The gains were triggered when the firm — previously known as Tullett Prebon — said that last year’s volatile market conditions mean that 2016 revenue should be 12% higher than the £796m reported in 2015.

My calculations suggest TP ICAP’s 2016 revenue will now be around £891m, which is significantly higher than analysts’ forecasts of £846m.

Big changes underway

Today’s figures from TP ICAP only refer to the old Tullett Prebon business. But the group has recently acquired the broking business of UK rival ICAP (now known as NEX Group). The integration of these two businesses is now moving “swiftly” ahead, and TP ICAP will provide expected performance figures for the combined businesses in March.

In my view, TP ICAP is a good example of a business that’s adapting to changing circumstances, and defying gloomy predictions about its future. The group has addressed the inevitable decline in its voice broking business by expanding into energy trading and acquiring the ICAP broking business.

So far, TP’s major acquisitions have been well timed. Rising interest rate expectations should boost trading in some of the group’s core products, such as interest rate derivatives.

TP ICAP has beaten expectations over the last year, but the shares still look cheap to me. The firm trades on a 2017 forecast P/E of 12.4, with a prospective yield of 4%. I believe further gains are possible, and continue to hold this stock in my own portfolio.

Don’t bet against this bank

Asia-focused bank Standard Chartered (LSE: STAN) has been slow to recover from a prolonged downturn. But there are signs that the group’s performance is starting to improve.

In November, Standard Chartered reported a 5% fall in loan impairments during the third quarter. Underlying pre-tax profit was $458m, compared to a loss of $139m for the same period one year earlier.

Standard Chartered’s Common Equity Tier 1 (CET1) ratio of 13% is at the upper end of its target range. The group’s return on equity — a key measure of profitability — turned positive during the first half of last year, and a full-year profit of $597m is expected for 2016.

Looking ahead at 2017, rising interest rate expectations should help to improve returns. The bank’s profits are expected to rise by 175% to $1,647m this year. Consensus forecasts suggest that adjusted earnings will rise by 135% to $0.50 per share.

The current share price of 688p puts Standard Chartered on a forecast P/E of 17, with a prospective yield of 2.5%. This may seem expensive, but profits remain a long way below historic levels and I believe further increases are likely.

The shares also trade at a discount of more than 30% to their tangible book value. If the bank can continue to reduce its bad debt levels, this discount should gradually shrink.

In my view, a medium-term price target of 900p isn’t unreasonable. I plan to continue holding.

The post Why I’m holding onto TP ICAP plc after today’s update appeared first on The Twelfth Magpie.

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Roland Head owns shares of Standard Chartered and TP ICAP. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

ICAP’s sales growth of 11% was certainly impressive, but it was also exclusively due to currency fluctuations. When sterling’s weakness is removed, its top line growth was zero versus the same period of last year. And worse still, its trading profit before tax from continuing operations declined by 7% to £51m. Now this figure is relevant because it represents the part of ICAP that will become NEX Group following the sale of ICAP’s global hybrid voice broking business to Tullett Prebon.

So is ICAP/NEX left with a turkey? Although its continuing operations recorded disappointing profitability, they have considerable long-term growth potential. Fundamentally, ICAP remains sound and over time it’s likely that more normal market conditions will return. And with it forecast to record a rise in earnings of 11% in the next financial year, investor sentiment could improve following the deal with Tullett Prebon. That’s especially the case since ICAP trades on a price-to-earnings growth (PEG) ratio of only 1.6.

Good news for Tullet Prebon

Of course, its global hybrid voice broking business continues to perform well. It recorded a rise in trading profit before tax of 28% to £59m in the first half of the year. Its trading profit margin rose by two percentage points and this indicates that Tullett Prebon’s future performance is likely to be enhanced by the acquisition. With Tullett Prebon trading on a PEG ratio of 1.7, it has a wide margin of safety. Assuming the successful completion and integration of the broking business, Tullett Prebon’s share price could increase following its 14% rise in the last three months.

The appeal of ICAP and Tullett Prebon becomes increasingly apparent when other financial services sector stocks are considered. For example, wealth manager Hargreaves Lansdown (LSE: HL) has a PEG ratio of 3.5, which indicates that it lacks appeal from a valuation perspective. Furthermore, ICAP and Tullett Prebon are undergoing significant changes that could lead to improved financial performance. While Hargreaves Lansdown has a successful track record of consistent growth, it lacks a clear catalyst for growth compared to either of the other two.

While the current operating environment for ICAP and Tullett Prebon is highly uncertain, a more stable outlook may lie ahead. With both stocks having low valuations and sound growth strategies, now could prove to be an excellent time for long-term investors to buy a slice of them.

The post ICAP plc’s sales surge by 11% ahead of Tullett Prebon plc deal appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Software star?

Shares in Kainos Group (LSE: KNOS) climbed by 6% this morning to 166p, after an upbeat trading update told us of “good growth in the public sector” in its Digital Services division, and the company maintained its guidance for the full year.

Kainos offers enterprise computing software and IT services, and counts both public and private organisations among its customers — the firm has secured new contracts with the Home Office and the National Offender Management Service, and with Tullett Prebon.

Expectations for the year to March 2017 currently include a modest 7% fall in earnings per share, which would put the shares on a prospective P/E of a bit under 17. That’s more highly valued than the long-term FTSE average and might not seem like a screaming bargain, but on top of that, there’s a dividend yield of 3.7% expected — and forecasts for the next year would lift that yield to 3.9% while dropping the P/E to just 14.8.

In its last full year reported in May, Kainos (which only floated on the stock market in July 2015) reported no debt, £15m in cash, and net assets of £25.9m. It’s a strongly cash generative business, and it seems to be attracting good approval ratings from customers.

There’s little in the way of independent broker recommendations, but I reckon Kainos could be a bit of an overlooked growth candidate, especially after it said that “although the outcome of the UK’s referendum on Europe brings with it some uncertainties, the group continues to see immediate opportunities for growth.“

Brexit recovery

There were plenty of screaming bargains in the post-referendum rout, and it looks like Smurfit Kappa Group (LSE: SKG) might be one of them. The packaging firm saw its shares drop 11% just after the Brexit vote, but since then we’ve seen a 24% rise to 1.995p, including a 2% lift today — the price is now actually 10% up since the eve of the momentous event.

The company’s first-half results appeared on the Monday after the vote and they looked pretty strong with decent pre-exceptional EBITDA growth of 8%. At the time, the firm pointed out that it’s a “UK-based business that is broadly self-sufficient with UK mills and UK corrugated plants servicing the local economy,” adding that any Brexit effect is likely to be indirect via possible hits to overall GDP and business confidence.

Smurfit Kappa has recorded years of strong earnings growth, and though forecasts suggest that growth should slow down this year and next, we’re still looking at forward P/E multiples of only around 11.5 this year, dropping to 11 next, with dividend yields around the FTSE average at 3.2% to 3.4%.

The City’s analysts seem to think the shares are cheap, putting out a pretty strong buy consensus — I agree with them, and I see Smurfit Kappa shares as a solid long-term investment.

The post Should you buy these high flyers today? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The reality isn’t quite so bad. Meggitt’s reported profits were hit by a £50.8m non-cash fall in the valuation of various financial instruments held by the firm. The main cause of this was the post-referendum fall in the value of the pound.

Underlying pre-tax profits for the period were unchanged from last year at £152m. Underlying earnings per share edged higher to 15.4p, while the interim dividend has been increased by 4% to 4.8p per share.

Sales growth in civil aerospace (+18%) and military (+10%) outweighed falls in the group’s energy business. The order pipeline also appears to be improving. Meggitt’s order book rose by 18% to £911.8m during the first half, thanks to a mixture of organic growth and acquisitions.

Net debt is expected to fall during the second half of the year. Assuming it does, the shares look reasonable value to me, on 13 times forecast earnings and with a prospective yield of 3.5%.

Financial profit from Brexit

City firm Tullett Prebon (LSE: TLPR) said this morning that operating profit rose by 11% to £67m during the first half.

Tullett negotiates complex deals between investment banks and other big traders in the City. The group’s business is being eroded by increased levels of electronic trading, but Tullett is responding. The group acquired an energy trading business in 2014 and is currently in the process of acquiring the broking business of rival ICAP.

Today’s results suggest chief executive John Phizackerley is doing a good job. Tullett’s underlying operating margin rose by 1% to 15.6% during the first half of the year. Underlying earnings per share rose from 17.7p to 21p and net cash was stable, at £131.8m.

Analysts expect Tullett to report full-year earnings of 31.9p per share and to pay a dividend of 17p. These figures put the shares on a 2016 forecast P/E of 10, with a potential yield of 5.2%. I rate Tullett as a strong buy.

Uncertain outlook?

Chemicals group Elementis (LSE: ELM) fell by 4% this morning after the group reported a 7.3% drop in sales, which fell to $334m during the first half. Pre-tax profit fell by 31.5% to $44.7m during the same period.

However, the 2.7 cents per share interim dividend payout was left unchanged and remains comfortably covered by earnings. Elementis also has a strong balance sheet with net cash of $37.5m, up from $16.1m at this point last year.

There were some bright spots in today’s results. Sales of coatings were 1% higher than last year, with growth of 11% in North America and 6% in China. Personal care sales were up 7%. The main weaknesses were in the group’s oil and chromium businesses, where sales and profits fell sharply.

Current forecasts suggest Elementis will generate earnings of 18 cents per share in 2016, rising to 19 cents in 2017. This puts the shares on a forecast P/E of 16, falling to 15 in 2017. Although this doesn’t seem very cheap, the group’s strong balance sheet and 4.7% prospective dividend yield mean that the shares could be a reasonable buy.

The post 3 FTSE 250 stocks you should be buying after today’s results? appeared first on The Twelfth Magpie.

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Roland Head owns shares of Tullett Prebon. The Motley Fool UK has recommended Elementis and Meggitt. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

In this article I’ll take a closer look at three companies that could fit the bill.

Going off the rails?

Bus and rail operator Go-Ahead Group (LSE: GOG) has fallen 26% over the last six weeks, thanks to the referendum sell-off and a warning that its troubled Southern Rail franchise is likely to be less profitable than expected.

However, the news may not be as bad as it seems. Go-Ahead didn’t issue a profit warning in June. In fact analysts’ forecasts for the year just ended have actually risen slightly since then. One reason for this may be that Go-Ahead makes most of its profits from is bus division, not from rail. The bus division performed strongly last year and is expected to deliver an adjusted profit of more than £100m for the first time.

Another attraction is that Go-Ahead has a history of strong cash generation and a forecast yield of 5.4%. This payout should be covered by both earnings and free cash flow. Go-Ahead shares currently trade on a modest forecast P/E of about 10. In my view, they could be worth a closer look.

A bid could still happen

Shares of Restaurant Group (LSE: RTN) bobbed higher a few weeks ago, after press reports suggested the struggling group might be about to receive a takeover bid from private equity.

The rumours came to nothing, despite being apparently well sourced. But Restaurant Group — which owns Frankie & Benny’s plus a few smaller dining chains — is financially strong and remains profitable. This company should be able to orchestrate its own turnaround, in my opinion.

Indeed, recent management appointments suggest that’s quite likely. The company has just appointed a new managing director for Frankie & Benny’s. Spencer Ayers has worked with the chain previously, at a time when it was growing strongly.

As things stand, Restaurant Group shares look quite cheap to me. The shares have fallen by 56% so far this year, but earnings forecasts have only been cut by 15%. This leaves Restaurant trading on a forecast P/E of 10, with a prospective dividend yield of 5.3%.

I believe there could be decent upside from the current price of 300p.

Deal-making success looks cheap

Interdealer broker Tullett Prebon (LSE: TLPR) specialises in brokering complex financial deals that can’t be traded on automated exchanges. This is a business that’s in decline, so to bolster earnings and cut costs chief executive John Phizackerley has agreed to buy rival ICAP’s broking unit.

Combining the two should provide economies of scale and new opportunities. Tullett’s move into oil broking last year has also been a success. I believe Mr Phizackerley is doing a good job of using acquisitions and efficiency savings to rejuvenate Tullett’s business.

Tullett had net cash of about £140m at the end of last year and currently trades on a forecast P/E of 10.5 times, with a prospective yield of 5.1%. I’ve recently added some to my own portfolio and believe this stock remains good value.

The post These battered dividend stocks could deliver big gains for shareholders appeared first on The Twelfth Magpie.

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Roland Head owns shares of Tullett Prebon. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

ARM shares now trade on a 2016 forecast P/E of 28, falling to a P/E of 25 for 2017. Although I wouldn’t normally buy shares with such a demanding valuation, I’m considering whether ARM should be an exception.

The firm’s profits have risen by an average of 31% per year since 2010, and this pace looks set to continue. Analysts are pencilling-in earnings per share growth of 45% for 2016, and 15% next year.

However, I believe these figures could understate ARM’s long-term potential. The company’s recent acquisition of imaging and computer firm Apical is an example of how ARM’s designers are looking at a future beyond smartphones. They’re targeting new markets such as connected vehicles and robotics.

If ARM can deliver winning products for just a handful of new markets, the firm’s growth could continue for many years. At less than 1,000p, I think ARM could prove to be a profitable long-term buy.

This could be a value opportunity

Investors are much less optimistic about the outlook for aerospace and automotive engineer GKN (LSE: GKN). The firm’s shares have fallen by 26% over the last year and currently trade on a 2016 forecast P/E of just 9.6.

The shares even look good value on a more demanding measure, price-to-free-cash-flow. GKN currently trades on a trailing P/FCF ratio of just 13. This highlights the firm’s ability to generate surplus cash for shareholder returns.

Although GKN’s dividend yield of 3.3% is below the FTSE 100 average of 4%, I reckon this business could deliver decent medium-term growth.

The firm’s acquisition of Fokker last year contributed an extra £159m to GKN’s aerospace sales during the first quarter. In the same period, GKN gained market share in the automotive sector. Organic sales grew by 4%, against a global increase in production rates of only 1%.

In my view, GKN shares are currently priced to deliver limited growth. If things turn out better than expected, then the shares could deliver decent gains from here.

Don’t write this company off

It’s a similar story at interdealer broker Tullett Prebon (LSE: TLPR). Tullett’s shares trade on just 10 times forecast earnings, with earnings per share expected to rise by just 3% this year.

The firm is seen as a bit of a dinosaur, as its core voice brokerage business — where traders negotiate bespoke trades with customers over the phone — is in decline. But Tullett boss John Phizackerley is working hard to modernise and expand this business.

Since taking charge, Mr Phizackerley has overseen the purchase of oil broker PVM and of rival ICAP’s brokerage business. Tullett is also investing in increasing its electronic trading facilities to meet future requirements.

Tullett shares currently offer a 2016 forecast yield of 5.2%, which should be covered nearly twice by earnings. The firm also had net cash of £157m at the end of last year, providing a further margin of safety for income investors.

I rate Tullett as a strong medium-term buy, and have recently added the shares to my own watch list.

The post Will ARM Holdings plc, Tullett Prebon plc and GKN plc surprise investors with 40% gains? appeared first on The Twelfth Magpie.

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Roland Head has no position in any shares mentioned. The Motley Fool UK owns shares of GKN. The Motley Fool UK has recommended ARM Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

One is a bank, another is a building firm, and the third is a financial broker. Could they be three comeback kings?

A lot to be hopeful about

I have written many times about the trials and tribulations of the UK banks in recent years. Not only have they had to deal with the aftermath of the Credit Crunch, both in terms of the accumulation of bad debt and the severe reputational damage, but also they have had to transform themselves to face a future where people increasingly bank not through High Street branches but through websites and smart phone apps.

What’s more, a backdrop of a deflationary world, where interest rates stay permanently low, means that the multi-billion profits that the banks made pre-2008 are likely to be a thing of the past.

And yet, there is a lot for Lloyds (LSE: LLOY) to be hopeful about. A resurgent British economy still continues to create more jobs, and companies are still doing well. And the housing market is on the up.

Lloyds is one of this country’s leading retail banks, and it is the number one mortgage provider. There won’t be an overnight turnaround, but I predict profitability will steadily recover, and the share price will rise.

Fundamentally cheap

Building and infrastructure services company Carillion (LSE: CLLN) has seen its share price tumble in recent months. Yet this is a firm that not only is consistently churning out profits year-on-year, but is growing earnings as well. The 2013 earnings-per-share (EPS) of 23.20p is set to increase to 37.30p by 2017. That is an impressive rate of growth, yet the fundamentals look very cheap.

The 2016 P/E ratio is just 7.82, with a dividend yield of 7.29%. So this a highly profitable business that is both a growth and an income play.

A booming Britain, with a growing population, means that there will be a whole range of infrastructure projects in the pipeline. That means a steady stream of business for Carillion over the next few years. This is one to tuck away in your high-yield portfolio.

Consistently profitable

Tullett Prebon (LSE: TLPR) is an interdealer broker whose share price has been on the slide. But, apart from a dip in earnings in 2014, it has been consistently profitable.

Like Carillion, I think this is an undervalued company and, at some point, the share price will catch up with the inherent value of this firm.

The fundamentals show just how cheap Tullett Prebon is. The 2016 P/E ratio is just 10.06, and the dividend yield is a very appealing 5.09%.

This company does a lot of business with investment and commercial banks. I believe these banks will strengthen in years to come as equity markets around the world steadily recover, and this will mean there will be an increasing amount of work for brokers such as Tullett. So I see this firm as a good long-term investment.

The post Are Lloyds Banking Group plc, Carillion plc and Tullett Prebon plc 3 comeback kings? appeared first on The Twelfth Magpie.

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Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

High-street stalwart Next (LSE: NXT) is down by about 30% this year, but is starting to look like a high quality income buy, in my view. The firm reassured investors this week with a typically precise trading statement, reporting a 4.2% rise in Directory sales and a 4.7% fall in high street sales.

Pre-tax profit for the year is expected to be between £748m and £852m. Taking the mid-point of this range suggests a slight fall versus last year, but Next has a habit of outperforming its own forecasts.

With the shares now trading on a 2016–17 forecast P/E of 11.9 and offering a prospective yield of 4.2%, I think this stock is starting to look interesting. Next’s ability to generate free cash flow is very impressive, and this cash is used for a combination of share buybacks and dividends in order to maximise shareholder returns.

One risk is that Next is now reaching the end of its growth phase. It could struggle to compete with more nimble online retailers like Boohoo.com. High street retailers generally seem to be struggling with weak sales, despite strong consumer spending elsewhere.

However, I believe these risks are already discounted in Next’s share price. Now could be a good time to buy.

Cheap and profitable?

Shares in insurance giant Aviva (LSE: AV) have fallen by 18% so far this year, but broker earnings forecasts have only fallen by 3% over the same period.

This has left Aviva looking quite cheap, with a forecast P/E of 9 for the current year and an expected yield of 5.4%. Aviva’s progress under chief executive Mark Wilson has been steady and impressive, in my opinion. Mr Wilson’s focus on cash generation, cost savings and new business seems to be working well.

Although profits dipped last year, a strong rebound is expected this year. The company’s forecast dividend payment of 23.3p per share should be covered more than twice by forecast earnings of 50p per share.

I recently topped up my own holding of Aviva and would be happy to buy more, as I feel the stock is undervalued at present.

Plenty of cash but can it grow?

My final dividend gem is financial firm Tullett Prebon (LSE: TLPR). Tullett’s traditional voice broking business is going out of fashion as more and more financial trading is done on computerised exchanges.

The group has responded by expanding its involvement in this area and acquiring ICAP‘s global broking business, to create a more efficient, larger unit. Tullett’s revenue rose by 13% last year, while operating profit was 7% higher at £107.9m.

The firm’s performance was helped by another of its recent acquisitions, oil broking firm PVM. Analysts are more cautious about the year ahead and only expect earnings per share to rise by 2.5% to 31.4p. This puts the shares on a 2016 forecast P/E of 10.7, with a prospective yield of 5.1%. In my view this could be a good buy. Tullett’s profit margins rose significantly last year and this business generates a lot of free cash flow.

With net cash and an undemanding valuation, Tullett could be a good income buy.

The post 3 undervalued dividend gems: Aviva plc, Tullett Prebon plc & Next plc appeared first on The Twelfth Magpie.

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Roland Head owns shares of Aviva. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Tullett Prebon

Interdealer broker Tullett Prebon (LSE: TLPR) has struggled to deliver organic growth as market changes have reduced demand for its voice broking services. However, today’s results suggest that the firm is solving this problem with well-judged acquisitions.

Revenue rose by 13% last year, while pre-tax profit was 9% higher at £93.7m. Much of this was due to a 26% increase in revenue from energy trader PVM, which Tullett acquired in 2014. Oil brokers enjoyed a strong year last year thanks to volatile oil prices.

Tullett hopes to complete the acquisition of rival ICAP‘s global broking business later this year. This may be one reason why Tullett’s 2015 dividend was left unchanged at 16.9p. However, this provides an attractive 4.8% yield.

Tullett shares look affordable, with a P/E of 10.9 based on today’s results and strong cash generation. In my view, Tullett could be a solid income buy.

Direct Line

High levels of competition have slowed growth for insurers like Direct Line Insurance Group (LSE: DLG), but the tide may be starting to turn.

Today’s results show that while gross written premiums only rose by 1.7% last year, motor premiums rose by 4.8% last year, and they grew by 7.1% in the final quarter of 2015 alone. Direct Line’s operating profit rose by 2.9% to £520.7m, while return on tangible equity, a measure of profitability, rose from 16.8% to 18.5%.

Most shareholders are drawn to Direct Line for its dividend. The group announced a 4.5% hike in the final dividend to 9.2p this morning. There will also be a second special dividend of 8.8p, as Direct Line returns surplus cash.

In total, Direct Line will have paid dividends of 50.1p for 2015, giving a whopping 12.3% trailing yield. Because this included a one-off 27.5p per share special dividend following the sale of its international division, it’s not fair to expect a repeat in 2016. Analysts are currently forecasting a 21.6p payout for this year, giving an attractive prospective yield of 5.3%.

Taylor Wimpey

Housebuilders are enjoying near-perfect market conditions at the moment. High prices are combining with strong demand to generate record profits. In its latest results, Taylor Wimpey (LSE: TW) said sales rose by 16.9% to £3,139.8m last year, while operating profit rose by 32.5% to £637m. As a result, Taylor Wimpey’s operating margin hit a new high of 20.3%.

The firm ended last year with a record order book for 7,484 homes, up from 6,601 at the end of 2014. It’s clear that housebuilders are currently in a sweet spot where high demand is combining with high prices to generate record profits. Taylor Wimpey’s average selling price rose by 8% to £230,000 last year.

Taylor Wimpey announced a maintenance dividend of 1.67p per share today plus a 9.2p per share cash return, which is planned for July. Combined, these give the shares a 5.9% yield.

Taylor Wimpey said today that sales growth has continued into 2016. Further cash returns are expected for 2016 and 2017. However, housebuilding shares have cooled since last summer as the market starts to price-in the growing risk of a slowdown.

I’d continue to hold housebuilders, but I wouldn’t buy.

The post Do Today’s Results Make Top Dividend Buys Of Tullett Prebon Plc, Taylor Wimpey plc And Direct Line Insurance Group PLC? appeared first on The Twelfth Magpie.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

In my opinion, this is a bad deal for Sainsbury’s shareholders. Sainsbury’s grocery business is already outperforming the other big three supermarkets, with a slower pace of like-for-like sales decline and better market share retention. Trading conditons are challenging for the supermarket, but at least they are beginning to stabilize. By contrast, Argos’s outlook appears to be worsening, as like-for-like sales fell 2.2% in the 18 weeks run-up to the New Year, indicating the worst may not be over.

Strategically, a merger looks risky and seems to present few worthwhile synergies. Sainsbury has already been incorporating Argos concessions within its larger stores, and it should be able to roll-out further concessions without a complete takeover. This would remove much of the integration risks of bringing together two rather different businesses, and would be less of a distraction to management at a time when both sectors are undergoing some very significant structural changes.

On the financial side, the deal is cleverly structured so that Sainsbury’s retail banking arm would finance the acquisition of £600 million worth of consumer loans on Argos’s balance sheet. This allows it to raise up to £500m in cash from savers and thus reduce the burden on its own cash reserves. Nevertheless, free cash flow generation will likely worsen as Argos has additional investment needs in order to restore profitability.

Sainsbury’s dividend was cut by a third back in May 2015, and it looks as if further cuts will come within the next two years. With dividend uncertainty surrounding the stock and a risky acquisition strategy, I would rather stay out of Sainsbury’s shares.

Centrica’s (LSE: CNA) adjusted net income is expected to fall by 8% this year, after a 28% decline last year. A collapse in upstream profits following the downturn in energy prices over the past 18 months is mostly to blame, but increased competition in its supply business and unusually mild winter weather are also causes. Shares in the vertically-integrated utility company now yield 6.9%, but with earnings declining, its dividend could be cut again this year.

As energy prices continue to decline, Centrica will find it increasingly difficult to divest from its portfolio of upstream assets, and the continued ownership of these assets may lead to further momentum in the decline in earnings for the group. Furthermore, capital spending requirements to maintain production levels would burn through cash flow generated by its retail supply business, reducing the cash available for dividends.

Meanwhile, interdealer broker Tullett Prebon‘s (LSE: TLPR) dividend looks more secure. Its dividend is covered by almost twice earnings, and its earnings outlook is far more optimistic. A rise in market volatility, industry consolidation and cost savings should lead to growth in profitability. Earnings have been unusually weak as of late, but trends are finally looking up.

City analysts expect adjusted net income to have fallen 2% in 2015, and that 2015 should mark the bottom of the market. For 2016, adjusted net income should rebound by 11%, giving its shares a very appealing forward P/E of 9.2. Growth in earnings should support growing dividends too, and analysts expect dividends will grow 3%, to give its shares a prospective yield of 5.4%.

With the best dividend outlook of the three, I would rather buy Tullett Prebon.

The post J Sainsbury plc, Centrica plc & Tullett Prebon Plc: Which 5%+ Yielder Would I Buy? appeared first on The Twelfth Magpie.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has recommended Centrica. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.