Let’s look at a couple, one of which reported to the market this morning.

Cheap dividend stock

I think self-styled “purpose-led global financial technology business“ IG Group (LSE: IGG) is a great way of tackling inflation. The online trading provider has actually been a core holding in my own Stock and Shares ISA for quite a while, partly due to the cash it keeps churning out. And based on today’s half-year results, I have no concerns about this trend continuing.

This morning, IG announced a record first-half performance. Net trading revenue increased 16% to £471.9m over the six months to the end of November. Pre-tax profit also rose 8% to £245.2m. That’s pretty impressive stuff considering that markets were fairly stable over the period (IG makes money when traders try to capitalise on volatility).

As encouraging as all this is, it’s the dividends I’m after. Today, the FTSE 250 member elected to keep its interim payout steady at 12.96p per share. Assuming the full-year cash return stays at 43.2p, that means IG yields 4.9% — eight times what the best Cash ISA will give me.

Will this be sufficient to beat inflation? I don’t know. But it’s definitely worth the extra risk that comes with investing, in my opinion. This is especially true given how much (or how little) buyers are being asked to pay to acquire this quality stock.

At yesterday’s close, IG shares traded at just 11 times earnings. While the threat of further industry regulation may go some way to explaining this valuation (and dividends are never guaranteed), I’d have no issue buying more. 

Another option

Of course, IG isn’t the only cheap dividend stock out there. Shares in Polar Capital Holdings (LSE: POLR) also grab my attention.

The fund manager’s price has tumbled 19% in 2022 to date as investors have become increasingly skittish. As far as I can see, it’s nothing to do with Polar itself.

To be frank, none of this should really bother me if I’m looking to generate passive income and/or beat inflation. Analysts believe Polar will return 42.4p to investors in the current financial year. At today’s share price, that becomes a monster yield of 6.6%. 

Too good to be true? Well, the recent volatility in markets will likely mean that the mid-cap’s next set of numbers may not impress. Asset managers typically don’t do very well when clients are clamouring to withdraw their cash. 

Still, the extent to which dividends will be covered by expected profits (1.4 times) looks reasonable. Polar is not one to slash its payout anyway. Based on its track record over recent years, the company is more likely to maintain rather than reduce cash returns when times get tough.

Also changing hands for 11 times earnings, I’d be happy to add Polar Capital to my ISA today.

The post Forget the Cash ISA. I’d buy these cheap dividend stocks today! appeared first on The Twelfth Magpie.

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Paul Summers owns shares in IG Group. The Motley Fool UK has recommended Polar Capital Holdings. 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. Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in the future. The content in this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Passive income…on the cheap

Online trading platform CMC Markets (LSE: CMCX) is a great example of just how fickle investor sentiment can be. Prior to the Covid-19 outbreak, its stock traded for pennies rather than pounds.

Following the huge increase in online trading over multiple UK lockdowns however, the very same shares were changing hands for as much as 559p a pop by April this year. Fast forward to today and the price has more than halved from this peak, as investors have rushed to bank gains following more “subdued” market activity over the summer.

Despite this rocky ride, I think CMCX could be a great choice for passive income-seeking investors. Right now, analysts are predicting the company will return 10.6p per share to owners in the current financial year (ending 31 March). Using today’s price, that’s a 4% yield. This should also be covered well over twice by expected profit, making the payout secure (at least for now).

CMC’s stock also looks inexpensive to pick up, with the company trading at just 11 times forecast earnings. Why is this company so cheap if it’s such good quality you may ask? I suspect a lot of it is due to CMC operating in an industry that’s susceptible to regular meddling from regulators. Larger peers trade on similarly low valuations. With its purple patch likely over, traders will also be looking for other opportunities to grow their capital at a faster clip.

Not that this would bother me if generating income were my primary goal. With its solid finances, I’d be happy to add CMCX to my passive portfolio today.

Chunky 5.4% yield

A second passive income candidate that’s looking cheap to me is fund manager Polar Capital Holdings (LSE: POLR). Its shares can currently be snapped up for less than 13 times expected earnings, and yield a chunky 5.4%. That’s despite the stock rising a little over 40% in value over the last 12 months as profits at the mid-cap company have surged.

Again, there’s are a few things worth bearing in mind. In contrast to the possibility that CMC will likely see more trading from clients as market volatility increases (as it has in September), POLR might see the complete opposite as investors reduce their equity exposure. This means the Polar Capital share price could get cheaper in the months ahead. It could also mean that dividends may not rise as quickly as they have in recent years.

As a Foolish investor, all this is nothing new. I know it’s near impossible to consistently predict the market’s next move. Rather than worry, it’s best to assume that no dividend stream is ever safe and diversify accordingly. That means spreading my money around a reasonable number of stocks from various sectors.

That said, I sincerely doubt POLR will stop paying out income soon, even if dividends aren’t covered quite as well by profit. Like CMCX, it also looks to be in robust financial shape with a substantial net cash position.

The post 2 dirt-cheap passive income stocks to buy in October appeared first on The Twelfth Magpie.

More reading

• FTSE 250 stock CMC’s shares have rocketed 51%! What’s going on?
• CMC Markets: a FTSE dividend star worth considering for an ISA or SIPP?
• £1,000 buys 268 shares in this dirt-cheap dividend stock that’s on fire in 2026

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Polar Capital Holdings. 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.

There are many routes to riches in the market. One of the more ‘relaxed’ methods is to buy and sit on stocks paying big dividends. If these stakes can be purchased at a low price, all the better. 

Today, I’ve picked out two lesser-known dividend champions that, in addition to handing out cash to shareholders, still look great value.

Great dividend stock

Online trading provider CMC Markets (LSE: CMCX) has had a superb last year or so with volatile markets bringing a lot of new clients to its services. Net operating income was 63% higher over the 12 months to the end of March to £409.8m. Pre-tax profit rocketed 127% to £224m.  

Despite this, the shares look cheap considering CMC’s consistently high margins and returns on capital. They currently change hands for just 13 times forecast earnings.

Naturally, there will come a time when markets settle. Indeed, CMC has noted that “client trading activity has moderated from prior elevated levels” since the start of its new financial year. This may bring out a few sellers. The shares have climbed almost 400% over the last two years, after all. 

Then again, the company’s rapidly growing stockbroking arm should help make up for this. A forecast 3.8% yield easily covered by profits also makes this a great dividend stock, in my opinion.

Despite the risk of ‘buying at the top’, I’d feel comfortable adding this stock to my own portfolio now.

Ice cool income

Shares in asset manager Polar Capital (LSE: POLR) also look great value considering the mix of potential growth and income on offer.

Right now, these can be bought for 14 times forecast earnings. That looks a good deal based on fundamentals and recent trading. At the start of the month, Polar reported a 49% jump in pre-tax profit to £75.9m over the year to the end of March. A record 71% rise in Assets under Management (AuM) to just under £21bn was also announced.

However, the PEG (price/earnings to growth) comes in at 1. According to the celebrated investor Jim Slater, anything around this level or lower suggests investors are getting a lot of bang for their buck.  

Obviously, there’s no sure thing. The POLR share price could quickly lose its momentum if global markets experience another big wobble and investors take flight. Whether this is the result of a Covid variant really taking hold or some ‘unknown unknown’, we can’t say. CMC might welcome more volatility. Polar Capital, less so.

Then again, the dividends should make up for any short-term pain. The shares currently yield 4.7%. So, like CMC, I’d be a buyer today.

Receive, reinvest, repeat

Cheap dividend stocks can be appealing for older investors who want to generate income. However, we know that feeding these payouts back into the market has the potential to really grow a person’s wealth, whatever their age.

One risk is that I might not stick to this approach. Spending dividends means missing out on the benefits that compounding brings over time. If this were the case, I’d give serious consideration to asking my broker to automatically reinvest on my behalf.

As last year showed, this income is never entirely secure either. The pandemic forced many firms to slash their payouts to shore up cash. As such, spreading my money around a few dividend stocks is something I wouldn’t hesitate to do. 

The post 2 cheap dividend stocks to buy now appeared first on The Twelfth Magpie.

More reading

• FTSE 250 stock CMC’s shares have rocketed 51%! What’s going on?
• CMC Markets: a FTSE dividend star worth considering for an ISA or SIPP?
• £1,000 buys 268 shares in this dirt-cheap dividend stock that’s on fire in 2026

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

With that in mind, I want to highlight three top funds that have returned 150% or more over the last five years. If you’re looking for a fund for your portfolio, I would definitely check out this trio.

Fundsmith Equity

This global fund, which is headed by well-known fund manager Terry Smith, is one of the most popular in the UK right now. And it’s not hard to understand why. Since its launch in late 2010, the performance has been absolutely incredible, averaging an annualised return of nearly 19% to the end of March. Had you invested £10,000 in the fund five years ago, your money would now be worth around £26,600.

What’s Smith’s secret? Well, as I’ve noted before, the portfolio manager has a strong focus on ‘quality.’ Whereas other fund managers tend to focus on ‘value’ or ‘growth,’ Smith focuses on high-quality companies that are highly profitable and have advantages that are difficult to replicate. Top holdings in the portfolio currently include Amadeus IT, Microsoft, and Reckitt Benckiser.

There’s no guarantee that Smith’s style of investing will generate high returns forever. Yet given that Warren Buffett has done pretty well with a similar investment style, I reckon there’s a good chance Smith will continue to outperform. Fees on this fund are 0.95% per year through Hargreaves Lansdown.

Lindsell Train Global Equity fund

Another portfolio manager that has generated amazing returns for investors recently is Nick Train. His global equity fund is up approximately 164% in the last five years, meaning a £10,000 investment would have grown to around £26,400.

Like  Smith, Train tends to invests in a similar style to Warren Buffett – focusing on high-quality companies that generate consistent, high levels of profitability. Top holdings in the portfolio include  Unilever, Diageo, and Heineken.

One big advantage of this fund is that it’s listed in the Hargreaves Lansdown Wealth 50 list. This means that Hargreaves has negotiated a special low fee for investors of just 0.51% per year. This rock-bottom fee and the excellent performance track record make it a top fund choice for those looking for global equity exposure, in my view.

Polar Capital Global Technology fund

Finally, this fund from specialist investment management Polar Capital is a niche fund that’s focused purely on the global technology sector. That means it’s going to be less diversified overall than other funds and, therefore, higher risk. Yet I wouldn’t let that put you off as over the last five years the fund has returned a staggering 228%, meaning a £10,000 investment would have grown to nearly £33,000.

Top holdings here currently include the likes of Microsoft, Alibaba Group, and Alphabet (Google), meaning that the fund provides investors with exposure to some of the world’s most exciting tech companies.

If the technology sector was to collapse, this fund could struggle. Yet I think the current tech boom could have a lot further to run, so having a small proportion of your portfolio allocated to a tech fund could be a smart move, in my view. Fees through Hargreaves Lansdown are 1.15% per year.

The post 3 top funds that turned £10K into £25K+ in five years appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
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• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Edward Sheldon owns shares in Unilever, Diageo, Reckitt Benckiser and Hargreaves Lansdown and has positions in the Fundsmith Equity fund, the Lindsell Train Global Equity fund and the Polar Capital Technology fund. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Alphabet (C shares), Microsoft, and Unilever. The Motley Fool UK has recommended Diageo and Hargreaves Lansdown. 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.

Nevertheless, having the courage to buy what others are selling has at least the potential to be very profitable over the long term. In addition to benefiting from a reversal in a company’s share price, contrarians may also receive dividends that can be reinvested into buying more shares along the way, further improving their gains.

With this in mind, here are three possible recovery plays that, in addition to being relatively cheap to buy, also offer decent payouts.

Get paid to wait

Floorcovering product supplier Headlam (LSE: HEAD) is first up.

Thanks to concerns over declining pre-tax profit from to a weakening residential market and higher costs (not to mention the debacle at peer Carpetright), the company continues to be out of favour with the market. 

The shares are down a third in value from where they were back in 2017 and now trade on a price-to-earnings (P/E) ratio of just under 11. That’s beginning to look reasonable, particularly given the sizeable dividend on offer. 

Assuming it returns the predicted 24.9p per share in 2019, Headlam yields 6% at its current share price, covered 1.5 times by profits. As a comparison, the best cash ISA offers just 1.45%.

While margins aren’t exactly huge in this line of work, the company generates pretty decent returns on the money it invests. At the time of its last interim results, there was also £16m in net cash on the balance sheet. Full-year numbers are out on 6 March.

Next up is investment manager Polar Capital Holdings (LSE: POLR). After a pretty awful second half of 2018 during which investors pulled their money from its funds, the shares now appear to be stabilising. And given that they still trade on just above 10 times earnings, I think there’s decent money to be made in time.

Like Headlam, Polar Capital has a good balance sheet with the equivalent of over 20% of its market cap in cash. Right now, analysts are penciling in a total dividend of 32p per share for the 2018/19 financial year (ending 31 March). That leaves the shares yielding almost 6.5% at the current share price.

Of course, Polar could experience more volatility in the months ahead, particularly if Brexit negotiations fail and no deal is agreed. As such, a bit of pound-cost averaging may be prudent here.

Freight management services provider Xpediator (LSE: XPD) is the final stock on my list. Again, the company’s value has been hit hard in recent times, down 45% from the high of 85p hit last July. Based on last Monday’s trading update, this could be a great opportunity to build a position. 

Total revenues rocketed 54% to £179m over 2018 with over 14,000 customers now on the small-cap’s books. Two recent acquisitions appear to be bedding in well with more likely to follow.

For those concerned by the impact of Brexit, Xpediator stated that it had been “working closely with leading transport associations and port authorities to plan ahead” and boasts that its status as an Authorised Economic Operator will allow it to support companies looking for solutions to get their products to where they need to be. 

Available for just over nine times forecast 2019 earnings, it is set to yield almost 4% at the current share price. These payouts look secure and, importantly, are growing rapidly. 

The post 3 cheap contrarian stocks that pay great dividends 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 of the great things about investing in shares is that you can diversify. You can buy shares in property companies that diversify across a portfolio of assets, which would stop you relying on perhaps just one buy-to-let property. However, you can also diversify away from property altogether and I’d be tempted by the 7%+ forward dividend yield available with investment management company Polar Capital Holdings (LSE: POLR).

Trading well

The firm provides investment management and advisory services to professional and institutional investors, offering funds diversified by asset class, geography, sectoral specialisation, strategy and structure, and business has been good. Today’s half-year results report revealed Assets Under Management (AUM) rose almost 23% year-on-year, to £14.7bn, driven by net inflows of £0.9bn and a £1.8bn market uplift in the performance of the firm’s funds. Adjusted diluted earnings per share shot up almost 86%, and the directors expressed their satisfaction and confidence in the outlook by pushing up the interim dividend by more than 33%.

During the period, the company launched three new funds: Emerging market Stars, China Stars and China Mercury funds, suggesting that it sees value and potential in those markets. Meanwhile, in the first half of the trading year, around £23.3m boosted the company’s coffers from performance fees. The chief executive, Gavin Rochussen said in the report the firm had enjoyed “a highly satisfactory first six months,” but sounded a mild warning about the immediate outlook. He thinks the company we will see “more volatile markets and a reduction in risk appetite” from investors because Europe and Japan will reduce “accommodative monetary policy” and the US will continue to “normalise interest rates with monetary tightening.” Many people, it seems, are expecting changing interest rates to play a big part in the financial landscape going forward.

Poised to take advantage of market volatility

However, Polar Capital is poised to strike if share prices fall, and Rochussen said the firm’s bottom-up, fundamental fund strategies across global markets are “positioned to take advantage of valuation anomalies that arise in good quality, publicly-traded companies.” Meanwhile, we can take advantage of Polar Capital’s own share price, which has slipped back recently, probably because of the uncertain outlook.

Today’s share price around 491p throws up a forecast dividend yield of 7.2% for the trading year to March 2020, which looks attractive. The forward price-to-earnings ratio runs a little over 10.5, suggesting reasonable value, and assuming we don’t suffer another 2008-style market crash soon, I think the stock is tempting.

The post Forget buy-to-let, I’d buy shares in this 7%-yielding company instead 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?

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.

Yet no matter how good a company is, its shares can reach a level where the valuation is so rich that it makes sense to sell the stock and look for better value elsewhere. I believe this is the case with two high-flying stocks in the top echelon of the FTSE AIM index, namely Polar Capital Holdings(LSE: POLR), which released its annual results today, and Fevertree Drinks (LSE: FEVR), the second-largest company in the index behind online fashion giant Asos.

268% gain since IPO

Polar Capital Holdings is a specialist active investment management company aimed at professional and institutional investors. Small private investors may not have heard of its funds (they include Automation & Artificial Intelligence, Global Convertible and European Forager hedge fund), although its three investment trusts, by far the largest of which is Polar Capital Technology Trust, may be familiar to some.

The company was founded in 2001 and joined AIM in February 2007, with a 190p-a-share placing giving it a market-cap of £120.5m. The shares closed last week at a new all-time high of 692p and topped 700p after this morning’s results.

Strong results

The company reported an 85% increase in total net revenue to £125.9m for its financial year ended 31 March, with net management fees up 33% to £90.3m and performance fees rocketing by over 1,200% to £35.6m from £2.7m. However, costs also increased significantly. Total operating costs rose 78% to £87.9m, including increases in staff numbers, discretionary bonuses and, most notably, performance fee interests, up to £20.3m from £1.5m.

Nevertheless, the company delivered strong bottom-line growth, with adjusted basic earnings per share (EPS) and adjusted diluted EPS (which takes account of the significant share options held by directors and staff) both up 79% to 38.4p and 36.6p, respectively. This compares with analyst expectations of 35.6p when my Foolish colleague Edward Sheldon looked at the company in March. Edward was particularly interested in the dividend, which was forecast to rise to 26.4p from 25p. So he will be pleased with the payout of 28p announced by the board today.

Valuation

At a share price of 700p, Polar’s price-to-earnings (P/E) ratio is just over 19 on a diluted EPS basis and the dividend yield is bang on 4%. The earnings multiple isn’t outrageous, particularly as the company reported net cash of £87.9m on its balance sheet at the year end. Similarly, while there are higher yields available from blue-chip fund managers — Schroders (non-voting shares) at 4.5% and Standard Life Aberdeen at a whopping 6.2% — Polar’s 4% is pretty decent. Certainly, neither the P/E nor the dividend yield are at levels that might suggest the stock is an obvious ‘sell’.

However, my favoured valuation metric for fund managers is based on assets under management (AUM). My rule of thumb is that a company valued at up to 3% of AUM is generally good value. I might continue to hold the stock if the valuation rises to 4%, but once it gets above that, it moves into ‘sell’ territory, in my book.

Polar today reported AUM of £13.4bn as of 31 May. At a share price of 700p, the company’s market cap is £655m, which represents 4.9% of AUM. I see this as a late-stage bull market valuation, which offers investors little margin of safety. And I believe now could be an opportune time to sell the stock.

Early mover

Polar has delivered an excellent return for investors since its IPO, but the return has been spectacularly eclipsed by that of Fevertree Drinks, which was founded in 2004 and listed on AIM in November 2014. At the IPO price of 134p, Fevertree’s market cap was £154.4m. Today, the shares are trading at over 3,400p and the market cap is not far short of £4bn.

Fevertree’s founders were quick to spot the opportunity from growth in consumer demand for artisan gins. Disgusted by the “artificial, saccharine-packed tonics” that dominated the market, they set out to make a premium Indian Tonic Water from fresh, natural ingredients. The business took off and the company has since rapidly expanded, internationally and into other mixers.

Competitors slow to respond

Growth has been phenomenal, exceeding the expectations of City analysts and the founding directors from the outset. The pricing of the IPO soon looked to be a huge bargain, representing a P/E of just 11.7, based on diluted EPS of 11.48p posted in its first full financial year after listing. The next year saw a 106% increase to 23.7p, followed by a 65% rise to 39.15p last year. At the current share price, the P/E is an eye-watering 87.

I think part of the reason why Fevertree has been so successful is because competitors were so slow to respond. The company made a telling comment in its AIM admission document: “The biggest single brand of tonic water worldwide is Schweppes. However, since the break-up of Cadbury Schweppes in 2008, the Schweppes brand has a highly fragmented ownership (over 10 companies), especially in Europe, with no central brand stewardship, strategy or marketing.”

This played into Fevertree’s hands. When Schweppes did get round to responding with its premium Schweppes 1783 mixers and a multi-million-pound campaign in the UK, Fevertree was already become the best selling mixer brand in Britain’s shops.

Tougher going forward

Much as I admire Fevertree, I rate the stock a ‘sell’ today, due to that eye-watering P/E of 87. Rising competition not only from Schweppes, but also others, including new entrants, represents a tougher environment for Fevertree going forward. And while the company certainly has good international expansion opportunities, this also comes with execution risk. Given that risk and with City forecasts of annual EPS growth moderating to a percentage in the teens, a P/E of 87 simply looks far too fizzy to me.

The post Fevertree Drinks isn’t the only high-flying stock I’d sell 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?

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Schroders (Non-Voting) and Standard Life Aberdeen. 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.

Safecharge

£450m market cap SafeCharge International Group (LSE: SCH) is a UK-based payment services provider. The company provides these services to a blue-chip client base all around the world, with its proprietary payment platform connecting directly to all major card schemes including Visa, MasterCard and American Express.

Reporting full-year numbers for 2017 this morning, the company revealed that it processed 174m transactions last year, a 38% increase on 2016. This pushed revenues up a healthy 7% to $111.7m, although diluted earnings per share fell 9% to 15.8 cents on the back of larger employee-related and restructuring costs.

Turning to the dividend, SafeCharge operates a policy whereby it pays out 75% of adjusted EBITDA, as long as there is no material M&A activity. As a result, the company has this morning announced a full-year payout of 16.9 cents per share, a yield of 4% at the current share price. That now marks three consecutive dividend increases since the firm paid its first distribution in 2014. In this time, the payout has grown over 100%. Can investors expect more dividend growth going forward?

As it stands, City analysts currently forecast a payout of 21 cents per share for 2018. At today’s share price, that equates to a yield of 5%. However, analysts’ forecasts can be a little inaccurate sometimes, so I’d approach that estimate with an element of caution. For example, today’s 16.9 cent dividend is around 11% below what analysts had pencilled in for 2017.

Nonetheless, with CEO David Avgi commenting this morning that “we remain confident that our focus on higher quality revenues driven by a healthy sales pipeline will yield profitable revenue growth in 2018 and beyond,” the outlook here does look positive, in my view.

Polar Capital Holdings

Also paying out sizeable dividend cheques to shareholders is investment manager Polar Capital Holdings (LSE: POLR). The company runs a range of specialist funds including the popular Polar Capital Technology Trust, and currently has assets under management of around £12bn.

For the last four years, it has paid shareholders 25p per share in dividends each time. At today’s share price, that equates to a yield of a high 5%. Does that make it a ‘buy’ for its yield?

One thing that’s worth noting about the dividend here is that for the last two years, it hasn’t been covered by earnings. For 2016 and 2017, adjusted earnings per share were 22p and 20.4p respectively, meaning that dividend coverage was below one. That’s clearly not ideal from an income investing perspective, as it suggests the payout is not sustainable.

Having said that, for the year ending 31 March 2018, analysts do expect a significant jump in EPS, to 35.6p, as well as a hike in the dividend, to 26.4p per share. With that in mind, it could be worth waiting for full-year results before buying the shares for the dividend, in order to get a better idea of payout sustainability.

The post Two 5% dividend stocks you may not have spotted 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?

Edward Sheldon 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.

Indeed, the London company’s results were pretty impressive. Assets under management (AUM) as of September marched to £10.6bn, a £1.3bn improvement from six months earlier. Polar Capital said that this was thanks to “net fund inflows of £820m together with market uplift and fund performance of £510m.”

Pre-tax profit climbed to £11.8m in the six months to September, up from £8.5m a year earlier. And the sunny result prompted an upgrade in the interim dividend to 6p per share from 5.5p in fiscal 2017.

Celebrating the results, chief executive Gavin Rochussen said: “Fund performance has improved and it is pleasing to report that, in the nine months to 30 September 2017, performance across our fund range has been largely ahead of respective fund benchmarks.”

And Polar Capital has continued to rake in business, Rochussen commenting: “The outlook… for the remainder of the financial year is encouraging with continued momentum in flows and fund performance in the months following the reporting period.” Assets under management improved to £11.4m as of the end of November.

Vast yields

Today’s results underline why City analysts expect Polar Capital to deliver brilliant earnings growth in the immediate term and later.

For the 12 months to March 2018, the business is expected to record a 45% earnings improvement, and in fiscal 2019 it is anticipated to report a 13% increase.

And with earnings expected to rise this year for the first time in several years, Polar Capital is predicted to get dividends marching skywards again (it has held the full-year payment at 25p per share since 2014).

This year the number crunchers are expecting a 26p reward, and next year a 28.1p dividend is expected. And as a consequence, the AIM company boasts enormous yields of 5.5% and 5.9% for fiscal 2018 and 2019 respectively.

With assets steadily rising thanks to a positive trading backdrop and Polar Capital’s ever-expanding range of products, I reckon the share is a great pick for both growth and income chasers, and particularly given its ultra-cheap forward P/E ratio of 15.3 times and a corresponding PEG reading of 0.3.

Big dividends

Jupiter Asset Management (LSE: JUP) is another business offering robust earnings and dividend growth.

Supported by City expectations of an 18% earning rise in 2017, the FTSE 250 giant is expected to pay a 30.2p per share dividend, resulting in a 4.9% yield.

And with a further 9% earnings advance pencilled in for next year, Jupiter is predicted to lift the dividend to 32.4p, nudging the yield to 5.3%.

To complete the set, just like Polar Capital, I believe that Jupiter is also a steal at current prices. Of course a prospective P/E multiple of 17.7 times is hardly compelling, but a corresponding PEG readout at the bargain watermark of 1 certainly is.

And I am confident the financial giant has what it takes to deliver excellent long-term shareholder returns. AUM at Jupiter sprang to £48.4bn as of September from £46.9bn just three months earlier, thanks in no small part to its broadening product suite and the vast investment it is making across its operations.

The post Two 5%+ yielders that could make you seriously wealthy 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 recommended Polar Capital Holdings. 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.

Golden opportunity?

Shares in sports and fashion retailer, JD Sports (LSE: JD) fell almost 11% in early trading this morning following the release of a trading statement to coincide with its AGM. Personally, I think this represents a golden opportunity to grab a slice of a high-performing, quality business.

The update isn’t even bad. According to Chairman Peter Cowgill, group like-for-like sales remain “in line with expectations” with “further significant growth” being seen online. Elsewhere, JD continues to expand its store estate at a rapid pace with 28 new sites opening over the period, including two in Australia and two in Malaysia. 

Today’s market (over)reaction to what appears to be a largely positive update looks like a classic case of expectations overtaking reality. The mention of “some anticipated margin pressure” appears to have spooked many, even though the company made the point of saying that it didn’t foresee this impacting on full-year results.

Before today, JD’s shares traded at 18 times earnings based on expected EPS growth of 15% for the current financial year. While not cheap, it’s certainly a lot less expensive relative to historical valuations, particularly given the £3.9bn cap’s track record of growing revenue and profits at a furious rate over the last few years. The returns it generates on the money it invests continues to climb and a net cash position of £214m at the end of the last financial year shows just how strong JD’s finances are in comparison to many of its high street peers.

I’d ignore today’s absurd reaction. As growth shares go, the Bury-based business remains a class act.

More growth ahead 

Investment manager Polar Capital (LSE: POLR) is another company with excellent growth credentials. Unfortunately, this hasn’t gone unnoticed by the market with shares in the £410m cap rising 51% over the last 12 months. Given the growing demand for its services however, I can see this continuing for some time to come.

In the year to the end of March, assets under management at Polar rose to £9.3bn (from £7.3bn the year before). By the end of May, this had increased further — to £9.8bn. While full-year core operating profit fell 8% to £21.8m, adjusted diluted earnings per share still came in ahead of expectations.

Over 2016/17, Polar expanded its range through the introduction of a UK Value Opportunities fund — raising over £100m on its launch in January. By May, the fund had assets worth over £256m. Since the end of the reporting period, the company’s Healthcare Investment Trust has also been restructured.

Commenting on this week’s results, outgoing CEO Tim Woolley reflected on the “significant opportunities” for the company, particularly in relation to expanding beyond the UK wealth management industry.

With 66% EPS growth now expected in 2018, giving a price-to-earnings growth (PEG) ratio of just 0.89, a history of generating consistently high returns on capital, great margins, lack of net debt and a cracking 5.6% dividend yield, Polar presents as a solid choice for growth and income investors alike. 

At 16 times forecast earnings, I think the shares certainly warrant further investigation.

The post These top-performing growth stocks could have further to run appeared first on The Twelfth Magpie.

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Paul Summers has no position in any shares mentioned. The Motley Fool UK has recommended Polar Capital Holdings. 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.