Geared play

If you can hold your nerve, now’s the time to pick up your favourite stocks at discount prices. Asset management companies make a tempting target, because they rise faster when investors are bullish, and fall faster when they are bearish, as they’re doing today.

Fund managers Schroders (LSE: SDR) and River & Mercantile Group (LSE: RIV) are both down more than 3%, double the current 1.5% loss on the FTSE 100. Things look even worse at Jupiter Fund Management (LSE: JUP), down 5.99% after publishing its trading update for the three months to 30 September.

Falling star

Jupiter has been hit by net outflows totalling £800m during the quarter, offsetting positive performance of £300m, with European fixed income funds bearing the brunt of it. The group still has £47.7bn assets under management, but the news was enough to spook investors.

This puts the tin lid on a tricky 2018, with the group’s share price starting the year at 624p and now trading at 355p, a drop of almost 45%. High redemptions from its dynamic bond are hitting plans to expand its UK focus to become a broad-based European fund manager.

Dark star

Jupiter looks cheap, though, trading at 11.9 times earnings with a whopping forecast yield of 7.2%, although cover is thin at 1.2. However, City analysts are pencilling in a 4% drop in earnings per share (EPS) in 2018, and another 1% drop in 2019.

This looks like a tough year all round for fund managers, with Schroders and River & Mercantile both down around 17% year-to-date. Schroders was briefly lifted by weekend press reports that it’s in talks with Lloyds Bank to create a leading wealth management business, although the stock market sell-off has wiped out those gains. It’s also winning the race for the £109bn mandate from Lloyds to manage its Scottish Widows investment assets.

Young man River

Schroders’ most recent results showed six-monthly pre-tax profits rising 8% to £371.1m, with assets under management up £1.2bn to £449bn, helped by healthy net inflows. Trading at 13.3 times earnings, it looks tempting. You also get a forecast yield of 3.8% yield with cover of 2. EPS growth looks patchy, falling 2% this year, but rising 5% next. If markets keep falling, this could be a real bargain.

River & Mercantile may have slipped lately, but its share price has nonetheless risen 50% since floating in 2014. It also has attracted a loyal band of enthusiastic investors. This is another high yielder, with a forecast income of 5.8% and cover of 1.2. That’s a mighty dividend from a relative minnow. Again, its yours for a slight discount of 13.8 times earnings.

Swept away

River & Mercantile is building its business by investing in its operating platform, international capabilities, and new product launches and, as my Foolish colleague Ian Pierce has pointed out, it was recently posting strong inflows and profits before tax. However, EPS growth has been erratic with a 5% drop in the year to 30 June 2017, and City analysts anticipate a 17% drop this year. Of the three, Schroders would be my tip.

The post Are these 3 stocks all screaming buy as global markets plunge? appeared first on The Twelfth Magpie.

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harveyj 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.

5.4% dividend yield

While GlaxoSmithKline no doubt pays a chunky dividend, the stock is far from the perfect dividend stock, in my view. Sure, a trailing dividend yield of 5.4% looks attractive in the current low-interest-rate environment, but when we dig further into the dividend details, we can see that coverage in the last two years has been thin. Indeed, Glaxo generated core earnings per share of 75.7p in 2015 and 102.4p in 2016, resulting in dividend coverage of just 0.95 and 1.28 times over the last two years. A level below 1.5 is generally considered to be risky.

Furthermore, the company hasn’t increased its dividend for three years now, paying 80p per share for 2014, 2015 and 2016. Tesco shareholders may recall the supermarket doing the same thing between FY2012-FY2014, before cutting its payout dramatically the next year. GlaxoSmithKline recently advised that dividend growth will be put on hold until free cash flow cover of the dividend is in the target range of 1.25 to 1.5 times.

Having said all that, I’m not ready to sell my GlaxoSmithKline shares just yet.

With the number of people aged 65 or older across the world set to double by 2050, demand for healthcare should remain robust. As a result, I’m bullish on the long-term prospects of the healthcare sector. While GlaxoSmithKline may be struggling a little now, I’m willing to give the pharmaceutical giant time to rebuild itself into a stronger, more balanced business.

Management stated in the July half-year report, that it “recognises the importance” of dividends, and that a payment of 80p can be expected this year and next, “subject to any material changes in the external environment or performance expectations.” City analysts anticipate dividend coverage improving this year, with the consensus earnings figure of 110.8p, giving a coverage ratio of a slightly more healthy 1.39.

So while dividend growth may be a while off, I believe GlaxoSmithKline’s yield still looks attractive in today’s low yield environment. On a forward P/E of 13.3 times, the stock offers long-term value, in my view.

A 6.3% dividend yield 

Turning to another high-yield dividend stock, River and Mercantile (LSE: RIV) released preliminary full-year results today, and it appears that the investment manager has strong momentum.

The company generated adjusted underlying profit before tax of £16.4m, up from £11.1m last year, and adjusted basic earnings per share rose to 22.9p, up from 11.62p last year. The board today declared a second interim dividend of 8.1p, of which 2.8p was a special dividend, as well as a final dividend of 6p, of which 2.8p was a special dividend. Adding these to the interim dividend of 5.6p the company declared in February, and the total FY2017 dividend payout was 19.7p, equating to a stunning dividend yield of 6.3% at the current share price.

River and Mercantile has enjoyed strong growth in assets under management over the last three years, and while there’s no guarantee the company will pay such strong dividends in the future, on a P/E ratio of 13.8, I believe this small-cap cash cow could be worth a closer look.

The post Why I’d buy GlaxoSmithKline plc for its 5%+ dividend yield today appeared first on The Twelfth Magpie.

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• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Edward Sheldon owns shares in GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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 aren’t many stocks out there that can satisfy both income and growth investors but that doesn’t mean they don’t exist. In fact, with an expected 4.1% yield for the year and double-digit rise in earnings, £295m market cap asset manager River and Mercantile (LSE: RIV) seems to fit the bill.

Unlike many asset managers that have seen net client redemptions become a common occurrence, River and Mercantile’s funds continues to perform well enough to draw in new money, the lifeblood of all asset managers. In the 12 months to June the company recorded £3.8bn in net inflows, which together with high returns from its funds, led to a staggering 22% year-on-year rise in assets under management to £31bn.

Of course, as the company increases its asset under management, margins rise considerably as the fixed costs of paying fund managers and back office functions consume a smaller proportion of revenue. The company hasn’t yet released full-year financial results, but the significant increase in assets under management for the year to June suggest last year’s pre-tax margins of 24% should rise by a substantial amount.

This is especially true as the company expects to record £12.5m in performance fees for the year, an astronomical increase over the £1.5m recorded in the year prior. And since the company paid out 100% of its profit from these performance fees last year as dividends, investors should expect a bumper payout this year. This is why analysts have pencilled in a 14.75p full-year dividend that would yield 4.1% at today’s share price.

The company’s shares are pricey at 21 times forward earnings and for an asset manager of this size, earnings can be incredibly unpredictable due to volatile performance fees. But investors looking for that rare combination of growth and income could do a lot worse than River and Mercantile.

New kid on the block 

Another one of these rare stocks is pension administration specialist Xafinity (LSE: XAF), which analysts are expecting to post a 14% rise in earnings per share this year and offer shareholders a 3.9% yield.

Analysts are basing this solid level of growth on the company’s ability to continue selling its consulting and advisory services to companies desperate to get their pension schemes in good order. The market for its defined benefit plans services is unsurprisingly large as many companies’ DB plans are essentially gaping holes eating cash with interest rates as low as they are today.

Furthermore, operating in such a critical-but-complex and highly regulated industry means the need for Xafinity’s services rises with each new regulatory mandate. This gives the company significant pricing power that is exercised last year to produce underlying EBITDA of £17.46m from £52.04m in revenue.

However, there are a few reasons to be cautious. The company only went public in February, revenue growth last year was a tepid 1%, pre-tax losses for the year rose to £12.8m, and net debt ended the year at 1.6 times EBITDA. Xafinity may turn out to be a great growth and income share, but as with all new IPOs, it’s worth doing an extra level of research before investing in it.

The post 2 high-growth stocks with massive dividend yields appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Ian Pierce 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.

Resilient

First up is River and Mercantile Group (LSE: RIV), an advisory and asset management company which is doing well amid challenging market conditions.

Steady fund inflows reflect the asset manager’s resilient business model and the robustness of the appeal of its investment solutions. Net inflows in the three months to 30 June were £0.4bn, with net sales of £0.2bn and positive rebalancing flows in Derivative Solutions of £0.2bn. This marked its 13th consecutive quarter of positive fund flows since its IPO back in 2014.

For the 12 months to 30 June, fee-earning assets under management increased by 22% to £31bn, while performance fees are estimated to have risen to £12.5m, up from £1.5m last year.

Looking ahead, CEO Mike Faulkner said: “We remain well positioned to continue this growth and will continue to invest in our operating platform, international capabilities and new product launches.”

The question for investors is whether earnings and dividends will rise fast enough to meet the market’s demanding expectations — shares in River and Mercantile Group have already gained 63% year-to-date.

Personally, I reckon there could still be more upside to come as the company’s steady growth in assets under management reflects its sector-leading performance. Valuations aren’t necessarily cheap, with the shares trading at 19.3 times expected earnings in 2018, but quality companies with good growth prospects always come at a price.

The dividend outlook is attractive too, with shares in River and Mercantile Group forecast to yield 4.2% this year at current prices — and that’s up from its trailing dividend yield of 2.5%.

Strong growth

Another stock worth a closer look is CVS Group (LSE: CVSG). In a trading update on Monday, the veterinary services provider said it saw like-for-like growth of 6.3% for the year to 30 June, with full-year revenue and earnings likely to be in line with expectations.

CVS is seeing strong growth as it continues to invest heavily in its existing services and in organic growth, amid growing demand for veterinary services in the UK and the Netherlands. Acquisition-led expansion continues apace too, with a total of 62 surgeries acquired over the past year.

Looking ahead, CVS continues to see a significant number of acquisition opportunities and expects further like-for-like growth in the coming year. In addition to generating top-line growth, this could lead to improved scale, which could benefit future margins.

Moreover, City analysts seem sanguine on its growth prospects. They expect underlying earnings to climb 27% this year, with further growth of 9% in 2018, which gives it a forward P/E of 28.1.

Shares in CVS are up 17% year-to-date.

The post 2 fast-rising growth stocks with lots of upside appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Jack Tang 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.