidding on “more than” $15bn of tenders that would be awarded in the first half of next year. 

Elsewhere, “solid progress” had been made on delivering engineering and construction (E&C) projects in Kuwait and Abu Dhabi, while extensions to engineering and production services (EPC) contracts helped make up for “a challenging market environment for brownfield projects in the North Sea.” 

Partly as a result of lower capital expenditure, Petrofac’s debt pile continues to shrink, from $600m last year to “around” $250m at the end of 2018. CEO Ayman Asfari highlighted that the company had made “excellent progress” in becoming a capital-light business — having now sold $8bn of non-core assets — and would continue to “review options” for those that remain. 

Full-year numbers will be confirmed on 28 February. For now, the stock trades on 6 times forecast earnings for the next financial year and comes with a secure-looking, near-7% yield. That may be cheap, but it’s worth keeping in mind a couple of risks.

Firstly, Petrofac’s fortunes rest on something it can’t control, namely the price of black gold. Having already fallen over 30% in just a couple of months, due to fears of oversupply in the US (now the world’s largest producer), there’s no saying it won’t drop further in the short term. Secondly, you can expect further selling pressure if the outcome to the ongoing investigation by the Serious Fraud Office is negative. 

All told, I’d be more inclined to buy industry peer Wood Group (LSE: WG), currently.

Contract wins 

Following hot on the heels of last week’s announcement that it had penned a contract to provide engineering, procurement and construction services to support a “world-class plastics manufacturing facility” in the US, the £3.6bn-cap revealed this morning that it had also secured a $66m deal to provide digital control technologies to the Sellafield nuclear site. 

The 10-year contract includes “all stages of system design, manufacture and assembly of equipment” and, according to the energy services business, helps justify the acquisition of Amec Foster Wheeler last year.

Like Petrofac, the firm’s shares have been volatile and now trade 15% below where they were at the start of 2018. Based on today’s price, Wood’s stock currently changes hands on 9 times earnings for 2019 and comes with a 5.3% yield, covered twice by profits. 

If you’re considering taking the plunge on either company, I’d say it’s more important than ever to ensure that your portfolio is suitably diversified and that your holdings match your risk tolerance and investing horizon.

The post FTSE 250 stock Petrofac yields almost 7% but is it worth the risk? appeared first on The Twelfth Magpie.

More reading

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

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.

One example is oil and gas support services company Petrofac (LSE: PFC). It currently offers an impressive income return. But it’s not the only FTSE 250 dividend share which could boost your retirement savings.

Improving outlook

Reporting on Thursday was online trading company IG Group (LSE: IGG). It provided an update on its first quarter revenue, coming in 5% lower than in the same period of the prior year, at £128.9m. It was down as a result of lower volatility in its markets, leading to a lower level of client activity.

The company has continued to make progress with the process of offering retail clients the opportunity to become categorised as elected professional clients. The proportion of UK and EU revenue generated by clients who were categorised as professional was over 50% in the first quarter of the year. This is in line with previous guidance.

Looking ahead, IG Group is expected to report a rise in earnings of 6% in the next financial year. This means that its dividend is due to be covered 1.3 times by profit in the next financial year. With it having a dividend yield of 4.9% at the present, and seeming to be performing in line with expectations, it could offer an impressive income investing outlook for the long term.

Turnaround potential

Petrofac’s financial performance could receive a boost from the increased activity levels which are starting to become present in the oil and gas industry. A higher oil price is driving demand for a variety of services, with confidence across the industry beginning to return after a period of significant disappointment.

As such, the company’s disappointing earnings growth outlook over the next couple of years may not last over the medium term. The stock is expected to report a decline in earnings of 7% this year and 15% next year, but improved operating conditions could be the catalyst to turn this performance around.

With Petrofac’s dividend being covered 2.4 times by profit, it appears to be sustainable. Its price-to-earnings (P/E) ratio of around 10, and its dividend yield of 4.8%, indicate that it could offer good value for money, as well as high total return potential over the coming years.

Certainly, the company faces a number of risks. Regulatory risks remain in place, while the oil price could experience a period of heightened volatility. But with a wide margin of safety and a high dividend yield, the stock’s income investing potential seems to be high relative to many of its FTSE 250 peers. As such, now could be the right time to buy it for the long term.

The post Have £1,000 to invest? Petrofac isn’t the only FTSE 250 dividend stock I’d buy for my pension appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Petrofac. 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.

Shareholders will be reassured to know that earnings forecasts for 2018 have remained stable over the last few months and are nearly 50% higher than they were one year ago. But volatile market conditions and concerns about the potential impact of a US-China trade war are putting pressure on valuations in this sector.

I believe there’s a second risk too. Companies in the mining sector have now recovered from the crash of a few years ago. Valuations have returned to normal levels, in my view. Unless the prices of key commodities such as coal, iron ore and copper rise sharply, growth from this level may be slower.

A final concern is that the firm is under investigation by the US Department of Justice for possible money laundering offences in Africa. The DoJ appears to be investigating as far back as 2007. So this investigation could eventually lead to a sizeable fine or settlement payout.

Growth + returns

Glencore has been targeting a return to growth through selected acquisitions, such as the $1.7bn purchases of the Hail Creek coal mine from Rio Tinto in August.

The group also plans to spend $1bn buying back its own shares during the second half of 2018. Management expects to return a total of $4.2bn to shareholders this year.

On balance, I think Glencore stock looks quite fairly valued at the moment. The shares trade on a 2018 forecast price/earnings ratio of 8, with a prospective yield of 5.5%. With earnings expected to fall slightly in 2019, I’d hold for income but would be reluctant to buy.

One stock I have bought

Personally, I’m more interested in the oil market at the moment. I believe there are a number of decent opportunities for investors in this sector.

One of my biggest stock holdings is oil services group Petrofac (LSE: PFC). Like Glencore, Petrofac is under investigation, in this case the UK’s Financial Conduct Authority. This remains a risk, but unless there’s more bad news, I think it’s already reflected in the share price.

What attracts me is the firm’s profit potential when the oil market returns to growth. Service providers like Petrofac have faced a lot of price pressure from their oil producer customers since 2015. And spending on growth projects has been very limited over the last few years.

At some point, history suggests that this will change and the oil sector will start spending more on growth projects. When this happens, I’d expect Petrofac to enjoy strong profit expansion for several years.

A good starting point?

Adjusted net profit rose by 20% to $190m during the first half of the year, despite a drop in revenue.

New orders worth $3.3bn were signed during the period, leaving the group with an order backlog worth $9.7bn. Although this backlog is down slightly from $10.2bn at the end of 2017, I think it’s close enough to suggest a stable outlook.

The shares currently trade on 8.4 times forecast earnings with a dividend yield of 4.8%. In my view this should be a good entry point for investors who want to profit when the oil market returns more actively to growth. I continue to rate this business as a buy.

The post Why I’d ignore the Glencore share price and buy this other 5% yielder appeared first on The Twelfth Magpie.

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Roland Head owns shares of Petrofac and Rio Tinto. 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.