Cash from cash

The electronics payment sector is very competitive, but there’s plenty of growth likely for those who make a success of it. PayPoint (LSE: PAY) is one, and its installation in many thousands of retail outlets for paying household bills and the like has given it a bit of a headstart.

Adjusted earnings per share have been growing steadily, and the company is now in a transition phase after deciding to dispose of its mobile and online payments business and concentrate on its retailer operations. That will leave it with surplus capital, which chairman Nick Wiles has said will be returned to shareholders over the next five years (although special dividends might be deferred should attractive potential acquisitions show up).

The result is that the company’s progressive dividend policy is expected to provide an overall 6.5% yield for the year to March 2017, rising to 6.7% the following year — and that’s with the 963p shares on a P/E of 15 this year, dropping to 14.3 next. Who says you can’t have both growth and dividends?

Support services recovery?

Shares in support services and construction group Interserve (LSE: IRV) have slumped by 57% over the past 12 months. The firm’s acquisition of Initial last year has ramped up its debt position, and a trading update in May warned us to expect a £70m one-off cost in the first half from a contract that’s gone bad. For a company that recorded pre-tax profit of only £79.5m in 2015, it’s a significant hit.

The price fall has left the 281p shares on a forward P/E of only around 4, and has pushed the predicted dividend yield up to 9%! I think it’s very likely that the dividend will be cut this year, and such fear is surely behind the low valuation.

But markets almost always overreact to such fears as there’s still room for a sizeable dividend cut while leaving a reasonable yield this year. The problem is a one-off, and Interserve’s progressive dividend policy should see cash handouts remaining strong in the coming years. Expect some volatility, but definitely one to consider for the long term.

The death of paper

The fall in demand for print products like newspapers and magazines has taken its toll on Trinity Mirror (LSE: TNI) shares, which are down 58% since last November to 76p, and have lost 36% since the Brexit vote on 23 June. But have the pessimists gone too far?

The company’s July trading update told us the board “anticipates that our interim results will be in line with our expectations with continued strong cash generation over the period enabling a further fall in net debt“. That debt did stand at £92.9m at the end of December, which is a lot for a company with a market cap of £212m.

But does it really justify a forward P/E multiple as low as just a little over two when the long-term FTSE average is around 14? I don’t think so, especially with a 7.7% dividend yield forecast for this year followed by 8.3% next, which would be well covered by predicted earnings. Trinity Mirror is priced to go bust, but I can’t see that happening.

The post Are these the best small-cap dividends on offer? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of PayPoint. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Shares in Poundland (LSE: PLND) haven’t done too well since the cut-price shopping chain came to market in March 2014. The timing didn’t seem unreasonable, with the UK coming out of recession and a bit of optimism appearing, but Poundland shares started to fall in August 2015, and now they’re down 55% to 174p since flotation.

The company’s acquisition of 99p Stores looks set to contribute to a 37% fall in EPS this year, but I think any downgrading of the shares on that basis is short-sighted. I know forecasts are hard to evaluate at this early stage, but the 59% rebound predicted for the year to March 2017 followed by a further 22% growth penciled in for the following year would drop the P/E down to around 10.5. It would also provide PEG ratios of 0.2 this year and 0.5 next, with growth investors typically seeing 0.7 and below as a good indicator.

So, on growth fundamentals, Poundland now looks attractive, and there’s a progressive and well-covered dividend to be had too. The yield based on expectations for the year ended in March this year would only be around 2.5% — results are due on 16 June, with the firm’s Q4 update calling it a “transformative” year. But the yield is set to reach 3.9% in two years time. Worth tucking away for a decade? I think so.

No more paper?

Shares in Trinity Mirror (LSE: TNI) seem to be perpetually cheap, and are currently on a forward P/E of only around 3.5. Of course, fears for the future of actual printed newspapers weigh heavily on the company, especially after the failure of The New Day which only lasted nine weeks before the plug was pulled.

But the company has been on the acquisition trail, owns an increasing stable of online publications, and its fundamentals actually don’t look too bad at all. Earnings are expected to grow this year and next, albeit slowly, and dividend yields (which would be covered more than fivefold by earnings) of 4.7% and 5.3% are predicted for the two years.

I reckon reports of the demise of the company are greatly exaggerated, and for long-term investors I think there’s profitable life in Trinity Mirror shares yet.

Change of focus

Helical Bar (LSE: HLCL) is a property investment and development group, and it has recently switched its focus towards the London market — and in results released on Tuesday it reported record pre-tax profits of £120.1m for the year ended in March. The company’s property portfolio is now apparently valued at £1.23bn, which is a 21% improvement on a year previously.

As he ends his 32-year tenure as chief executive, Michael Slade said that

“Since 2012, we have targeted an income producing investment portfolio representing at least 75% of our total property assets with our development programme making up the remaining 25% which is capable of producing exceptional profits“

and told us the firm has exceeded its targets.

Mr Slade did point to a possible Brexit from the EU as presenting risks, but Helical Bar looks like one of those companies that is genuinely looking at the long-term prospects for its business, and that can only be a good thing.

The post 3 small cap shares for the next decade: Poundland Group plc, Trinity Mirror plc, Helical Bar plc? 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?

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Quarto is an illustrated book publisher and distributor, with a market cap of around £50m, and it’s just released full-year results that beat expectations. With adjusted pre-tax profit up 18%, adjusted earnings per share rose 13%, and the total dividend of 9.5p per share is 6% ahead of last year and yields 3.8% — and it’s covered 3.4 times by earnings. Net debt was cut by 10% too, which is a good sign, with chief executive Marcus Leaver telling us that the firm intends to “steadily reduce net debt further“.

Forecasts suggest two years of EPS growth at 11-12% per year, which would put the shares on a P/E multiple of under seven for 2016, dropping to just six on 2017 forecasts, and would provide PEG ratios of around 0.6. That suggests good growth value to me, and on these fundamentals I’d say Quarto is looking attractive.

Solar power

Shares in PV Crystalox Solar (LSE: PVCS) perked up 4% in early trading to 9.7p, after full-year results revealed an increase in revenues from €53.3m to €64.5m. The company makes photovoltaic silicon wafers, used for capturing solar energy, and it’s been suffering from weak pricing. But chief executive Iain Dorrity told us that the price of wafers “has shown some modest recovery during recent months while the price of polysilicon, the key raw material, has fallen to historic lows“, and that wafers can now be sold at more than their cash cost of production.

The company still widened its loss for the year and is extending a strategic review of its business in what are still difficult trading times. Vernalis had net cash of €12.7m on its books at the end of December, albeit down from €24.6m a year previously and possibly close to the limit if it suffers a further loss in 2016. But analysts are expecting just about break-even. It sounds like 2016 could be a pivotal year — and if demand for solar energy is on the rise, we could be at a good (if risky) buying point.

Medical recovery

My third candidate today is pharmaceuticals firm Vernalis (LSE: VER), whose first-half results led to a 12% drop in the share price to 52p. The shares soared to 87p back in September 2015 on the back of hopes for the firm’s Tuzistra XR cold treatment, but since then shareholders have been hit with a 40% fall.

Interim results showed a revenue increase to £6.1m from £5.7m, with Tuzistra XR contributing £0.6m to that — and it represents the direction the firm is going in the “major transformation in our business” described by chief executive Ian Garland, to specialize in cough and cold treatments.

There’s no annual profit forecast yet, but predicted losses per share are tumbling and the four brokers offering an opinion have Vernalis as a ‘strong buy’. It’s another risky one, but if profitability can be achieved by 2018 then we might be on to a winner.

The post 3 Small Caps Set To Soar: Quarto Group Inc, PV Crystalox Solar PLC, Vernalis plc? 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?

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Some forecast yields reach lofty levels simply because investors fear they won’t actually happen, and that tough times will force a company to slash the cash. That’s pretty much the reason they’re not rushing to grab their share of a forecast 9.8% from BHP Billiton (LSE: BLT), whose shares have lost half their value in the past 12 months to reach 655p — but at least that’s better than the 52-week low of 572p touched last week.

Times are tough for miners, sure, and the 77p per share dividend forecast for the year to June 2016 wouldn’t be even half covered by earnings. But a commodities recovery simply has to arrive some time, and will BHP tough it out and keep stumping up the cash until that happens?

I wouldn’t like to call that, but it’s surely a tempting punt for those who like a bit of risk, don’t you think?

Publishing slump

Educational publisher Pearson (LSE: PSON) is another 12-month tragedy as far as share prices go, with a 44% drop to 767p — with October’s Q3 update resulting in a dive than no self-respecting swallow would be ashamed of.

But at least today’s price is a good bit above the 52-week low of just 644.5p the shares reached on 20 January, and the low price has boosted the potential dividend yield to be enjoyed by those who invest now. We’re looking at a 7% yield based on forecasts for this year, though that would only be covered only around 1.2 times by earnings.

Pearson has a track record of keeping its dividends growing, and I suspect it will try its best not to disappoint on that score — but looking at the bigger picture, I think there’s a good argument for cutting the dividend a little and using the cash to help debt.

Telecoms cash

TalkTalk Telekom (LSE: TALK) was hit by a security hack last year and that damaged the share price, but it’s been heading even further south since then and hit a 52-week low of 184p on 14 January. Since then we’ve seen a recovery to 204p, but we’re still looking at a loss of 54% since June 2015.

What’s that done to the dividend yield? Well, we’re looking at 7.8% predicted for the year to March 2016. That would only be around 75% covered by forecast earnings — but TalkTalk has been punching above its weight in dividends for a couple of years now, with last year’s cash only 60% covered by earnings. And 2017’s predicted dividend would actually be covered 1.2 times!

TalkTalk seems committed to its dividend while it works to get its earnings back on track, but I still see it as one for the brave.

The post Can Dividends At BHP Billiton plc (9.8%), Pearson plc (7%) & Talktalk Telecom Group PLC (7.8%) Get Any Better? 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?

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.