Multi-bagging growth stock

With a market cap of £1.4bn, international research and data analystics firm YouGov (LSE: YOU) isn’t exactly the market’s best-kept secret. However, nor is it a company that frequently hits the headlines. As a long-term Foolish investor, that piques my interest, especially when looking at the performance of the shares. 

In the last five years, YouGov’s valuation has jumped almost 400%! This goes some way to explaining why I have a good proportion of my money invested lower down the market spectrum. Picked carefully, the potential upside is greater since it’s theoretically easier for relative minnows — like YouGov once was — to grow revenue and profits at a faster clip. Indeed, it’s why I’ve been buying this investment trust in February.

Momentum reverses

Like many growth stocks, however, YouGov hasn’t fared so well in 2022, dropping 20%. That’s perhaps to be expected given recent global events and the stock’s still-eye-watering valuation of 47 times forecast earnings. To pay this price, I’d expect the company to be blowing analyst projections out of the water. However, management recently stated that growth would likely be only “slightly ahead” of its own forecasts. That’s hardly a bad thing but it’s clearly not been enough for some investors to stick around.

All this brings to light a key risk with buying high-performing investments; the bar for what is considered successful trading is set so much higher. Since no company is capable of executing perfectly, the potential to disappoint is greater.

Interim results from YouGov are due on 22 March. If the share price drops further, I might have to consider adding the stock to my own portfolio. In spite of the high valuation, this looks to be a very decent company with great geographical diversification and a robust sales pipeline. It’s also worth pointing out that YouGov has consistently hiked its annual dividend by double digits for many years now. That’s never a bad sign. 

Off the boil

Kettle safety device-maker Strix (LSE: KETL) is another under-the-radar, AIM-listed stock that’s done well for early holders such as myself. Between March 2020 and September last year, the share price increased roughly 185%! No doubt some investors had become aware, like me, of the fat margins and seriously high returns on capital this company consistently achieves.

Unfortunately, recent performance hasn’t been so great, with shares falling 35% in the last six months. Like so many other businesses, Strix has faced supply chain issues and higher freight costs. Today’s news of a “cyber incident of Russian origin” won’t exactly boost sentiment either. That said, the company has already stated that there’s been “no impact on customer orders or sales“.

Speaking of which, the £500m cap business recently said that it would log revenue growth of around 30% for 2021. Pre-tax profit has also been in line with market expectations. Numbers will be officially confirmed on 30 March.

With the shares now trading at 15 times earnings and a new factory in China effectively doubling manufacturing capacity, I may well increase my stake in the near future.

The post 2 under-the-radar growth stocks I’ll be watching in March 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 owns shares in Strix. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The ultimate form of passive income

Passive income from investing takes the form of dividends — a proportion of profits paid out to owners (usually twice a year) for holding shares in a company. What effort does this require on my part? Absolutely none, aside from the initial purchase. Zip. Nada. Compared to becoming a landlord or starting a side hustle on eBay, it has arguably the best trade-off between effort and reward going. 

Obviously, there’s some effort involved. To get started with investing, I first need to find ways of cutting down my monthly expenses to free up some money. On top of this, it’s also vital to buy everything inside a Stocks and Shares ISA. This protects all of the passive income I receive from the taxman. 

Of course, I also need to select which stocks to buy. Thankfully, there’s never been a shortage of these. 

Stocks that pay me

For years, I’ve owned shares in online trading firm IG Group. This company makes its money by charging fees to clients that aim to profit from the stocks market’s inevitable ups and downs. As one might have guessed, business has been rather good lately. Right now, IG offers a yield of 5.5%. In sharp contrast, the top Cash ISA pays just 0.67%.

Another example is Somero Enterprises. It manufactures laser-guided equipment to ensure concrete surfaces in warehouses are as flat as a pancake. With retailers desperate for space to hold their products as online shopping explodes in popularity, I think this company is in something of a sweet spot.

Actually, I know it is! On Tuesday, the small-cap upgraded its full-year guidance following stellar trading in its largest market, North America. Most of that will have happened while I was asleep. At 6.3%, Somero yields even more than IG!

Of course, if I wanted to reduce my workload even more, I could ask a professional fund manager to pick stocks for me. That said, this strategy involves paying fees which ultimately reduces the amount of income I’d hang on to. There’s no guarantee a pro will do a better job either. 

Nothing is guaranteed

Naturally, there’s a caveat to all of this. Just as I can’t be assured a perfect night’s sleep, nor can I assume that the stocks I own will always be in a position to pay out. In tough times, dividends can be cut as firms attempt to shore up cash. 

I see two ways of mitigating this risk. First, own a bunch of passive income-paying stocks from different sectors. As an illustration of this, both IG Group and Somero are market leaders at what they do but operate in very different spaces. Throw in a few more stocks and this diversification should go some way to protecting me if one or two struggle. 

A slightly more involved step is to check the extent to which a company’s profits cover its dividend. Although earnings will naturally vary from year to year, this should ideally be two times. Anything lower than one and that passive income stream looks vulnerable. A consistently rising dividend is another indication of health. 

The post Passive income! How I make money while I sleep appeared first on The Twelfth Magpie.

More reading

• This red-hot growth and dividend stock just entered the FTSE 100. Should investors consider buying it?
• 3 UK stocks to consider snapping up if the stock market crashes this month

Paul Summers owns shares in IG Group and Somero Enterprises. The Motley Fool UK has recommended Somero Enterprises, Inc. 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.

Strix

As I type, shares in kettle safety device manufacturer Strix (LSE: KETL) are up 70% over the last year. That’s a superb return for what is, admittedly, not the most exciting of businesses. In fact, KETL has been a winning AIM stock since coming to the market. In four years, the shares are up 173%.

This momentum might just continue. In July, the company said it was now expecting to deliver revenue growth of 50% or so for the first half of 2021, and roughly 30% for the year as a whole. Any improvement to the latter when interim numbers are confirmed in September should do the share price no harm.

I’m not the only one bullish on Strix either. Earlier this month, analysts at Liberum said the company was primed for a re-rating, due to the potential earnings growth on offer. 

Of course, there’s a chance the shares could lose steam at some point. Early holders may want to bank some profit, for example. Even so, a valuation of 24 times forecast earnings still doesn’t feel unreasonable. The solid dividend stream compensates me for choppier times too.

Inspecs

Eyewear manufacturer and distributor Inspecs (LSE: SPEC) is another AIM stock I’d buy now. Its shares are up 51% in value over the last year. In its 18 months as a listed company, SPEC has returned 86%.

All this is rather impressive considering Inspecs came to market at the worst possible time. Due to Covid, group revenue fell almost 25% to $47.4m in 2020. The firm also reported a post-tax loss of $8.9m. 

Still, next month’s interim figures should be more encouraging. Inspecs has certainly been preparing itself for better times by snapping up lens maker Norville and manufacturer Eschenback. It’s also been adding new global brand licences to its portfolio. 

Yes, a P/E of 30 is getting punchy and shares are less liquid than those of other companies (meaning price moves could be more pronounced). However, I think the ‘essential’ nature of its products makes up for this risk.

Mortgage Advice Bureau

A final AIM stock worth buying in advance of September is Mortgage Advice Bureau (LSE: MAB1). As one might expect, trading has been excellent of late, thanks to a booming UK housing market. However, shares now trade on 39 times earnings, having climbed 123% in value in 12 months. Is this too high?

It’s certainly not cheap. Then again, recent demand for housing (and, by association, MAB’s services) surely won’t grind to a halt. More people are wanting to work from home, after all. Moreover, I’d be shocked if next month’s interim results were anything but great. 

As a (mostly) buy-and-hold investor, I also think it’s important not to base an investment decision purely on a single metric. Expensive stocks can continue going up if they can carry on growing. As an aside, returns on capital are high and the firm has net cash on its balance sheet — just the sort of things I look for.

MAB’s still a buy for me.

The post 3 AIM stocks to buy before September 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 owns shares in Strix. 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.

Doubling my ISA: what will it take?

To double the value of my portfolio, I need to achieve an annualised return of around 15%. In other words, I need my capital to grow 15% in 2021, another 15% in 2022, and so on. This is how things would look if I used the nominal sum of £1,000.

Compound interest really is a wonderful thing. And this doesn’t include the impact of any reinvested dividends!

So, how do I hit this target?

Clearly, being invested in the best stocks helps. But what makes a company better than others? Everyone will have an idea about this.

A ‘meme stock’ investor would say that AMC Entertainment and GameStop would qualify. I respectfully disagree. Their share prices have certainly ‘popped’ in 2021 but have since flagged. They’re best left to traders, in my opinion. 

Personally, I don’t think I need to take on such risk to get a 15% annualised return. For me, the best ISA stocks are those that are leaders in niche markets, boast fantastic brands, have strong growth potential, and/or generate great returns on the money they invest. I think I have several in my portfolio already. These include kettle appliance maker Strix, equipment manufacturer Somero Enterprises, and online behemoth Boohoo. 

But let’s take a step back here. The fact that something is achievable does not mean it will happen, of course. Let’s briefly look at what things could stop me from achieving my goal.

What could go wrong

Unfortunately, there’s no guarantee my ISA stocks will perform. Last week alone showed just how unforgiving other investors can be with the share prices of Best of the Best and Avon Protection being pummelled. Both have previously scored highly on the things I usually look for.

Even if the companies I own do very well, they could still be held back by general market jitters. These days, investors are getting increasingly worried about rising inflation, for example. And even if this does prove ‘transitory’, there will always be another potential setback waiting in the wings to knock confidence. 

How I can improve my chances

Aside from hoping my stock-picking is on form, there are four other things I think I can do. 

1) Keep investing. This includes periods in which markets head south. It sounds simple but it’s harder to do in practice.

2) Go small. Smaller companies have the ability to grow at rates larger companies simply can’t. This can often lead to a huge uplift in share prices. 

2) Use up my ISA allowance. As well as continuing to invest, it would also be a good idea to use my £20,000 ISA allowance in full. The more money I put to work, the greater the potential impact of compounding.

3) Avoid frothy markets. A final, debatable point is that it might make sense to avoid markets (and companies) where valuations are looking stretched. Having more than doubled over the last year, the US market looks a little too hot to me right now. 

The post How I plan to double my Stocks and Shares ISA in 5 years 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 owns shares in Strix, Somero Enterprises and boohoo group. The Motley Fool UK has recommended Avon Protection, Somero Enterprises, Inc., and boohoo group. 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.

Earlier this week, I picked out three FTSE 100 stocks I’d consider buying with my £20,000 ISA allowance. Today, I’m focusing on two smaller UK shares — one of which I already own — which would also make the cut. As luck would have it, both have just released positive news to the market.

Hot UK share

Today’s full-year results from kettle safety control supplier Strix (LSE: KETL) go some way to reminding me why I’m already invested in this wonderfully ‘boring’ company.

While revenue fell 1.6% to £95.3m over 2020, this was “significantly ahead” of what Strix believed might happen because of Covid-19. This was due to a “marked recovery” in the second half of the year.

Moving to the bottom line, pre-tax profit climbed 2.4% to £30.9m. Although a 41.2% rise in net debt (to £37.2m) would usually cause me concern, the reasons for this increase look sound. Over 2020, Strix acquired water filter firm LAICA and spent money on its manufacturing operations in China.

Comments on Strix’s outlook were also encouraging. Today, CEO Mark Bartlett reflected that the “much-improved performance” in the second half of last year had carried on into this year. A strong order book for kettle safety controls and the launch of new products suggests the Isle of Man-based business will enjoy a better 2021.

Ironically, my one concern with this UK share is that its share price has more than doubled over the past year. This leaves it trading on a valuation of 17 times forecast earnings. That’s not excessive. But it’s vastly different from the single-digit P/E valuation the AIM-listed company had when I first began investing in it.

I do wonder if we might see a wave of profit-taking over the next few weeks and months. This could be compounded by the trend for investors to move away from defensive stocks (which Strix arguably is) and into battered travel and leisure shares.

As such, I’m inclined to add to my holding gradually over the next few months. 

Lockdown winner

Another stock I’d feel comfortable spending some of my ISA allowance on is Harry Potter publisher Bloomsbury (LSE: BMY).

In another positive trading update, the UK small-cap announced profit for the year to the end of February will now be “significantly ahead” of the £14.8m expected by the market. This follows an “exceptional sales performance” last month as millions of us sought to pass the time by reading. In addition, Bloomsbury also saw an increase in demand for remote access to learning materials by academic institutions. 

As great as this is, the shares aren’t devoid of risk. Even the company has no idea whether recent performance will continue once restrictions are lifted. Like Strix, Bloomsbury also traded on 17 times forecast earnings before markets opened. It will be even higher after today’s 7%+ share price rise. Again, this isn’t an absurd valuation. However, it does imply that some (much?) of the good news is now priced in. 

Still, I remain a fan of this company. It might not grab the headlines like other UK shares, but I think that’s part of the appeal. Another is the £54m in net cash Bloomsbury had on its balance sheet at end of February.

Should shares fall back, I’ll be ready with at least some of my ISA allowance.

The post I’d buy these top UK shares with my ISA allowance 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 owns shares of Strix Group. The Motley Fool UK has recommended Bloomsbury Publishing. 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.

What happens next?

Here’s the bad news. Whether markets continue their downward descent in March is pretty much impossible to say. There are simply too many variables involved.

This being the case, it’s vital to separate signal from noise and only use the former to our advantage. In other words, investors need only concentrate on what they know or can control.

What we do know is that markets have always recovered over time… it’s individual companies that don’t. This being the case, it’s surely far more productive to look for high-quality businesses to buy on temporary weakness than it is to fret over whether global markets rise or fall on Monday.  

What do the best UK shares look like?

It’s subjective, of course. Nevertheless, I look to separate the wheat from the chaff using the following checklist. I want companies I invest in to:

• Solve a problem (if it doesn’t, why would anyone buy what it sells?)
• Be profitable (companies actually making money will always be more resilient than those dependent on hype)
• Offer multiple products (one-product companies are risky if fashion/demand changes)
• Generate repeat business (thus allowing me to be more confident on earnings)
• Have low/no debt (allowing a business to survive an inevitable crisis or two)
• Have great returns on capital (it makes lots of money from the cash it invests in itself)

Although there’s no such thing as a perfect company, many of my personal holdings tick many of these boxes. This explains why I’m invested in drinks firm AG Barr, laser-equipment supplier Somero Enterprises, kettle safety firm Strix and comparison website Moneysupermarket.com.  

Slow and steady

Buying even the best UK shares at a time when markets are falling takes guts. This fact is obvious when all is well but it can be hard to remember when the chips are down. 

I’m as susceptible to fear and greed as anyone else. In an effort to counter this, I think the most appropriate response is to adopt a ‘slow and steady’ approach. In practice, this means investing my money gradually. I may not be able to time my purchases perfectly but I’ve never met someone who can. The danger of trying is that the recovery happens before putting any capital to work. Ultimately, I may end up paying more than I wanted to. 

A slow and steady approach isn’t perfect. In theory, the more times I buy, the more commission I will incur. This is a problem since costs can have a huge impact on a portfolio’s performance over time, regardless of how good the actual investments are. One way I work around this is to take advantage of ‘regular investing’ plans that buy on the same date each month, vastly reducing what I pay.

Ignoring the noise, finding the best  UK shares to buy and keeping costs low is no guarantee of success, but it’s how I’m handling this latest market crash. 

The post Why I think NOW might be a great time to buy the best UK shares 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?
• How much would a portfolio of income shares need to be worth to produce £32,700 a year in retirement?
• How much would investors have to invest in this FTSE dividend giant to target £16,771 a year in passive income?
• With a 6.9% yield, is this one of the best FTSE 250 stocks for passive income?

Paul Summers owns shares of AG Barr, Moneysupermarket.com, Somero Enterprises, Inc. and Strix Group. The Motley Fool UK has recommended AG Barr, Moneysupermarket.com, and Somero Enterprises, Inc. 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.

Passive income generator

I’ve held a stake in kettle safety control supplier Strix (LSE: KETL) for some time now. I see no reason for this to change following Wednesday’s encouraging update on trading over 2020.

Yesterday, Strix stated it had seen “a marked recovery” in demand from July to December. This performance should see it deliver “modest” profit growth for the period. That’s pretty encouraging considering just how awful 2020 was for most businesses.

Of course, Strix’s small-cap status means its share price is likely to be more volatile than your typical FTSE 100 beast. As an investor with time on his side (I hope!), that doesn’t bother me. However, it might make the shares unsuitable for others with shorter time horizons. 

Positively, Strix appears to have started the year well. Talk of a “strong” order book for January and Q1 should help the company reduce debt even further and continue paying passive income to holders. As far as the latter’s concerned, a 7.7p per share total dividend becomes a trailing yield of 3.3%, based on today’s share price.  

Boring… but beautiful?

Another small-cap generating passive income for its holders is XPS Pensions (LSE: XPS). Analysts have estimated a 6.6p per share cash return in the current financial year (ending 31 March). Using today’s share price, this gives a chunky forecast yield of 5.5%. For perspective, the best I can get from a Cash ISA at the moment is a measly 0.55%! Trading at 12 times forecast earnings, XPS also looks very reasonably priced, in my opinion. 

Any downsides? Well, the likely share price performance is unlikely to quicken pulses soon. As the largest pensions consultancy in the UK, XPS will never attract the sort of attention that other stocks might. This being the case, I wonder if the biggest risk in buying XPS is the opportunity cost of not taking opportunities elsewhere. 

Still, if I was looking for a relatively mundane, uncyclical business that pays out cash to its owners without too much fuss, XPS surely ticks the box! 

Outperforming expectations

A final under-the-radar small-cap stock offering decent passive income is pawnbroker H&T (LSE: HAT). Benefiting from strong demand for jewellery, and the fact that most of its 253 stores could remain open, the company experienced “stronger than anticipated trading” in the final two months of 2020. This, H&T believes, will now lead it to outperform market expectations on profit for the full year.

Sure, some investors may be put off by the image of the industry in which H&T operates. The small matter of the company’s unsecured cash loans business being reviewed by the Financial Conduct Authority is an example of this.

For those comfortable with the ethics of this sector however, analysts currently have the company down to return 9.7p per share for 2020. That would equate to a 3.4% yield at the current share price. Factor in a £34m cash balance and no debt and I suspect cash payouts might rise again in 2021.

The post 3 under-the-radar dividend shares I’d buy for passive income appeared first on The Twelfth Magpie.

More reading

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

Paul Summers owns shares of Strix Group. 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.

Let’s look at three examples.

Growing at a fair clip

Last week’s record full-year results from logistics firm Clipper Logistics (LSE: CLG) were lapped up by the market and understandably so. 

New frontiers

Another company doing very well for investors is videogames developer Frontier Developments (LSE: FDEV). Last Friday’s update sent the share price to an all-time high and, again, it’s easy to see why.

Having met sales expectations so far in the financial year, Frontier now believes it will deliver revenue “within the top half of the current range of analyst projections” (between £83m and £95m). At least some of this will be generated from the slate of releases due between now and the end of May 2021. 

Jurassic World Evolution will hit the Nintendo Switch in November. Two other titles – Lemnis Gate and Struggling – are being launched under the Frontier’s new label for third-party publishing (Frontier Foundry). This part of the company forms a big part of its strategy over the next few years.

In addition to this, there will be updates to existing titles: Elite Dangerous, Planet Coaster, and Planet Zoo. 

Frontier’s shares now trade on an eye-watering 61 times earnings. That’s too high for me (even for a growth share) but it could be one to pick up on general market weakness. 

Hot stock

I’ve covered kettle safety control manufacturer Strix (LSE: KETL) quite a few times now. I can’t resist drawing attention to the small-cap once again. Since April, its shares have been on the boil, rising almost 90%.

In July, Strix reported that performance over the first six months of 2020 had been “resilient“. A “marked recovery” in June coupled with a strong order book means it expects to report similar profits to those achieved last year. That’s not a bad outcome considering the supply side disruption it faced earlier in the year when factories in China needed to shut.

Highly cash generative, Strix continues to reduce its debt pile. At the end of June, net debt stood at just under £37m. Due to cost-cutting, this was roughly £6m lower than originally targeted.

Once a bargain, the stock now trades on a P/E of 16. With 14 new products due for launch this year, however, I can still see it moving higher. There’s a forecast yield of 3.5% to boot. 

The post Forget the stock market crash. I found 3 UK growth shares that have been flying! 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 owns shares of Strix Group. The Motley Fool UK has recommended Clipper Logistics and Frontier Developments. 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.

That’s not to say there aren’t any great stocks available for those willing to look at the lower end of the market spectrum. That’s particularly so for patient dividend investors. 

Hot stock

While clearly not taking into account trading during the coronavirus outbreak, today’s full-year results from Strix (LSE: KETL) demonstrate how solid it is. The company is a kettle safety control designer, manufacturer and supplier and also produces water filtration products.

Revenue climbed 3.3% to £96.9m in 2019. And the AIM-listed firm continued to boast huge market shares in regulated (73%) and less regulated markets (34%). Pre-tax profit moved 3.4% higher to £30.2m, in line with market expectations. 

Away from the headline numbers, it’s pleasing to see that Strix continues to improve the health of its balance sheet.

It saw investments such as the building of a new factory in China and the acquisition of assets from clean water business HaloSource. But its net debt was still cut to £26.3m, a roughly 4% improvement from the end of 2018.  

Regarding the coronavirus, CEO Mark Bartlett said the small-cap’s manufacturing operations in China had improved. He said they had “recovered with a c.100% production capacity and operational supply chain which is sufficient to meet customer demand”. That should be hugely reassuring for those (like me) already holding the stock. 

As a further sign of confidence in its outlook, Strix stated that it would propose a final dividend of 5.1p. This would bring the total cash return for 2019 to 7.7p per share, a 10% increase on 2018’s payout and covered healthily by profits. Taking today’s share price rise into account, that gives a trailing yield of 6%. Hikes to the cash returns also look likely in the future.

Taking all this into account (and allowing for some bias), I continue to think Strix is an excellent income stock to tuck away for the long term. In fact, it looks something of a steal given a valuation of just 8 times forecast earnings!

Counter-cyclical

Another minnow boasting defensive qualities and a decent dividend yield is insolvency specialist Begbies Traynor (LSE: BEG).

Considering the impact the current crisis is likely to have on UK plc, I suspect the Manchester-based business could be one of few to see an increase in trading over the next few months. Given that the £95m cap remarked that it was already confident of reporting results “at least in line with expectations for the year as a whole” only a couple of weeks ago, that bodes very well for existing investors. 

Aside from the potential for capital gains, the small-cap could also be a good source of dividends. If we assume that the analyst predictions are correct, the firm will return 2.8p per share in this financial year (ending 30 April). That translates to a yield of 3.7%.

Stock in Begbies was changing hands for 13 times earnings before this morning. Although there can be no guarantees, that could turn out to be a very reasonable price to pay once the full extent of the damage wrought by the virus becomes clear.

The post I think these cheap small-cap dividend stocks are cracking buys in this market crash appeared first on The Twelfth Magpie.

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Paul Summers owns shares of Strix Group. 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.

Aside from being a relatively fuss-free way of making extra cash, it’s worth highlighting that holding dividend-paying companies within a Stocks and Shares ISA also means investors aren’t taxed on what they receive. 

With this in mind, here are two companies from lower down the market that I think are great candidates for income-focused portfolios.

Simmering nicely

Strix (LSE: KETL) is a business I’ve covered many times now and one that features in my own ISA.

For those unfamiliar with the name, this is a firm that designs, manufactures and supplies kettle safety controls and water filtration products. As boring as that may sound, it’s not let investors down so far.

Since arriving on the market in August 2017, the stock has increased 42% in value. For comparison, the FTSE 100 is up just 3% over the same period. What’s more, today’s trading update suggests this outperformance is likely to continue. 

Despite Brexit and the US/China trade scrap, Strix stated that the global kettle market “remained resilient” in 2019, growing by 4.5%. As a result, the £350m cap predicts adjusted post-tax profit will be “in line with market expectations”. Due to strong cash generation, net debt is also expected to fall to around £26.3m, down significantly from almost £46m in 2017. 

Strix plans to launch 12 new products in 2020 and open a new factory in China in January 2021, suggesting further growth is on the cards. Nevertheless, it’s the dividend payouts that I think make the minnow a worthy hold. 

The company has pencilled in returning a total of 7.7p per share to holders for 2019, equating to a yield of 4% at the current share price. That’s attractive, particularly as the shares trade on just 12 times expected FY20 earnings.

Strix won’t shoot the lights out, but it should continue simmering.

Strong recovery

Another company worthy of attention from second-income seekers is trading platform provider CMC Markets (LSE: CMCX).

Having faced the considerable headwind of increased regulation in recent times — a development that has hammered its share price — today’s Q3 trading update suggests the worst might be over.

Net operating income “continued to outperform expectations” in the three months to the end of December and was attributed to the company retaining more clients compared to the first half of the financial year. Despite increased operating costs, CMC said that it now expected the former to be “ahead of the upper end of the current range of analyst forecasts” (£184.1m to £189.3m).

Having rallied strongly in recent months, the shares were trading flat this morning, suggesting that a lot of this news was already priced-in. Nevertheless, a price-to-earnings (P/E) ratio of 13 for the current year doesn’t feel excessive given the potential of its stockbroking business and white label partnerships with banks. 

Like Strix, however, it’s CMC’s dividend credentials that I’m most interested in. The small-cap is forecast to return 6.23p per share in 2019/20, giving a yield of 3.8% covered twice by profits. With the best Cash ISA paying out just 1.31% in interest, I know which I’d pick. 

The post I like these small-cap dividend stocks for passive income in a Stocks & Shares ISA appeared first on The Twelfth Magpie.

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Paul Summers owns shares of Strix Group. 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.