Telecom Plus News | The Twelfth Magpie

Forget Vodafone! I’d buy this strong-performing utility share instead

Kevin Godbold — Tue, 18 Jun 2019 10:54:45 +0000

Telecoms giant Vodafone looked over-valued to me for a long time. Now the shares seem to be trending down, which is taking some of the froth off the valuation.

However, earnings still don’t cover the dividend payments the firm is sending out to shareholders. I see too much risk for investors and would rather go for a strong performer in the utility sector such as Telecom Plus (LSE: TEP), which is known for its Utility Warehouse trading name.

An effective business model

The firm proclaims that it is “the UK’s only fully integrated provider of a wide range of competitively priced utility services spanning both the communications and energy markets.” As such, I think the company presents investors with an interesting alternative to buying shares in sometimes-struggling utility firms such as National Grid, SSE and others, or in smaller and less diversified utility agencies such as Inspired Energy.

Generally, I’m keen on the agency/consultancy model in the utility sector rather than investing in capital-intensive and debt-laden providers and distributors of utility services. The business model of buying in then selling on for a profit is much simpler and often more profitable than getting involved with producing or distributing the utility product.

Telecom Plus has a decent five-year-plus record of generally rising revenue, earnings, cash flow and dividend payments. Today’s full-year results report for the trading year to 31 March reveals further progress. Revenue rose 1.5% compared to the previous year and adjusted earnings per share moved just over 7% higher. The directors expressed their confidence in the outlook by pushing up the total dividend for the year by 4%.

The company calls its customers members and they get one monthly statement covering all the utilities they take from the firm such as gas, electricity, telecoms, broadband and others. Unusually, growth comes from ‘word of mouth’ via members and partners only, and the firm doesn’t advertise in the media. The business model suggests that customer satisfaction is essential if growth is to continue.

A positive outlook

And right now, things appear to be going well with the firm reporting “significantly” faster growth in both customers and partners during the period compared to the previous year. There was an 8.2% uplift in services supplied, to 2.5m, and around 26% of customers buy their energy, broadband and mobile services from Telecom Plus.

Looking forward, the outlook is positive. Chief executive Andrew Lindsay said in the report that higher confidence from partners, ongoing steady growth and improving gross margins means the total dividend for the current trading year to March 2020 should increase by 10% to 57p per share.

With the shares at 1,514p, the anticipated dividend yield is, therefore, a smidgen below 3.8%. Meanwhile, the forward-looking price-to-earnings ratio sits in the early twenties. Telecom Plus isn’t the cheapest share in the sector, but I’d pay up for the quality of earnings and cash flow backing that dividend.

The post Forget Vodafone! I’d buy this strong-performing utility share instead appeared first on The Twelfth Magpie.

More reading

Kevin Godbold has no position in any share 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.

3 top FTSE 250 dividend stocks I’d buy right now

Roland Head — Thu, 25 Apr 2019 09:48:14 +0000

If you’re looking for companies that offer a useful income plus decent growth potential, then I believe the FTSE 250 mid-cap index is the best place to start.

Many of these medium-sized firms boast long and profitable trading histories, but are still expanding. Today I’m going to look at three dividend growth stocks from the FTSE 250 that I’ve been eyeballing for my own portfolio.

Smooth flying

Shares in engineering group Meggitt (LSE: MGGT) edged higher this morning after the firm reported underlying revenue growth of 9% for the first quarter. The firm’s business is split into three divisions, civil aerospace, defence and energy.

The largest of these is aerospace, which accounts for 54% of group revenue. The firm has operated in this sector for more than 80 years and says that “almost every jet airliner, regional aircraft and business jet in service” carries some of its equipment.

This dominant market share is a key attraction for me, especially as the firm’s defence business enjoys similar characteristics.

Although management warned today that air traffic growth could slow this year, it remains confident of delivering “strong revenue growth” with stable profit margins. The shares trade on about 15 times forecast earnings with a 3.4% dividend yield. That seems fair to me, given the group’s steady growth.

I suspect Meggitt will end up in the FTSE 100 in a few years. I see the shares as a long-term buy.

Recruitment success

Another FTSE 250 firm that’s impressed me recently is international recruitment group Hays (LSE: HAS). Its net fee income rose by 6% during the three months to 31 March, with like-for-like growth in all regions including the UK.

Chief executive Alistair Cox reported a “mixed economic backdrop across Europe” but said that the group’s main market of Germany grew by 6%. Elsewhere, Hays’ Australia and New Zealand business reported its 19th quarter of growth.

Although the future is uncertain, I think Hays’ size and geographical diversity should mean that it’s in a good position to cope with any regional slowdowns. In the meantime, profit margins are stable and cash generation remains very strong. Analysts expect earnings growth of 4%-6% per year in 2019 and 2020. With the shares offering a forecast yield of 4.6%, I think Hays remains worth buying.

A better buy than utilities?

Traditional utility stocks have been a poor investment in recent years. Several big names have cut their dividends and share price performance has been poor. The risk that utilities might be renationalised by a Labour government is also a concern.

If you’d like to invest in utilities but are looking for a safer choice, one company I’d consider is Telecom Plus (LSE: TEP), which trades under the Utility Warehouse brand. This business is a buying club that secures bulk-buy deals on energy, broadband and mobile which it resells to members.

Businesses of this kind aren’t always great investments. But Telecom Plus has been in business for more than 20 years and famously never advertises, relying on word-of-mouth and a network of agents. This approach has served the firm well. Sales have risen by 20% over the last five years. The group’s dividend has risen by 43% over the same period.

This business generates a lot of spare cash, most of which is returned to shareholders. The current dividend yield of 3.6% could be a good starting point. I’d buy.

The post 3 top FTSE 250 dividend stocks I’d buy right now appeared first on The Twelfth Magpie.

More reading

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Meggitt. 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.

Forget the BT share price. I’d buy this FTSE 250 growth stock today

Rupert Hargreaves — Wed, 17 Apr 2019 09:15:33 +0000

After losing more than 25% of its value over the past 24 months, at first glance, the BT (LSE: BT) share price looks cheap, particularly when compared to its trading history.

However, I think these shares now look appropriately valued, considering the company’s falling earnings, massive debt pile and unsustainable dividend yield of 6.6%. After years of under-investment in its network, the group is also struggling to fight off competitors such as Telecom Plus (LSE: TEP).

Time to buy?

Shares in this £1.2bn market cap company are falling today after Telecom Plus published a downbeat trading update, warning that profit for the year would come in at the lower end of expectations following the introduction of Ofgem’s price cap.

According to management, adjusted profit before tax is now expected to be at the lower end of its prior forecast of about £56m.

Looking past 2019, management seems extremely optimistic that the firm can return to growth. In today’s trading update, the company reported an “acceleration in customer growth during the course of the year” and this growth, coupled with a small increase in gross profit margins (due to improved supply agreements) means management is now expecting “profits before tax of between £60m and £65m for FY2020.“

So, while it seems as if the company’s profits will come in below expectations for 2019, growth will return next year. And with this being the case, I think today’s declines could be an excellent opportunity for investors to snap up shares in this leading utility provider.

Unlike BT, which has some of the worst customer satisfaction reviews in the industry, Telecom Plus, which offers gas, electricity, landline, broadband and mobile services through its Utility Warehouse business was recently proclaimed the Utilities Brand of the Year for 2018 by consumer magazine Which? The company also has the edge over its competitors because it can provide a bundle of services to customers and offers rewards for those who take up the full package.

As well as the services listed above, it also offers home insurance and cashback when shopping at over 2,000 retailers.

Unique offering

With award-winning customer service and a unique customer offering, I think Telecom Plus is one of the most attractive investments in the utility sector. Unfortunately, the shares are quite expensive. They are currently dealing at a forward P/E of 23.4, and the dividend yield is only 3.7% at the time of writing. However, the firm’s distribution to shareholders has risen by an average of 10% per annum for the past six years, and considering its earnings growth trajectory I think it is worth paying a premium to buy the shares.

In comparison, shares in BT are dealing as a forward P/E of just 9 at the time of writing. This might look cheap, but considering the fact that BT lost thousands of customers last year, and City analysts are expecting the group’s earnings per share to decline approximately 20% over the next two years, I think it deserves this lowly multiple. In my opinion, it is not worth buying struggling BT just because it is cheap. I would much rather pay a high price to acquire Telecom Plus’s sector-leading growth.

The post Forget the BT share price. I’d buy this FTSE 250 growth stock today appeared first on The Twelfth Magpie.

More reading

Rupert Hargreaves owns no share 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.

Has there ever been a better time to buy the ITV share price?

Roland Head — Tue, 20 Nov 2018 13:04:35 +0000

Back in September, I explained why I’d buy ITV (LSE: ITV) for a dividend portfolio. Today, I want to revisit the shares. I’m also going to take a look at another company I think could be a long-term cash machine.

Why I love “I’m a celebrity…”

Whatever you think of ITV’s hit series I’m a Celebrity… Get Me Out of Here, the show is a good example of the company’s successful business model.

In addition to regular advertising revenue, this show generates income from phone-in votes, competitions and brand sponsorships. The whole formula is then sold to television networks in other countries. According to the I’m a Celebrity… Wikipedia page, the show has been licenced to countries including the US, Germany, France and Australia.

This approach has been used for most of ITV’s reality series in recent years. Alongside this, the ITV Studio business has also focused on producing popular drama series, which can be sold in overseas markets.

What’s new?

Newish boss Dame Carolyn McCall wants to extend the broadcaster’s reach and improve revenue per viewer. One part of this plan is the ITV Hub online viewing service.

ITV Hub viewing time rose by 37% during the first nine months of the year. The company says that 75% of the UK’s 16-24 year-olds have registered for this service — viewers who increasingly shun scheduled television, but spend much of their time (and money) online.

I’d keep buying

I haven’t yet found space in my portfolio for ITV, but I’m hoping to do so soon. This business generated an operating margin of 18% last year, and a return on capital employed of nearly 27%.

Given this, I think the stock’s forecast price/earnings ratio of 10, and 5.5% dividend yield, are simply too cheap. I remain a buyer.

This could be another income gem

Telecom Plus (LSE: TEP) is the company behind the Utility Warehouse business, which allows customers to buy all of their utilities — including mobile and broadband — through a single account.

The firm’s selling point is that Utility Warehouse uses its buying power and market savvy to ensure you get a competitive price for each service, with the convenience of a single bill.

Telecom Plus scored a major marketing coup earlier this year when Utility Warehouse was chosen as Which? ‘Utility Provider of the Year’, confirming its value credentials.

Record profits

The firm’s shares were 5% higher at the time of writing, after management reported record profits for the first half of the year. Revenue rose by 4% to £311m during the six-month period, while adjusted pre-tax profit was up by 1.2% at £26m.

Customer numbers rose by 10,479 to 621,218, double the increase seen during the first half of last year. This increase was probably driven, in part, by the Which? Award, but it also suggests the company’s pricing remains competitive.

I remain a fan of this stock, but the shares have risen by 20% over the last three months. They’re starting to look fully priced to me, on 21 times 2018 forecast earnings.

Although the dividend yield is still attractive at 4.3%, I’d prefer to wait for a market dip to add Telecom Plus to my portfolio.

The post Has there ever been a better time to buy the ITV share price? appeared first on The Twelfth Magpie.

More reading

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV. 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.

2 FTSE 250 stocks that could put the Boohoo share price to shame

Alan Oscroft — Fri, 14 Sep 2018 07:00:31 +0000

Over the years I’ve come to see a familiar pattern with growth stocks. An early soaring share price would crash back down, go through a few false restarts, before settling down to a rational long-term growth phase.

The hard part is that it’s impossible to time any of that, which brings me to the Boohoo Group (LSE: BOO) share price. Boohoo shares soared in the two years to mid-2017, then fell back before reaching a new (but lower) high, and then they’ve slipped again.

That looks uncannily like what happened to ASOS a few years earlier, and those shares took four years to regain their initial high point.

Better value?

But there are stocks out there that are past their early irrational volatility, and I’m increasingly seeing Telecom Plus (LSE: TEP) as one of them. Under its Utility Warehouse brand, it bundles telephony and broadband into all-in-one offerings with electricity and gas too. And it keeps its costs down by not paying for advertising but including customers as its brand champions.

The share price chart does, admittedly, look a bit like the Boohoo one, but one major difference is in the valuations of the two companies’ shares. Telecom Plus shares are on forward P/E ratios of 17 to 18, while Boohoo shares command a forward multiple of 43.

One caution I have with Telecom Plus, though, is its higher valuation than other utilities providers like National Grid with forward P/E forecasts of 13 to 14, and much higher than BT Group‘s lowly multiple of nine.

Then again, United Utilities carries net debt of around £6.9bn, and BT’s debt plus pension fund deficit is almost off the scale. Telecom Plus had net debt of just £11.2m at year-end, only around a fifth of adjusted pre-tax profit.

Solid as bricks

Another approach is to look at stocks that have just come off a rapid growth phase but still have solid, if modest, future growth on the cards. One example is housebuilder Bellway (LSE: BWY), which I reckon is showing attractive growth characteristics coupled with tasty dividends too.

The big double-digit earnings growth that characterised the last few years has come to an end, largely because it was driven by a strong recovery from a down spell for the sector. There’s also a fear of a downturn in the housing market, but as long as we have a shortage of homes in this country, I don’t see that as likely. And I really can’t see how fears that Brexit will put a dent in the industry make sense either.

Even on reducing forecasts, analysts are still expecting to see EPS growth of 14% this year, followed by 5% next. Bellway shares are now on a tempting PEG ratio of just 0.5.

Predicted dividend yields of around 5% per year put the icing on the cake for me, and I see Bellway shares as undervalued.

Which is best?

To get back to Boohoo, I do think the company is on a winning formula as the sheer convenience of buying stuff online could even make bricks and mortar stores obsolete. And high street shops are expensive to run too. But I can’t help feeling Boohoo still hasn’t had the full shakeout of early get-rich-quick punters that it needs.

I see plenty of less risky growth opportunities out there.

The post 2 FTSE 250 stocks that could put the Boohoo share price to shame appeared first on The Twelfth Magpie.

More reading

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended 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.

Why I’d dump Telit Communications shares and buy this FTSE 250 growth and dividend stock instead

Alan Oscroft — Wed, 11 Jul 2018 13:59:35 +0000

Shares in Telit Communications (LSE: TCM) gained a few percent Wednesday after a first-half update told us to expect revenue of around $201m, with gross profit margins apparently having “stabilised following the declines seen in 2017.“

Chief executive Yosi Fait told us that “we are making headway towards a return to being a sustainably cash generative business.”

The firm, which bills itself as “a global enabler of the Internet of Things,” saw its share price collapse in 2017, from 375p in April to only 102p by August. At 160p now, they could be on the way back, but what had previously gone wrong?

The market was shocked in August 2017 by the revelation that chief executive Oozi Cats had previously been indicted on fraud charges in the US and had withheld that from the Telit board.

As my colleague G A Chester explained, the firm suffered a breach of its debt covenants, and there was some interesting director dealing around that time. He also pointed out that the company’s impressive recorded profits were not, at the time, feeding through to cash flow.

Steering clear

After the share price slid a little, I’d thought the shares looked good value. But what a mistake that was, just a month before the news of Oozi Cats broke. There’s a lesson for me there, which applies to upcoming growth stocks. It’s common to see EPS growth and rosy forecasts, but it’s often not so easy to see actual cash in the early days — it’s often something we hope to see tomorrow.

The fact that Telit had already started paying dividends possibly also blinkered me to the troubles ahead, and with hindsight the company was paying out cash it couldn’t yet afford. The dividend was curtailed last year and there’s no sign of any resumption on the cards up to 2019.

Telit is very much a ‘once bitten’ stock for me now.

Second chance

If you want a FTSE 250 telecoms company that has done everything right and has been well managed, you might like the look of Telecom Plus (LSE: TEP). I was a big fan of Telecom Plus, which provides bundled telecoms and utilities services under its Utility Warehouse brand, in the early days. But we saw a typical growth share bubble, with everyone wanting in and pushing the share price up way too high. Peaking close to the 2,000p level, the resulting P/E multiples of around 40 were just not sustainable.

Now the price has fallen back to more realistic levels at around 1,150p, I’m starting to like the look of Telecom Plus shares again.

Results for 2017, released in June, showed a modest 3.4% rise in adjusted EPS, and the dividend was lifted by 4.2%. The latter is really what appeals to me, with the firm saying it “remains committed to a progressive dividend policy consistent with the underlying strong cash generation of our business.“

Forecasts suggest a stronger 9% rise in EPS this year, with the dividend yield set to grow to 4.5% — and to 4.8% by March 2020. Cover won’t be dramatic at a little under 1.2 times, but the clear visibility of revenues in the utilities sector means I’m happy with that.

Telecom Plus enjoys bulk-buying advantages which should help it compete successfully with other smaller utilities firms, and I see forward P/E multiples of 18 to 19 as representing good value now.

The post Why I’d dump Telit Communications shares and buy this FTSE 250 growth and dividend stock instead appeared first on The Twelfth Magpie.

More reading

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.

Is SSE a buy for its 7% dividend yield?

Jack Tang — Sat, 09 Jun 2018 10:30:13 +0000

With a dividend yield of 7%, shares in ‘Big Six’ energy company SSE (LSE: SSE) look pretty tempting to income-hungry investors. Everyone loves high income, but just how safe is the dividend?

Forward guidance

Encouragingly, the company has set out its dividend plans for the next five years, ahead of the planned spin-off of its household energy supply and services business. Following a 3.7% increase in its dividend to 94.7p per share for the 2017/18 financial year, SSE expects to raise it again this year, by 3% to 97.5p, representing dividend growth which is broadly in line with expectations for RPI inflation.

And following the planned merger of its retail supply business with Npower and its subsequent spin-off, SSE plans to re-base its dividend payout to 80p per share in 2019/20, before returning to dividend growth which will keep pace with RPI inflation in the three following years to March 2023.

Clarity on the dividend should give investors a great deal of certainty about its medium-term income outlook, but its longer-term prospects needs to be viewed in context of the challenging trading conditions in the sector.

Challenges remain

There’s still a great deal of political and regulatory uncertainty which is holding back a re-rating in its shares, and earnings will likely come under pressure from the impending introduction of the government’s energy price cap and ongoing competitive pressures in the industry.

What’s more, there are growing concerns about the capital expenditure needed for its regulated energy networks business. For some time now, SSE has struggled to generate sufficient free cash flow after dividends to fully cover the investment needs for the regulated parts of the group, but going forward, that could become even harder following the spin-off of its cash-generative retail supply business.

Still, SSE is not in any imminent danger. The company maintains a solid investment-grade credit rating and expects net debt and hybrid capital to peak at around £10bn, before falling back towards £9bn by 2023. With this in mind, SSE should have enough financial flexibility to weather the challenges without great concern.

Different strategy

Meanwhile, smaller rival Telecom Plus (LSE: TEP) has adopted a different strategy to deal with the competitive pressures in the retail energy market. It’s looking at cross-selling opportunities to bundle together various products and services, in a similar way to the so-called quad-play packages that are becoming more prevalent in the telecommunications market.

Together with supplying energy, phone and broadband to households, the company is expanding into the home insurance and replacement boilers market. It recently acquired a 75% stake in Glow Green, a fast-growing supplier and installer of domestic gas boilers and warranty and care plans.

Competitive edge

With a growing product offering, Telecom Plus is a unique integrated multi-utility which seeks to gain an edge in an increasingly competitive market. The one-stop shop approach has been shown to be an effective tool to increase sales and reduce churn rates in the telecommunications market, so this strategy could deliver significant growth in the long term.

In the nearer-term, things look upbeat too, with the group expected to deliver continued growth in customer and service numbers. City analysts expect the dividend to increase to 50.3p this year, giving the stock a forward dividend yield of 4.8%.

The post Is SSE a buy for its 7% dividend yield? appeared first on The Twelfth Magpie.

More reading

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.

Two FTSE 250 dividend plus growth stocks I’d buy and hold in my ISA

Rupert Hargreaves — Tue, 20 Mar 2018 12:50:27 +0000

Today, shares in gaming company 888 Holdings (LSE: 888) are falling after the firm reported a drop-in pre-tax profit of 68% to $18.8m from $59.2m, as well as a cut in its full-year dividend payment to 15.5 cents per share, from 19.4 cents in 2016 and 15.5 cents in 2015.

While these figures are disappointing, I’m not that concerned about the company’s lack of profitability for 2017. Indeed, if we look at just the’s top line, revenue increased by 4% for the year to $541m. Some of the firm’s business lines grew faster than others, including sports betting revenue which soared 45% higher.

Overall, earnings before interest, tax, depreciation and amortisation increased 12% on an adjusted basis, and the group’s adjusted EBITDA margin rose to 19.5% at constant currency from 2016’s 17.3%.

One-off charge

The reason why the company’s earnings suffered during the year was an exceptional expense of $50.8m of which $45.3m related to “potential past VAT matters” and $5.5m was incurred as part of a UK Gambling Commission settlement. These charges coupled with “regulatory developments” (relating to operations on the continent) have led management to conclude that it is prudent to reduce the payout for the year. 888 reported a net cash balance of $179m at year-end, so this move is not an indication that the group is struggling to pay off creditors.

And I believe that, as long as the VAT obligation does not increase in 2018, the company’s dividend will return to growth. City analysts expect the same, with payout growth of 10% pencilled in for 2018. Based on these projections the shares are set to support a dividend yield of 3.9% for fiscal 2018 and currently trade at a forward P/E of 20.3.

Considering that 888’s earnings per share have grown by roughly 30% per annum over the past six years, I believe it’s worth paying a premium valuation to get your hands on the shares.

Steady utility growth

Another ‘dividend plus’ stock that I believe could be a great investment for your ISA is utility provider Telecom Plus (LSE: TEP). What makes this business stand out is the fact that over the past five years, while its peers in the utility sector have been struggling, Telecom Plus has gone from strength to strength.

City analysts are projecting a net profit of £46m for fiscal 2018, compared to 2013’s reported figure of £27m. As the company continues to win over customers, City analysts expect earnings to grow by a further 10% in 2018.

Telecom Plus as always been a dividend champion and it doesn’t look as if this will change any time soon. The stock currently supports a dividend yield of 4.1% and the payout is covered 1.1 times by earnings per share. Analysts have pencilled in growth of 6% for 2019, giving a dividend yield of 4.3%.

The company’s interim results confirmed that it is on track to surpass City projections for growth for the year. To the end of September, revenue grew 2.6%, and earnings per share jumped 6%, which allowed management to increase the interim dividend payout by 4.3%. So if you are looking for steady dividend growth from a defensive telecoms business, this one seems to me to be a business worthy of further research.

The post Two FTSE 250 dividend plus growth stocks I’d buy and hold in my ISA appeared first on The Twelfth Magpie.

More reading

Should you be tempted by these 2 high-yield shares?

Rupert Hargreaves — Tue, 21 Nov 2017 12:09:19 +0000

There are few income stocks out there that have reported dividend growth like Telecom Plus (LSE: TEP). Over the past six years the company’s earnings per share have expanded by 40%, and over the same period, management has hiked the dividend payout by 61%, or around 8% per annum.

Thanks to the company’s steady earnings and dividend growth, over the past five years the shares have produced an annual total return of 9.5% for investors. Over the past 10 years, the shares have generated a total return of 26% per annum.

And it looks as if the company’s dividend growth is set to continue following the release of first-half figures today.

Dividend growth

After a robust first half, Telecom Plus management now believes that annual adjusted profit before tax should come in “slightly ahead” of expectations for the full year. Adjusted pre-tax profit from continuing operations rose 6% to £25.7m, while reported pre-tax profit rose 7% to £19.1m.

Customer numbers have continued to grow organically, with 5,265 customers added in the first half to push the total up to 613,067. The company has benefitted from its diversified offering and impact of customers taking up more services.

On the back of these figures, the dividend for the half was raised 4.3% to 24p from 23p.

City analysts are expecting the company’s organic growth to continue for the next few years, with earnings per share growth of 5% predicted for this year, and 10% for 2018. I believe that this earnings rise should underpin further dividend increases, indicating that not only does the company’s current 4.1% dividend yield look attractive in the present environment, but it also looks sustainable and set to rise in the years ahead.

Recovery play

Telecom Plus’s impressive total shareholder returns cannot be matched by peer TalkTalk (LSE: TALK). Following a hack attack that affected 157,000 customers last year, shares in TalkTalk have underperformed the FTSE 100 by 17% as management has struggled to rebuild customer and investor trust.

Hefty restructuring charges have held back the firm’s recovery, pushing it to report a £75m pre-tax loss for the six months to September 30, compared with a £30m profit a year earlier. A £31m charge for overhauling its mobile business, coupled with £59m of exceptional charges for restructuring helped push the business from a profit to a loss.

To help rebuild the balance sheet, TalkTalk’s management has also slashed the dividend payout. The group is paying a half-year dividend of 2.5p a share, compared with 5.3p this time last year. Nonetheless, I believe that this is a sensible strategy, which should ensure that the payout remains manageable for the foreseeable future.

You see, historically the company’s dividend payout per share has exceeded earnings per share, which is generally interpreted as a sign that the payout is unsustainable. Now however, analysts believe the payout will be covered 1.1 times by earnings per share next year.

These numbers give me confidence that the current dividend, equal to a yield of 4.9%, is here to stay.

The post Should you be tempted by these 2 high-yield shares? appeared first on The Twelfth Magpie.

More reading

Does government energy price cap mean you should sell National Grid plc?

Alan Oscroft — Wed, 11 Oct 2017 15:00:27 +0000

I recently voiced my fears that politics could bring a halt to years of rising dividends from energy companies like Centrica, and talk of caps on energy prices is in the news once again.

This time it’s about the probable delay of the government’s latest price-capping plan, announced by Prime Minister Theresa May last week. The cap was touted as likely to be in place by this winter, but Ofgem has now said it has to wait for new legislation before it can do anything.

It’s only a temporary reprieve, so should we sell energy stocks now?

National Grid (LSE: NG) has always been a favourite of mine for a couple of reasons. Firstly we have those fuel-sourced dividends, which have been coming in nicely at between 4% and 5%, with 4.8% and 5% forecast for this year and next.

Then there’s the ‘picks and shovels’ nature of National Grid, in that the company gets its money from operating its electricity and gas distribution networks rather than selling the stuff itself. So, in theory at least, whichever suppliers are doing best and whichever are doing worst, National Grid will still rake in its fees and keep on paying those dividends.

Politicians

In truth, political pressure on consumer prices will hit profits across the whole of the heavily-regulated industry, and that will surely include National Grid.

But at least there is that safety barrier there, which the rest of the sector doesn’t enjoy, and which puts National Grid one step back from the front line of energy prices.

We’ve also heard politicians trying to be populist for years by threatening to punish ‘greedy’ energy suppliers, and while they’ve made small ripples, the industry has just kept on outliving the span of whoever is currently on the political soapbox.

I still think National Grid is a good long-term investment.

Buy the upstarts?

Another possible approach is to look for the newcomers to the business, which are still relatively small fish in a very big pond and with room to grow when the big firms face problems. In many cases, starting from nothing, they’re leaner and more efficient too.

I’ve been a fan of Telecom Plus (LSE: TEP) for some years now — despite its name, it actually provides bundled telecoms and energy services under its Utility Warehouse brand.

It’s been bringing in earnings and dividend growth year on year, although that growth has started to slow a little. In the year to March 2017, lower prices and slower customer acquisition actually meant that revenue dropped — albeit by only a modest 0.6%.

And pressure on the company is set to continue with competition becoming ever more aggressive — and with price caps on the horizon, that’s not going to ease up.

Still rising

But analysts are expecting EPS to rise by 10% this year and 8% next, and the dividend has been steadily progressing ahead of inflation — we have yields of 4.5% and 4.8% on the cards for this year and next.

And though the shares are on forward P/E multiples of 18-19, the superior growth prospects make me feel they’re worth buying.

In fact, at 1,190p today, the shares are well down on their peak price of more than 1,900p back in 2014 — but that was typical initial growth stock over-enthusiasm.

I still rate Telecom Plus a long-term buy too.

The post Does government energy price cap mean you should sell National Grid plc? appeared first on The Twelfth Magpie.

More reading