As the week has evolved, the chances of the UK falling off the cliff edge and embarking on a destructive ‘no deal’ Brexit have been steadily growing. Rather than stamping on the reverse pedal, though, Downing Street has doubled-down on its high-risk game of bluff with Parliament that could see the country exit the European club without an agreement.

Theresa May’s aggressive pitch to the nation last night was intended to concentrate MPs’ minds on passing her Withdrawal Agreement on the third time of asking. Her tactic of pitting the public against Parliament, though, appears to have spectacularly backfired and undermined her chances of getting her plan through the Commons — should it even be allowed to be debated by speaker John Bercow — thus increasing the chances of a ‘no deal’ conclusion to this turbulent political saga.

International colossus

There’s clearly a lot for investors to worry about right now, and if you’re one of those concerned over the unfolding Brexit saga then you might want to give SThree (LSE: STHR) a close look today.

It’s not that the recruitment giant would be immune to the possible troubles created by a disorderly withdrawal. However, given that the business generates just 15% of group gross profits from these shores it’s in a better shape than many to ride out any potential economic turbulence in the near term and beyond.

In fact, I would argue that the rate at which SThree is making progress abroad should encourage investors to believe that it can deliver stupendous profits growth, irrespective of how Brexit pans out. In the three months to February, profits from Continental Europe, responsible for almost six-tenths of the group total, jumped 12%. And in its second-largest market of the US, these climbed 17% year-on-year.

It’s no shock that City analysts expect chunky profits growth at the small-cap through to the end of fiscal 2021, then, and for dividends to keep rising as well. Thus SThree carries jumbo yields of 5.5% and 5.5% for this year and next respectively.

More meaty dividends

Sausage casing maker Devro (LSE: DVO) is another great income pick for those fearful about the future of the UK economy.

Why? Well thanks to the impact of its Devro 100 restructuring plan, sales of its edible products are surging in hot growth markets and should continue to do so as new products like its Fine Ultra hit the market. Volumes in North American and Latin America grew 8% and 9% respectively in 2018, for example, while in South-East Asia these rose 6%, and in China 5% (excluding legacy products).

And there’s plenty of opportunity for Devro to keep growing sales as wealth and population numbers rise on a global level. This is why City analysts predict sustained earnings expansion over the next couple of years at least here, and that the company will also keep growing dividends. Consequently yields sit at an impressive 4.7% for this year and 4.9% for 2020.

The post 8 days to go! I think these 5% dividend stocks could protect you from a destructive Brexit appeared first on The Twelfth Magpie.

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• 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?

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Devro. 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.

Share pickers seem to be reluctant to take the plunge because of the weak UK economy and fears that this will rock profits growth at the recruitment giant. I’m afraid this argument doesn’t hold water with me, though, as thanks to the tearaway performance of its foreign operations total profits continue to surge.

Last year, for example, SThree saw gross profits at group level swell 12% even as the bottom line in its UK and Ireland territory fell 5%. Less than 20% of the small-cap’s profits are now derived from home shores and so I’m confident that it can continue to thrive even if Brexit has bad implications for its domestic operations.

City analysts expect the bottom line to keep rising too, creating a dirt-cheap P/E ratio of 9.2 times for fiscal 2019 and expectations of more dividend growth to 15p per share. This results in a jumbo 4.9% yield.

Strike now

Hollywood Bowl Group (LSE: BOWL) isn’t as cheap as SThree. In fact, its forward P/E ratio of 16.6 times sits outside the widely-considered value watermark of 15 times and below. But I would consider this rating to be a very attractive entry point given its hugely exciting growth strategy.

The British tenpin bowling renaissance continues to go from strength to strength and through its busy expansion programme — it’s looking to cut the ribbon on two new centres each year — the leisure giant is setting itself up to capitalise on this trend.

Thanks to a 13% pre-tax profits boost last year, Hollywood Bowl continued to raise the ordinary dividend and to fork out special payouts. City brokers expect more significant bottom-line growth in fiscal 2019 to push the ordinary dividend to 7.6p per share, yielding an inflation-mashing 3.3%, and investors can probably look forward to more delicious supplementary rewards too.

The biggest yielder of all

If you’re on the hunt for particularly explosive yields then Go-Ahead Group (LSE: GOG) might be more to your liking.

The Square Mile suggests that the bus-and-rail-service operator will keep the full-year dividend locked at 102.08p per share for another year. The good news is that this projection yields a stunning 5%.

Adding some sheen to the Go-Ahead investment case is its low, low forward P/E ratio of 13 times, a rating that’s far too little in my opinion given the rate at which it has been winning contracts at home and particularly abroad over the past year.

The transport titan has recently added maiden contracts in Australia and Norway, for example, as well as additional accords within the German rail network. And the fruits of its endeavours were shown in half-year financials last week in which it advised that group revenues rose 5% during July-December despite tough conditions in the UK. With its contract pipeline packed with more opportunities I’m tipping it to flip back into strong profits growth soon enough and to get back to lifting dividends too.

The post 3 top (and cheap!) dividend stocks I’d buy right now 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 Hollywood Bowl. 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.

But looking at the action of the share price through last year, you’d never believe the company had been trading so well. By the middle of last January, the price was more than 30% lower than it had been at the start of 2018, although there’s been a little bounce over the past week or so in anticipation of today’s results.

A modest-looking valuation

I wrote about the firm a year ago when it had also delivered decent figures, declaring it a “top quality and value stock I’d buy right now.” I’m down on that call, but today’s numbers are even better than last year’s, so the value must look even more compelling. Indeed, at a share price of 279p, the forward-looking price-to-earnings multiple for the trading year to November 2020 sits just below eight, and the projected dividend yield is more than 5%. City analysts expect earnings to grow around 5% this year, 9% in 2020, and to cover the payment well over twice.

The valuation doesn’t look excessive, but I would observe that the rate of growth in earnings has been declining along with the earnings multiple the market has been assigning the firm. You can see that effect if you look at the five-year record. In the beginning, earnings were growing at high double-digit percentages, a much higher rate of growth than we’re seeing today. And back in 2014, the earnings multiple was as high as 19.

I think that earnings and valuation record shows us some of the effects of the inherent cyclicality in operations. It’s no use pretending otherwise, the recruitment sector booms and busts in accordance with general macro-economic conditions. However, I’m encouraged by the firm’s international footprint, which dilutes the volatility from any one national geography. In 2018, 29% of gross profit was earned in Germany, 21% in the USA, 15% in the UK, 15% in the Netherlands, and 20% in other countries around the world. All geographic segments displayed growth during the year, except for the UK and Ireland where gross profit slipped 5%.

Well positioned for growth

The outlook statement reveals that the directors think SThree is “well positioned” to grow further “despite turbulent political markets and economic pressure.” The question is, has the stock market been wrong about this strongly performing company? After all, if you’d held the shares since the beginning of 2014, you’d probably be disappointed. Despite all the progress with earnings over that period, the share price hasn’t gone any higher.

But I think it’s a big call to say the stock market has been wrong about the firm’s valuation. As profits grow in an unfolding macro-economic cycle, I think it’s rational for the market to keep marking down the valuation of a firm with cyclical operations. 

The post Has the stock market been wrong about this strongly performing company? appeared first on The Twelfth Magpie.

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

Of course, it’s not the only stock which could offer an impressive income return following recent stock market declines. Reporting on Friday was a dividend growth share which could be worth buying alongside Taylor Wimpey, in my opinion.

Improving outlook

The company in question is staffing business SThree (LSE: STHR). It released a trading update which showed that adjusted -re-tax profit for the full year is expected to be slightly ahead of the top end of market forecasts. It has experienced a strong end to the year, with gross profit rising by 12% in the final quarter. It has seen strong growth across its divisions, with 83% of gross profit now generated in international markets.

The company also announced that its CEO will step down in the new year, with a process to appoint a successor now underway. Although this could create a degree of uncertainty in the near term, SThree is expected to record a rise in earnings of 16% in the 2019 financial year. This suggests it has a bright future and may be able to raise dividends at a fast pace, with its current payout covered twice by profit. With a 5.5% dividend yield, the stock could have income investing potential for the long term.

Long-term growth potential

Taylor Wimpey’s 12% dividend is highly unusual for a FTSE 100 share. The company’s payout is expected to be covered 1.4 times by profit in the current year, while its recent updates have suggested it’s on track to deliver on its medium-term growth prospects. Certainly, there’s a slowdown in the South East in terms of demand for new-build properties, but a shortage of supply in a number of regions across the UK could lead to improving financial performance for the business over the long run.

The company has spent a number of years building a considerable land bank and improving its net cash position. In both regards, it seems to have a solid long-term growth outlook. While government policies such as Help-to-Buy and stamp duty relief may not last in the long run, demand for housing is likely to exceed supply for a number of years. Interest rates are expected to remain low, while employment levels are relatively high.

As such, the prospects for Taylor Wimpey may be more positive than the stock market is anticipating. Its stock price could be volatile in the near term, but in the long run it appears to have the potential to generate high total returns.

The post Taylor Wimpey share price: why it’s a FTSE 100 dividend stock I’d buy and hold for a decade appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Taylor Wimpey. 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.

But a Lifetime ISA could be the best ISA option there is, with its bonus of up to £1,000 per year added by the government. I’ve previously explained how the Lifetime ISA works, but beware. If you take money out early, you’ll be stung with a financial penalty of more than the government’s bonus cash.

But if really want to invest for your retirement, a Lifetime ISA could be a very nice thing — though time could be running out.

Given the meagre returns from cash ISAs, I reckon shares are the only way to go. And I prefer “buy and forget” shares, with a combination of solid dividends, growth potential, and a nice margin of safety.

Out of favour

Those criteria throw up recruitment specialist SThree (LSE: STHR), whose earnings have been flat for a couple of years in the current tough economic environment. That’s led to a freeze on the dividend, which will have turned away some investors, and the share price has dipped over the past month.

But I see an overlooked bargain, as analysts are predicting earnings growth this year and next. The falling share price has pushed the predicted 2018 dividend yields up to 4.6%, with 4.8% on the cards for next year, too. And we’re looking at a strengthening of cover by earnings, reaching 2.2 times on 2019 forecasts.

I think the combination of earnings growth, assuming forecasters are correct, coupled with a well-covered dividend that looks set to start rising again in the fairly short term, gives us a reasonable safety margin here. I also see forward P/E multiples of only around 10 as indicating good value.

Big debt could ruin the picture, but a net figure of just £24m at 31 August is nothing for a company with annual turnover of around £1bn.

SThree has been buying up its own shares with surplus cash, so it clearly sees them as good value. I agree.

Overlooked growth

I also now like the look of Severfield (LSE: SFR), whose shares have been out of favour for good reason. 

The structural steel engineer went through a bad patch a few years ago and needed a big rights issue to keep itself afloat. But the turnaround looks to have been a success and earnings per share have been recovering strongly for the past few years. Dividends have risen too, and are expected to yield 4% this year, and 4.4% next — with cover reaching 2.4 times by March 2020, according to forecasts.

Those same forecasts value the shares at about 10 times earnings, which is cheaper than the FTSE 100’s long-term average of around 14. With dividend yields around the current Footsie average, that might seem fair when allowing for post-recovery sentiment that will surely still be a little uncertain.

But what sways any doubt I might have is Severfield’s cash position. Instead of the debt we might expect a company in its position to be carrying, Severfield boasted £33m in net cash at 31 March.

These two need further investigation, but I see attractive long-term prospects for both.

The post 2 top growth and dividend stocks I’d pick for a Lifetime ISA appeared first on The Twelfth Magpie.

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Alan Oscroft 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.

Global giant

Let’s start off with SThree. As I mentioned last time out, the recruitment play is predicted to keep the full-year dividend on hold at 14p per share for the 12 months to November.

Two things to remember, however. This projection still yields an inflation-busting 3.7%. Secondly, a combination of robust earnings growth forecasts (the City is expecting profits jumps of 9% and 15% in fiscal 2018 and 2019, respectively), and solid balance sheet strength, suggests that dividends should march higher again from next year.

For the approaching period, a 14.9p per share dividend is anticipated by brokers, meaning that the yield marches to 4%.

Regular readers will know my bullish take on the business on account of its impressive progress in overseas markets, as well as a more specific focus on the areas of science, technology, engineering and mathematics. Latest trading details reinforced my positivity as well.  SThree declared last week that group gross profit leapt 13% from June to August, to £82.7m. That was assisted by a 24% improvement in profits in Continental Europe, 16% in the Asia Pacific/Middle East combined territory, and 8% in the US.

The company remarked that “trading conditions in the majority of our markets are encouraging”. And as it bulks up its global headcount (it was up 7% year-on-year as of the close of August), I’m backing SThree to continue impressing long into the future. Considering it trades on a forward P/E ratio of just 13.4 times, I also believe it’s too good to miss right now.

Housing star

As I’ve mentioned more recently, and looking further afield, housebuilders remain at the mercy of housing ministers and the future of the critical Help To Buy purchase scheme. I’m convinced that fears of a serious alteration, or even termination, are overblown, however. Indeed, I think that MJ Gleeson’s (LSE: GLE) forward P/E ratio of just 13.4 times more than bakes in these risks.

The City sees no reason for earnings growth at the FTSE 250 firm to hit the skids any time soon, and they’re forecasting a 5% earnings rise in the year to June 2019. And this leads to predictions of a 29p per share dividend, too, a figure that yields a chunky 3.7%.

MJ Gleeson’s share price exploded this week as it painted a bright trading picture looking ahead, commenting that “demand for low-cost homes in the North is strong” and added that “our homes continue to remain highly affordable despite the recent increase in bank rates and mortgage finance remains readily available.”

In this environment, I see plenty of scope for current profits and dividend projections for the builder to be upgraded. And this, allied with the multitude of problems that will keep Britain’s housing shortage stretching long into the future, makes MJ Gleeson a great stock to buy now… and to hold for years to come.

The post 2 cheap FTSE 250 dividend stocks I’d buy today and hold for the next 20 years appeared first on The Twelfth Magpie.

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• 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?

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

However, the company continues to offer a relatively low valuation, which suggests that the stock market has taken into account the risks that it faces. This could help it to outperform the FTSE 100 over the long run. As such, it could be worth buying now alongside another growth stock that reported upbeat results on Friday.

Strong performance

That company is specialist staffing business SThree (LSE: STHR). It released a positive third quarter update, which showed the positive momentum experienced in the second quarter has continued. Its group gross profit has risen by 13%.

It delivered strong growth in Continental Europe, where growth of 24% was recorded, while is US growth rate was 8%. It was able to perform well across its various divisions, while a restructuring of its UK operations has the potential to boost its medium-term performance.

With 84% of the company’s gross profit now generated outside of the UK, the impact of Brexit may not be significant on its bottom line. This could help to reduce its overall risk and may mean that it’s able to command a higher valuation.

Looking ahead, SThree is forecast to post a rise in earnings of 8% this year, followed by further growth of 16% next year. It has a price-to-earnings growth (PEG) ratio of just 0.8, which suggests that it could offer good value for money. As such, now could be the right time to buy it for the long run.

Resilient business

As mentioned, the outlook for easyJet may be relatively uncertain at the present time. A higher oil price could push costs across the industry higher and may lead to less competitive pricing. In turn, this could hurt demand – especially among budget operators. Brexit also poses a potential risk, with uncertainty about how smooth a ‘no-deal’ process would be for airlines that operate across the UK and Europe.

Despite these threats, the stock is performing well. It’s been able to deliver relatively strong passenger growth in recent quarters and this is expected to boost its financial performance over the next few years.

In the current financial year, easyJet is forecast to post a rise in its bottom line of 45%. This is due to be followed by further growth of 17% next year, which suggests that it has a bright future from a financial perspective. Despite this, it trades on a PEG ratio of just 0.6, which suggests it offers a wide margin of safety at the present time. This could mean it has a favourable risk/reward ratio, and may deliver a stronger performance than the FTSE 100 over the long term.

The post Why the easyJet share price could be set to surge past the FTSE 100 appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of easyJet. 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.

Big yields? Tick! Predictions that the provider of huge logistics spaces in the UK will hike the total dividend in 2018 to 6.7p per share from 6.4p last year means that it yields a meaty 4.5%. And the readout moves to 4.7% for next year thanks to the estimated 7p dividend.

A strong balance sheet? You bet. It doesn’t have a considerable amount of debt on its books and as it commented recently: “Our high-quality income is now well matched against longer-term fixed or hedged debt which provides further comfort to our ambition to grow our dividend.”

And under its classification as a real estate investment trust (REIT) it is obliged to redistribute at least 90% of its profits as dividends. Thanks to its bright bottom-line outlook — earnings are expected to rise 12% this year and by a further 7% in 2019 alone — it looks as if Tritax should keep growing shareholder payouts too.

Big and beautiful

As chief executive Richard Jewson commented on the release of half-year results last week: “[Tritax] has an exceptional portfolio and is well positioned to take advantage of the changing dynamics in the logistics market, in particular technical innovation in the form of e-commerce. This is affecting fortunes on the high street with a number of well-publicised retailers having succumbed to a challenging trading environment.”

In the six months to June, Tritax saw profit before tax boom by 33% year-on-year to £107.1m. With surging business rates and the changing way that we shop smacking the profitability of traditional bricks-and-mortar retailers, the need for such companies to beef up their online operations is paramount. And providers of so-called big boxes are well placed to profit from this.

At current share prices, Tritax carries a forward P/E ratio of 21 times. Sure, this might be expensive on paper. But in my opinion the firm’s exceptional structural opportunities and ambitious, M&A-led, growth strategy makes it worthy of this premium rating.

Continental corker

SThree (LSE: STHR) is another top FTSE 250 income hero which might be a better fit for classic value hunters, the stock boasting a forward P/E ratio of just 12.3 times.

I can’t see why the recruitment play is dealing at such cheap prices given the titanic progress that it is making across the globe. Latest financials showed adjusted pre-tax profit up 6% during December-May as revenues boomed 12%, driven by a fine performance in its core Continental Europe arm where gross profits jumped 18% in the six months.

And City analysts are expecting business to pick up momentum, meaning the anticipated 8% earnings rise for the 12 months to November 2018 is predicted to rise to 16% in fiscal 2019.

This improving outlook also means that, although the dividend is expected to be held at 14p per share this year, a lift is likely in the offing for next year. Or so say the experts, a 14.8p reward currently being bandied around. This means that yields of 4.1% and 4.3% are on the table for fiscal 2018 and 2019 respectively. I am convinced that SThree, like Tritax Big Box, could provide you with an income for life.

The post 2 FTSE 250 dividend stocks that should pay you for the rest of your life appeared first on The Twelfth Magpie.

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• 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?

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Tritax Big Box REIT. 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.

Today, I’m discussing one Footsie favourite, whose valuation I see as unappealing, and a smaller company I see as offering growth at a reasonable price, as well as a 4% dividend yield.

Rightmove wrong price

The UK’s number one property portal and FTSE 100 company Rightmove (LSE: RMV) is a terrific business, in my view. Itms dominance, profit margins and return on capital employed rightly merit a premium valuation. And it’s certainly delivered in spades for past investors: an average annual total return of more than 35% over the last 10 years compared with less than 8% for the Footsie.

At a current share price of around 5,150p, Rightmove’s market capitalisation is £4.7bn. As a UK-focused business it’s grown into a very large fish in a relatively small pond. Earnings growth is on a decelerating trajectory: 24% (2014), 21% (2015), 18% (2016) and 14% (2017). Analysts are forecasting a further decline in growth to 9% this year. I believe it may be able to maintain this growth rate in future years — or at least until the next serious economic downturn.

The current-year forecast price-to-earnings (P/E) ratio is 29. At the forecast earnings growth rate of 9%, the price-to-earnings growth (PEG) ratio is 3.2. This is way above the PEG ‘fair value’ marker of 1, so I believe the P/E is currently far too high for the level of earnings growth on offer. And with a 1.3% dividend yield also being relatively meagre, I rate the stock a ‘sell’.

Sound value credentials

I’m far more attracted to the value proposition over at specialist staffing business SThree (LSE: STHR) which released its half-year results today. The shares are trading a tad up at 350p, valuing this FTSE SmallCap firm at £455m.

The group specialises in the science, technology, engineering and mathematics sectors and I like its geographical diversification. Over 80% of its gross profit comes from outside the UK and Ireland. Today it reported an 11% year-on-year increase in gross profit across the group for the six months to 31 May, with a strong performance in Continental Europe (up 18%) and the USA (up 9%) more than offsetting a challenging UK and Ireland (down 2%).

Management said the positive group trading trend has continued since the period end. City analysts are forecasting 7% earnings growth for the current year ending 30 November, accelerating to 16% for fiscal 2019. This gives a P/E of 12.7, falling to 10.9 and a PEG of 1.8, falling to 0.7 — so moving to the value side of the PEG fair value marker of 1. With SThree also offering a forecast dividend yield of 4% this year, rising to 4.25% next year, I believe the company has sound value credentials and I rate the stock a ‘buy’.

The post Why I’d shun this FTSE 100 stock and buy this smaller growth-and-income stock instead appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Rightmove. 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.

As such, dividend shares such as BAE (LSE: BA) are likely to remain popular among investors in future. This could increase demand for them and lead to higher share prices. Therefore, alongside another income stock which reported positive results on Friday, the aerospace and defence company could have investment appeal.

Improving prospects

The industry in which it operates has experienced a mixed period in recent years. Austerity has caused defence budgets across the globe to come under pressure, while a turbulent economic performance has failed to create confidence in the wider industry. As a result, BAE’s earnings growth has been lacklustre in recent years, rising at an annualised rate of just 2.4% during the last five years.

Looking ahead, there could be improving prospects for the company. Higher military spending in the US and an improving outlook for the wider economy look set to contribute to a rise in its bottom line of 8% next year. This could help the company to pay a higher dividend over the medium term.

Income potential

With BAE having a dividend yield of 3.5% at the present time, its income return is already well ahead of inflation. Its dividend growth rate could also beat inflation over the medium term, with its shareholder payouts currently being covered 1.9 times by profit. As a result, it would be unsurprising for the company’s dividends to rise fairly quickly over the coming years, since they seem to be very affordable.

Furthermore, with the company seeking to become more efficient and having a modest debt level, its long-term outlook appears to be positive. As such, its income prospects from a risk/reward ratio could be encouraging.

Growth potential

Also offering upbeat income prospects is specialist staffing business SThree (LSE: STHR). The company released a positive half-year trading update on Friday which showed that it continues to generate improving financial performance. Gross profit was up by 11% versus the prior year, with strong performance in Europe and the US offsetting a modest decline in UK profitability.

Looking ahead, the company appears to be protected from the potential ill-effects of Brexit through its international exposure. It generates 82% of gross profit from outside the UK, and this could provide it with greater stability than some of its more UK-focused peers.

With SThree forecast to post a rise in its bottom line of 17% in the next financial year, it seems to be performing well. This could lead to higher dividend growth, with its shareholder payouts currently covered twice by profit. As a result, and with it having a dividend yield of 4.4% at the present time, the stock may prove to be a solid income performer in the long run.

The post Why the BAE share price could crush the FTSE 100 appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of BAE Systems. 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.