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3 dividend stocks I’d buy for my ISA and hold for 10 years

Royston Wild — Sun, 28 Jul 2019 09:30:55 +0000

Tritax Big Box is an income share I’ve long had an investing crush on. Demand for its gigantic warehousing and distribution hubs is already robust and should keep growing in the decades to come as the e-commerce boom continues.

The same case can be made for Tritax’s smaller rival Urban Logistics REIT (LSE: SHED) too. The AIM-quoted company enjoyed record take-up of its space in the 12 months to March, beating the prior all-time high printed just a year earlier. And rental income almost doubled in the period, reflecting that aforementioned demand surge as well as a chronic shortage of so-called big box facilities in the UK.

Annual dividends at Urban Logistics swelled 12% last year, and more meaty growth is anticipated for fiscal 2020, meaning a chunky 5.8% yield. And it’s not hard to foresee chubby payout hikes long into the future as profits likely go from strength to strength.

Prime target

Target Healthcare REIT (LSE: THRL) is another big-yielding property share I’d happily stash in my ISA today and hold there for years to come.

This business provides care homes the length and breadth of the country, and because of steady growth in the UK’s elderly population, I’m tipping earnings here to keep flourishing as well. Predictions from the Office for National Statistics suggests the number of citizens aged 85 years or over is set to balloon to 3.6m by 2019, up from 1.5m five years ago, certainly bolsters my confidence.

What’s more, Target has both the appetite and financial strength to remain active on the acquisition front to capitalise on this vast structural opportunity. In the last few months alone it’s shelled out close to £15m on a couple of care homes in Nottingham and Merseyside.

Its very bright growth outlook means City brokers predict more dividend hikes at Target in the near-term, leaving another mighty 5.8% yield for the current year (to June 2020). Buy it today for handsome income flows for years to come, I say.

Be bowled over

The renaissance of ten-pin bowling in the UK makes Ten Entertainment Group (LSE: TEG) another dividend great to buy today.

It doesn’t matter that Britons’ spending power is coming under sustained pressure. A night out at the bowling alley is a relatively cheap, fun and unique experience, and this is why people are still flocking to their nearest venue in record numbers. This was evident in Ten Entertainment’s interims this month in which it advised of a 7.4% uplift in like-for-like sales in the period to June.

And just as we are seeing at Target, Ten Entertainment is putting its robust balance sheet at work to build future growth, the small-cap adding new centres in Southport and Falkirk to its estate portfolio in recent months.

Right now, the bowling behemoth carries a large 5% dividend yield for 2019 and a dirt-cheap corresponding P/E ratio of 11.7 times. I consider it to be a white-hot buy for ISA investors at the current share price.

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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.

3 top small-cap stocks yielding 5%+ I’d buy right now

Roland Head — Mon, 13 May 2019 06:28:09 +0000

Conditions are tough on the high street. But consumer spending is stable and predictions of gloom seem overbaked to me. Today I want to look at three companies involved in the retail and leisure markets.

Each firm offers a yield of at least 5%, so patient shareholders should be rewarded with a generous income.

The boss is back

Shares in fashion brand Superdry (LSE: SDRY) have fallen by about 75% since January 2018.

Are there problems at Superdry? Yes. Is the business going to fail? I don’t think so.

Founder Julian Dunkerton is back in the driving seat and determined to return this brand to growth.

In a trading update last week, Mr Dunkerton warned that profits would be lower than expected for the year ended 28 April. But since taking charge on 2 April, he’s already made a number of changes that are expected to boost sales and improve profits margins.

Flagship stores are being restocked with a greater choice of items. Discounts and sales are being scaled back. And the range of choices available on the website has been expanded. These changes are expected to generate more full-price sales, boosting profits and helping to rejuvenate the brand.

There’s still a lot to do. But with the shares trading on 9 times forecast profits and offering a 5.5% dividend yield, I think the shares rate as a value buy at current levels.

Keeping it in the family

Leeds-based property firm Town Centre Securities (LSE: TOWN) owns a mix of retail, leisure and office property. It’s also the owner of the CitiPark car park business, which owns multi-storey car parks in a number of major towns and cities.

Town Centre’s shares have fallen by about 25% over the last year, and now trade at 40% discount to their net asset value of 361p per share. To some extent, I think this caution is justified.

But although some retail tenants have gone into administration, others are looking for new shops. Management has already found new tenants for six of the eight units that became vacant last year, with higher average rents than before.

The founding Ziff family still controls about 60% of Town’s shares. They’ve supported and grown the business since its foundation in 1959. Town Centre Securities survived the financial crisis without needing refinancing and I don’t see any reason why this impressive track record can’t continue. With the shares trading at a 40% discount to book value and offering a yield of 5.5%, I think now could be a good time to buy.

A growth business

A key growth area for retail landlords is leisure businesses such as 10-pin bowling operator Ten Entertainment Group (LSE: TEG). This business has impressed me since its flotation in 2017.

Adjusted pre-tax profit rose by 4% to £13.5m last year, while the dividend climbed 10% to 11p per share. Analysts expect earnings to rise by 25% to 20.9p per share this year, thanks to a mix of new openings and refurbishments.

The business carries very little debt and reported an impressive 15% operating profit margin for 2018. However, the shares pulled back during the second half of last year, perhaps due to concerns that Brexit could hit consumer spending.

I suspect this risk may be overstated. Trading on 11 times 2019 forecast earnings and offering a dividend yield of 5.4%, I think Ten Entertainment could be a good long-term growth buy for UK-focused investors.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Superdry. 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 mega-cheap dividend heroes with yields above 5%. Can I afford to ignore them?

Royston Wild — Sun, 28 Apr 2019 11:45:34 +0000

If you’re looking for a blend of growth, income, and value then Ten Entertainment Group (LSE: TEG) is a share worthy of investment cash, in my opinion.

The popularity of ten-pin bowling with Millennials has prompted a renaissance of alleys the length and breadth of the country. It’s a relatively-inexpensive night out, meaning despite the broader pressure on Britons’ spending power, sales at Ten Entertainment are swelling (like-for-like sales were up 5.1% in the first 11 weeks of 2019).

And Ten Entertainment is harnessing this momentum by investing heavily in its existing estate and opening new arenas. Just this month, it completed the purchase of a site in Southport, Merseyside, taking the number of centres on its books to 44.

It’s not a surprise to see City analysts predicting earnings growth of 26% in 2019, a figure which leaves it dealing on a forward P/E ratio of just 11.3 times, and leads to predictions of more dividend growth. Ten Entertainment thus yields 5.2% and sits as a true income star.

Swot up

Empiric Student Property (LSE: ESP) is another share in great shape to deliver terrific profits rises in the near term and beyond. The student accommodation provider’s share price has plunged in recent months, leaving it dealing on a rock-bottom, sub-1 forward PEG ratio of 0.5, as concerns over how and when the UK exits the European Union have grown.

As of right now, though, Empiric is yet to see any impact of this on its operations. The business commented last month that “while there are economic and political uncertainties, particularly regarding Brexit, we are yet to see any material adverse consequences.”

British universities remain hugely popular with students from all over the world and are likely to continue to be so. It’s why revenues at Empiric soared 25% in 2018 and occupancy rates rose four percentage points to 96%.

Pre-tax profits almost doubled at the firm last year and City brokers are forecasting more terrific progress in 2019, a bottom-line rise of 42% currently anticipated. This bubbly estimate supports forecasts of more chubby dividends, leaving Empiric with a corresponding yield of 5.3%.

On target

My last selection is Target Healthcare Reit Ltd (LSE: THRL), a company whose yield of 5.8% for the upcoming fiscal year (beginning July 2019) makes it the best payer on this list.

City analysts expect the care home operator to generate earnings growth of 17% for the new period and, due to the UK’s rapidly-ageing population, there’s plenty of reason to expect profits to keep barrelling higher, in my opinion.

Like Ten Entertainment, Target is also committed to rampant expansion. In the first quarter alone, it opened new homes in Oxfordshire and Leicestershire. It currently has 23 tenants and expects this to rise to 26 once planned acquisitions and developments are completed.

At current prices, Target can be picked up on a forward PEG reading bang on the bargain watermark of 1 times. For a business with such scintillating growth opportunities for the years ahead, I reckon this makes it a steal.

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2 dividend growth stocks I’d buy for my ISA and hold for 10 years

Roland Head — Wed, 20 Mar 2019 15:08:36 +0000

With just over two weeks to go until this year’s ISA deadline, I’m on the hunt for stocks I’d be happy to buy and hold for the long haul.

Today, I’m looking at two stocks offering a mix of income and growth. Both are highly profitable and appear to be performing well. I believe they could be profitable stocks to tuck away for the next decade.

Bowling for cash

Bowling alley operator Ten Entertainment Group (LSE: TEG) operates the Tenpin chain of bowling centres, which has 43 sites around the UK. This company only floated on the stock market in April 2017, but has performed well so far and has already earned a place on my watch list.

Last summer’s heatwave wasn’t good for indoor attractions, but like-for-like sales at the firm’s venues still rose by 2.7% last year. Four new sites added to total sales, which rose by 7.5% to £76.4m. Adjusted pre-tax profit was 4% higher, at £13.5m.

Despite a challenging summer, the group generated an operating profit margin of 14.9% in 2018 and earned a return on capital employed of 18.2%. This figure shows that the firm generated £182 of profit for each £1,000 of capital tied up in the business last year. That’s a good result.

A buying opportunity?

At the time of writing, Ten’s shares were trading at about 220p, more than 20% below last summer’s 280p+ highs.

I think this could be a buying opportunity. 2019 has started well with the firm, with a 5.1% increase in like-for-like sales during the first 11 weeks of the year. Analysts expect the group’s adjusted earnings to rise by about 25% this year. A similar increase is expected to the dividend.

These forecasts put the stock on a 2019 price/earnings ratio of 10.5, with a dividend yield of 5.6%. In my view that looks good value for such a profitable business. I’d be happy to pick up some stock at this level.

Sun, sea and sand

My next pick is online travel agent On the Beach Group (LSE: OTB). This group specialises in European beach holidays and has a 20%+ share of this market in the UK.

Unlike struggling rivals such as TUI and Thomas Cook, On the Beach doesn’t operate aeroplanes or hotels. It simply uses its buying power and technology to negotiate good deals with established operators. Customers like On the Beach because they can book personalised holidays quickly and simply online.

The company’s business model requires very little upfront investment, making it extremely profitable. Figures for the year to 30 September 2018 show On the Beach generated an operating margin of 25% and a return on capital employed of 21% last year. Pre-tax profit rose by 23.7% to £26.1m, while net cash rose from £33m to £47m.

Analysts expect the group’s profits to rise by a further 20% in 2019. And although the dividend yield is low, at just 0.9%, I believe this firm’s hefty cash balance should mean that shareholder returns will rise quickly. I think there’s also a chance this business could become a takeover target.

The shares have pulled back from last year’s highs of more than 600p. Trading at about 450p, On the Beach has a forecast price/earnings ratio of 18 for the current year. I rate the shares as a long-term buy at this level.

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Roland Head 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.

These 3 ‘hidden’ dividend stocks yield up to 6.7%. Can you afford to ignore these bargains?

Royston Wild — Sat, 26 Jan 2019 07:48:09 +0000

Headlam Group (LSE: HEAD) is a big-dividend-paying small-cap that may not be for the faint of heart, but I’m convinced it still has what it takes to deliver titanic returns now and in the years ahead.

Brexit is wreaking no little havoc on trading at the floor coverings specialist right now, prompting it to predict in its recent pre-close update that “the UK market will show further general weakness during 2019.” Despite this, Headlam predicted that group revenues will remain flat this year, and I’m inclined to believe it given its ability to perform in already-tough conditions — it advised in this month’s statement that profits were “marginally ahead” in 2018 despite troubles in its home market.

Headlam may well experience some forecast-denting turbulence this year — a 4% earnings rise is currently anticipated by City brokers — but I believe the chances of this occurring are baked into the firm’s low forward P/E ratio of 9 times. I’m far more attracted by its bulging 6.7% dividend yield, and the brilliant long-term profits opportunities created by its expansion strategy in Europe.

Strike it rich

Bowling alley operator Ten Entertainment Group (LSE: TEN) is another income giant carrying inflation-mashing dividend yields in the near term, in this case a reading of 5.3%.

And just like Headlam, the ten-pin titan can also be picked up for next to nothing, the small-cap also carrying a mega-cheap prospective earnings multiple of 11.4 times. This also doesn’t factor in the resilience of this little-known income hero, in my opinion, the resurgent appetite for bowling in Britain helping it to overcome increasing pressure on consumer spending power as well as the impact of “extreme” summer weather.

Earlier this month Ten Entertainment said that like-for-like sales rose 2.7% in 2018, the seventh successive year of growth. And the business looks good to continue growing profits at a breakneck pace, helped by its ongoing acquisition drive. The City certainly thinks so, with analysts forecasting a 22% earnings rise in 2019.

Don’t miss this dividend star!

Corporate insolvency specialist Begbies Traynor Group (LSE: BEG) may have seen its share price clatter lower in recent months, but I am convinced this represents a prime dip-buying opportunity.

Why? Well, as the British economy slows the number of businesses experiencing financial distress is growing, and this is playing into the likes of Begbies Traynor’s hands. It saw revenues rise 8% in the six months to October, to £28m, and with debt falling the AIM business is in great shape to execute more earnings-enhancing acquisitions, not to mention to keep lifting dividends.

Indeed, City boffins predict a full-year dividend of 2.6p for the period to April 2019, up from 2.4p last year and yielding a formidable 4.5%, aided by an anticipated 9% earnings rise. Combined with a low, low forward P/E ratio of 13.1 times I reckon Begbies Traynor is a great income share to pick up today.

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Why I’d invest £1,000 in this dividend-growing share today

Kevin Godbold — Thu, 17 Jan 2019 12:31:23 +0000

Ten-pin bowling operating firm Ten Entertainment Group (LSE: TEG) arrived on the stock market in May 2017. I like to keep a close eye on recently-listed firms because the biggest growth phase can happen early on in the life of a new public company. Sometimes that effect occurs because an Initial Public Offering (IPO) leaves the firm well capitalised and therefore possessing the financial firepower to pursue its growth ambitions. On top of that, directors and management teams can be at their entrepreneurial best and hungry to prove themselves in the public arena by delivering strong growth and a rising share price.

I like what I’m seeing

However, it doesn’t always work out like that. Some firms list on the market only to crash and burn, taking the share price down with them. But I like what I’m seeing with Ten Entertainment. The firm has a record stretching back before its IPO of rising revenues, normalised earnings and operating cash flow. Meanwhile, dividend payments started in 2017 and City analysts forecast meaningful rises in the payment going forward. They also predict that earnings will rise by more than 20% in 2019 and by almost 15% in 2020.

Things seem to be going well for the company, but the valuation remains modest. At today’s share price close to 222p, the forward-looking price-to-earnings multiple runs at just over 10 for 2019 falling to around nine in 2020. The forecast dividend yield for 2019 is running close to 5.8% and those anticipated earnings should cover the payment around 1.7 times.

So why is the valuation this low when the growth predictions seem to encourage a higher valuation? I can see two possible reasons for that. Firstly, I reckon the investment community takes time to catch on to the growth stories of newly-listed companies. Secondly, there’s no doubt that Ten Entertainment’s operations will contain a lot of cyclicality, which means the firm may not deserve a higher valuation.

But despite my reservations about cyclicality, the company is growing because of its acquisition activity, and I find today’s full-year trading update to be encouraging. The operations are in the UK with the company running 43 “family entertainment centres.” Total sales increased by 7.5% during 2018 compared to the year before and 2.7% of that rise came from like-for-like advances, which suggests the offering is resonating with customers.

Steady growth

During the year, the firm acquired and refurbished four new sites and disposed of one under-performing site. There is a “strong” pipeline of acquisition opportunities and, looking ahead, the directors are aiming to add between two and four sites per year. Chairman Nick Basing explained in the report that like-for-like sales have grown for seven consecutive years “despite the headwinds of the extreme summer conditions.”

It seems to me that Ten Entertainment and other firms such as Hollywood Bowl Group have hit onto a popular and fast-growing niche in the leisure industry. Mr Basing describes it as an“experiential” segment and the company’s position in it gives him “confidence during the current economic and politically uncertain times.” Meanwhile, the outlook is positive, and I’m tempted to dip my toe in the water with a modest purchase of a few of the firm’s shares.

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Kevin Godbold 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.

Why I’d buy shares in this 5%-plus dividend-paying growth firm

Kevin Godbold — Wed, 12 Sep 2018 15:15:22 +0000

It’s refreshing to hear a business reporting robust trading despite the unusual weather patterns we experienced in the UK through the summer, rather than blaming the weather for poor results. Such is the case with tenpin bowling operator Ten Entertainment Group (LSE: TEG), which delivered its half-year results report today.

The firm reckons it’s the second-largest tenpin bowling firm in Britain. It has 44 sites, which are mainly located on retail and leisure parks next to “family leisure brands” such as cinemas and casual dining restaurants.

Playing for growth

Growth is on the agenda with the number of sites up from 41 at this time last year. As with all destination businesses, I reckon it’s all about maximising spend-per-customer when they are ‘captive’ on site. Ten Entertainment augments the takings from its estate of around 1,000 bowling lanes with “a broad selection of entertainment options,” which includes amusement machines, table-tennis, soft play, laser games, pool tables, restaurants and bars.

Today’s figures are good. Revenue rose almost 8% compared to the equivalent period last year, net cash from operations shot up 18%, and adjusted earnings per share came in broadly flat. The directors reckon the results would have been better without the unusual weather we had in the period and expressed their optimism in the outlook by pushing up the interim dividend by 10%.

Highlights in the period included the four new site acquisitions and two full refurbishments. The company aims to relaunch the branding of the four acquired venues during the second half of the year. Chairman Nick Basing explained in the report that the firm aims to continue ploughing money back into the business to “strengthen” the quality of earnings from existing operations and to acquire “high-quality additions.” Despite the ongoing need for investment, the firm reckons its borrowings stand at around £2.8m, which is undemanding at around one third of last year’s operating profit figure.

An attractive yield

City analysts following Ten Entertainment expect earnings to grow around 14% this year, and 20% in 2019, which strikes me as decent growth if it’s achieved. However, with the share price at 256p, I reckon the stock market is being pessimistic. The forward price-to-earnings ratio for 2019 runs close to 11.5, and the forward dividend yield stands at a little over 5%. At first glance, that valuation looks attractive to me.

Of course, there’s always the worry with an entertainment business like this that operations could be cyclical. After all, entertainment is a discretionary spend for most people and it’s hard to argue that tenpin bowling is an ‘essential’ household expense. If economic times become tough, it seems likely that Ten Entertainment’s cash flow and profits will fall. Yet the company’s record of cash inflow is impressive over the past four years – rising each year and lending robust support to profits.

On balance, with the company’s growth strategy driving financial performance, I reckon the big yield is worth collecting as we wait for further expansion and for the share price to rise. After all, the next economic downturn could be years away.

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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.

2 small-cap dividend growth stocks that could help you retire at 55

Roland Head — Tue, 12 Jun 2018 15:20:30 +0000

Today I’m looking at two small-cap dividend growth stocks which I believe deserve more attention from investors.

In my view, both of these companies have the potential to deliver market-beating long-term gains. So they could be ideal pension investments if you’re hoping to retire early.

Electrifying figures

CML Microsystems (LSE: CML) designs and manufactures semiconductors. The company operates in two markets, solid state storage and wireless communications. Shares in this £87m firm have risen by 42% over the last two years, putting CML well ahead of the wider market over the same period.

The group published its full-year results today, showing that revenue rose by 14% to £31.7m for the year to 31 March. Pre-tax profit was 9% higher at £4.6m, and the dividend rose by 5.4% to 7.8p per share.

The company has no debt and its net cash balance rose to a new record of £13.8m during the year. Management expects to use some of this cash to make further acquisitions when opportunities arise, providing a potential catalyst for growth.

What could go wrong?

In today’s results, managing director Chris Gurry warned that issues with the supply of certain raw materials might affect customer purchasing patterns this year. As a result, Mr Gurry expects sales and profit growth to be weighted to the second half of the current year.

My concern is that hoped-for improvements in the second half don’t always happen. There seems to be a risk that earnings could fall short of expectations this year. This only sounds like a short-term blip to me, but it might provide us with an opportunity to buy the stock cheaper at some point later this year.

CML shares trade on a forecast P/E of 20, with a prospective yield of about 1.6%. That’s not cheap, but stripping out net cash (which doesn’t contribute to earnings) gives a cash-adjusted forecast P/E of 17, which seems more reasonable. I’d consider this stock as a long-term buy at around 500p.

It could be the right time to buy

Another company that interests me at current levels is bowling alley operator Ten Entertainment Group (LSE: TEG). This firm floated in April 2017 and is a smaller rival to well-known bowling operator Hollywood Bowl.

Ten Entertainment’s first full-year results as a public firm impressed me in March. Like-for-like sales rose by 3.6% and total sales were 5.5% higher, at £71m. The group’s adjusted profits rose by 18% to £13m, suggesting that new and refurbished centres are making a strong contribution to growth.

Leisure businesses like these are increasingly occupying space that was once used by retailers. So the group’s continued expansion could prove to be well timed.

A winning stock?

The IPO generated enough cash to clear most of the group’s debts, leaving it with net debt of just £4.7m at the end of 2017. Free cash flow of £4.6m compares well with last year’s after-tax profit of £5.2m, suggesting that this business should generate plenty of cash.

Earnings growth is also expected to remain strong. City analysts have pencilled in earnings per share growth of 17% this year and 18% in 2019. With the shares trading on a forward P/E of 14 and a prospective yield of 4.2%, I believe this growth business could be too cheap to ignore.

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Roland Head 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.

Why I’d sell Centrica plc for this growth and dividend stock

Royston Wild — Wed, 21 Mar 2018 13:50:06 +0000

Bowled over by its terrific earnings visibility and monster yields, I used to own shares in one of Britain’s Footsie-quoted electricity providers, SSE being the stock in question.

I sold out some time ago as the impact of the growing number of smaller, promotion-led independent suppliers began to chip away at the profitability of the Big Six operators.

There are still plenty of investors seduced by the allure of big dividends though, even as these companies’ share prices have taken a battering over recent years. Centrica (LSE: CNA) has seen its share price fall by more than 60% over the past five years as its British Gas division has suffered.

And the slowdown at its retail arm shows little sign of abating, raising the question of how much further its market value will continue to deteriorate. It saw the number of customers on its books slump a shocking 10% in 2017 to 12.8m, a result that pushed adjusted operating profit 17% lower to £1.25bn.

As if the rise of the challenger suppliers wasn’t enough to contend with, the FTSE 100 provider and its larger peers also face the prospect of added strain on future profitability as politicians take steps to introduce vote-winning price caps.

Dividends on the block?

Centrica has vowed to undertake more streamlining in the wake of 2017’s disastrous result, pledging to cut another 4,000 heads from its workforce as it rallies against a flagging bottom line and tries to retain its lustre with dividend investors.

The business was forced to keep the dividend locked at 12p for last year, putting paid to its progressive payout policy. And I believe — like my Foolish colleague Paul Summers — that a payout cut is a very real possibility in the not-too-distant future.

City analysts certainly think so, and are tipping not one but two slashes over the medium term. Payouts of 11.6p and 11.2p are forecast for 2018 and 2019 respectively. However, even these projections are still covered barely by earnings in this period. And while net debt stands at the lower end of Centrica’s targeted £2.5bn-£3bn range, this could easily start creeping higher again, putting dividends in danger of still heftier cuts than those currently being banded around by the brokers.

I would give Centrica’s forward yield of 8.7%, as well as its low corresponding P/E ratio of 9.9 times, little regard and steer well clear today.

A genuine dividend great

In fact, were I a holder of Centrica stock I would be quite happy to sell out and plough the capital into Ten Entertainment Group (LSE: TEG).

The ten pin bowling operator announced on Wednesday that revenues ticked 5.5% higher in 2017 to £71m, while like-for-like sales improved 3.6% thanks to “both increased spend per head and footfall.” Consequently profit before tax at the Bedford business leapt 18% from a year earlier to £13m.

With Britons’ love of bowling going through something of a renaissance, and Ten Entertainment expanding rapidly to capitalise on this trend (it acquired another two sites last month to take the total to 42), City analysts are forecasting earnings growth of 15% and 12% in 2018 and 2019 respectively.

And these forecasts leave the business dealing on a bargain forward P/E ratio of 9.9 times. When you throw dividend yields of 4.6% and 5.1% into the ring too, I reckon Ten Entertainment is a terrific buy for both growth and income hunters today.

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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.

2 Neil Woodford high-yield stocks I’d consider buying today

Roland Head — Fri, 09 Feb 2018 13:30:18 +0000

Fund manager Neil Woodford has attracted a lot of press coverage for his contrarian stock picks in recent months.

But today I want to look at two Woodford dividend stocks you might not be familiar with. Both offer above-average yields, including one staggering 8% payout. Should we be buying these shares?

Bowled over

One of the more interesting companies to float on the London Stock Exchange last year was Ten Entertainment Group (LSE: TEG). This is a 10-pin bowling group similar to Hollywood Bowl, but smaller.

The group’s shares have performed strongly since flotation, climbing by 45% to today’s price of 240p. But the valuation continues to look quite reasonable to me, so I think the shares deserve a closer look.

Sales rose by 8.9% to £71m last year, thanks to like-for-like growth of 3.6% and new openings, which added 5.3%. The group is continuing to expand and announced the acquisition of two new sites today, on leisure parks in Chichester and Warrington.

Cheap enough to play

It’s been a few years since I went bowling. But I do know that modern bowling alleys come complete with bars, restaurants and other opportunities for spending money. This makes them quite profitable businesses. My calculations indicate the group has generated an underlying operating margin of 12.3% over the last 12 months.

Last year’s IPO enabled Ten’s management to repay most of the group’s debt, leaving net debt of just £7m at the half-year point. That’s very comfortable when set against forecasts for a 2017 net profit of £11m.

Earnings are expected to rise by about 16% to 19.1p per share in 2018, putting the stock on a forecast P/E of 12.6. A dividend payout of 11.6p per share is expected, giving a prospective yield of 4.8%. In my view, this could be an attractive income stock to tuck away.

An affordable 8% yield?

A dividend yield of 8% would normally signify a company with problems. But there are occasional exceptions to this rule. One potential example is real estate investment trust Regional REIT (LSE: RGL).

This £370m property firm owns a mix of office and light industrial properties in regional locations across the UK. It’s now in its third year of listed life. The group’s shares haven’t made much progress and currently trade a couple of pence below their listing price.

But Regional REIT’s dividend progress has been far more impressive. REITs are given tax advantages in exchange for being required to pay a large proportion of earnings to shareholders as dividends.

The group’s payout is expected to reach 7.8p per share for 2017, giving a forecast yield of 7.9%. The 2018 payout is currently expected to be 8.1p, giving a prospective yield of 8.2%.

These payouts are dependent on continued high levels of occupancy and growth in rental rates. Cheap debt is also essential — if interest rates rise then profits could fall. So far the trust appears to be handling these issues. Occupancy remained stable at around 82% during the first nine months of last year. A recent refinancing has extended the average maturity of the group’s debt from two years to 6.3 years.

If you share Mr Woodford’s view that the UK economy will remain stable, then I believe Regional REIT could be a good income buy.

The post 2 Neil Woodford high-yield stocks I’d consider buying today appeared first on The Twelfth Magpie.

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