Take Record (LSE:REC), Sabre Insurance (LSE:SBRE), and NewRiver REIT (LSE:NRR). These top dividend shares don’t just offer yields around 9% at today’s prices. They also offer excellent value based on predicted growth, with rock-bottom price-to-earnings (P/E) ratios.

Here’s why I’m considering buying them for my Stocks and Shares ISA in May.

Record

Record offers asset and currency management services to institutional investors. This offers brilliant advantages from a dividend perspective. Its capital requirements are low, allowing it to generate tonnes of free cash it can distribute to shareholders.

What’s more, the pension funds and financial institutions that typically make up its client base deliver recurring revenues. This visibility gives the firm the means and the confidence to pay consistently large dividends. Profits are vulnerable during economic downturns, however, though Record’s robust balance sheet provides some protection for dividends.

The P/E ratio here is 11 times, offering decent rather than spectacular value. But its price-to-earnings growth (PEG) really does deserve attention — at 0.7, it’s well inside bargain territory of below one.

With an 8.9% dividend yield too, I think the company offers brilliant bang for the buck.

Sabre Insurance

Sabre also enjoys steady cash flows it can use to pay large dividends. Here, the dividend yield is a huge 9%.

The business offers motor insurance policies to cars, taxis, and motorbikes. This is one of the most resilient parts of the insurance market. After all, drivers are legally required to have cover whatever the weather. A large slice of the regular premiums Sabre collects is then paid out in dividends.

So what are the drawbacks? Well as inflationary pressures rise, so could the insurer’s claim costs, putting the strain on earnings. But on balance, it could still be a more secure dividend share to consider in May as the economic outlook becomes more uncertain.

One final thing I like: the forward P/E is just 10.3 times.

NewRiver REIT

NewRiver REIT offers the largest yield of the three stocks we’ve discussed here, at 9.2%. It reflects in part sector rules, in which real estate investment trusts (REIT) receive tax breaks in exchange for paying 90% of rental profits out to shareholders.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

That doesn’t guarantee a large or growing dividend, though. After all, occupancy and rent collection issues can spring up during downturns that hit earnings. However, NewRiver’s portfolio helps reduce this threat. This includes blue-chip companies like Sainsbury’s, Boots, and Next, which are locked down on long-term contracts. The weighted average lease term here’s a shade over eight years.

With an ultra-low P/E ratio of 6.7, this is a very attractive income stock to consider, in my view.

The post Yields around 9% and low P/E ratios! 3 income stocks on my radar in May appeared first on The Twelfth Magpie.

I believe that while the Footsie might be more stable and less likely to deliver surprises, small-caps sometimes give an investor the chance to secure higher income or growth. Of course, there are always risks with smaller companies: lower liquidity, limited resourcing and sensitivity to shifting markets. Low liquidity’s a particular concern as it may be harder to sell shares for the price an investor might want. 

Yet now and again, I find promising small-caps with stable balance sheets and excellent income potential. Here are two I think investors may want to consider as part of a diversified income portfolio.

Reach

Reach (LSE: RCH) is a publishing company behind well-known newspaper and magazine brands like the Express, Mirror, Daily Star, and numerous regional titles such as Manchester Evening News. It’s a business that’s been through a major transformation, grappling with the decline of print media and a shift to digital.

Despite these challenges, the company has a market capitalisation of around £210m and offers a massive dividend yield of 11%, which is certainly attractive for income seekers. Reach has also paid out a continuous dividend for the past five years. Its dividend payout ratio, the percentage of earnings paid to shareholders, is 46.4%, suggesting the company’s dividend payments are well-covered. 

The balance sheet looks healthy too, with around £62.8m in debt against £681m of equity, giving it a low debt-to-equity ratio of just 9.2%.

However, the media sector’s facing intense competition from online news and social media. A recent announcement to cut over 320 jobs points to continued pressure on Reach’s business model. While it’s shifting to digital, advertising revenue can be volatile, and it’s a constant battle to monetise its online content effectively. 

There’s a risk that ongoing structural challenges in the industry could impact future profitability and threaten its ability to maintain the generous dividend.

Record

Record‘s (LSE: REC) a specialist currency management firm. It offers a range of services from passive and active hedging to managing currency for return. It’s a niche business, but one that’s quietly built a strong presence in the asset management industry.

With a market capitalisation of roughly £113m, Record has a good dividend yield of 7.7%. It has a strong track record of continuous dividend payments for five years, with four years of growth, which shows a commitment to rewarding shareholders.

However, a key risk for this company is its dividend payout ratio. At a very stretched 98.7%, it suggests that almost all of the company’s earnings are being paid out as dividends. While this is great for income today, it leaves very little room for error. If the company’s earnings were to dip, even slightly, it might have to cut the dividend. While it’s a stable business, an investor should be cautious about that high payout ratio and weigh up the possibility of a future dividend cut.

Fortunately, its balance sheet’s solid with minimal debt of just £7.1m against £29m of equity – so it doesn’t appear to have any immediate financial concerns.

The post 2 small-cap UK shares with eye-watering income potential appeared first on The Twelfth Magpie.

But there are plenty of small UK companies – outside the Footsie – that sport high yields and have equal, if not more, return potential. Here’s a look at one that I feel could be worth considering right now.

A high yield from a UK small-cap

The stock I want to highlight today is Record (LSE: REC). It’s a small British financial services company that specialises in currency hedging and specialised asset management and currently comes with a market-cap of around £120m.

Listed on the London Stock Exchange‘s main market (not the AIM), it trades for 62p. At that share price, its prospective dividend yield is about 7.6%.

A diversified business model

Now, this kind of small-cap stock’s going to be riskier than a blue-chip like Legal & General. However, looking at the company and its financials, I like the risk/reward proposition.

Recently, Record introduced three key product pillars. These are risk management, absolute return, and private markets.

I think this is a sound strategy. Not only does it diversify the company away from currency management (its original business activity), but it provides potential for more long-term growth.

The private markets exposure looks particularly interesting. It’s still early days here (meaning that this segment isn’t having a big impact on revenues today) but this is a huge growth market and there’s substantial potential.

The currency management side of the business still has the potential to do well though. With Donald Trump in the White House, the world’s currency markets are likely to be volatile in the years ahead.

Attractive financials

Zooming in on the financials, I like what I see. This is a very profitable company. Last year, return on capital employed (ROCE) was a high 30%, meaning that the firm’s good at generating profit from the money it has invested in the business.

Meanwhile, dividends are rising, which is what I want to see from an income stock. Over the last three financial years, the annual payout’s jumped from 3.6p per share to 4.65p per share (4.68p per share’s expected for the current financial year).

As for the valuation, it looks attractive. Currently, the price-to-earnings (P/E) ratio’s only 12.6. At that multiple, there’s scope for an upward re-rating if the company can show its new triple-pronged strategy’s working.

Worth a look

On the downside, dividend coverage (the ratio of earnings to dividends) isn’t high. So there are no guarantees that the company will be able to continue paying big dividends.

There are also no guarantees that the company’s new strategy will pay off. After all, private markets is a competitive industry and the group’s up against some big players.

However, I see a lot of reasons to consider this small-cap stock. Not only does it have the potential to be an income machine but there’s also scope for share price gains.

The post Meet the 62p UK stock with a 7.6% dividend yield appeared first on The Twelfth Magpie.

Here, I’ll highlight three small-caps offering dividend yields of 6% or more – including two stocks from my own portfolio.

A recovery story?

Epwin (LSE: EPWN) produces housebuilding products such as doors, windows, cladding and decking. The last couple of years have been tough, due to slower conditions across the UK’s housing market. Fortunately, Epwin has remained profitable and in good financial health through this period, recently reporting increased annual profits.

The risk is that conditions could remain weak or even worsen if the UK suffers a recession. However, I think the picture could be improving. Recent government data showed a 17% increase in shipments from UK brick factories during the first quarter of this year.

Builders may order bricks for a new home before they order doors and windows. But if more bricks are being sold, I reckon there’s a good chance that more doors and windows will be needed over the next 12 months.

Epwin currently trades on eight times forecast earnings, with a 6% dividend yield. I reckon that’s worth considering.

A niche business yielding 8%

Currency management expert Record (LSE: REC) isn’t a household name. Some of its largest customers are Swiss pension funds. In total, the company’s customers trust it to provide currency hedging and related services for more than $100bn of underlying investments.

We can get an idea of the value attached to its services by looking at its accounts. Last year, Record reported a 27% operating margin, generating a return on equity of more than 30%. These excellent figures are fairly typical for this business.

When a company can consistently generate this kind of profitability, my experience is that it usually offers a service its customers value highly.

Perhaps the main risk is that historic growth has often been slow and inconsistent. Recent performance has improved, but there’s no guarantee this will continue. However, Record’s 8% dividend yield looks safe to me. It’s also high enough for me to be relaxed about the risk of slow growth.

A 9.9% yield!

Sabre Insurance (LSE: SBRE) is a niche operator in the UK motor insurance market, focusing on higher-risk drivers and lines such as motorcycle and taxi insurance.

The advantage of this model is that Sabre’s less exposed to competition from price comparison and large brands. The firm’s customers require more skilled underwriting, but profit margins are higher to reflect the extra risk.

As a potential investor, my main concern is that the company’s core market is relatively small. One area currently being targeted for growth is to offer cheaper insurance to less risky drivers, while also accepting slightly lower profit margins. This could work well – but there’s a lot more competition in this area, so careful judgement will be needed.

Broker forecasts for 2025 show Sabre with a dividend yield of 9.9%, covered by earnings. This business looks interesting to me and is on my list for further research. I think it could be worth considering for passive income.

The post 3 super small-caps with 6%+ yields to consider for passive income appeared first on The Twelfth Magpie.

Record

Record (LSE:REC), a UK-based firm specialising in currency and derivative management services, is a company that not many will know. With a market cap of £128.6m, it’s a smaller player in the financial sector, but for me its financials tell a compelling story.

A discounted cash flow calculation suggests the firm is about 16% undervalued. Although this isn’t a guarantee, with this much potential, taking a closer look at the balance sheet feels well worth doing.

The financials are equally impressive. The company has a flawless balance sheet, with zero debt—a rarity in the financial sector. This strong financial health suggests that the business is well-positioned to maintain its generous dividends even in economic downturns. Moreover, annual earnings are forecast to grow by 9.38% over the next five years.

But the main attraction is the stellar dividend yield of 7.88%, significantly higher than many of its peers. This high yield isn’t just a flash in the pan either; the business has been increasing dividends steadily over the last decade, with more growth expected over the coming years.

However, it’s not all smooth sailing. Record’s share price has underperformed both its industry and the broader UK market over the past year.

Additionally, there has been significant insider selling in the past three months, which could be a red flag.

Nevertheless, given its dirt-cheap valuation, high dividend yield, and solid financials, I think the firm remains an enticing option for investors focused on passive income.

Keller

Keller (LSE:KLR) is a leader in geotechnical services. With operations spanning North America, Europe, Asia-Pacific, the Middle East, and Africa, the business has built a strong reputation in ground improvement, deep foundations, and earth retention services.

Another discounted cashflow calculation estimates that it’s trading at a substantial 25.5% below its fair value, offering a significant margin of safety. While its dividend yield of 3.51% isn’t quite as high as Record’s, it’s still attractive in today’s low-yield environment.

Recent performance has been nothing short of impressive. Over the past year, its share price has skyrocketed by 91.1%. This surge isn’t just market hype—it’s backed by strong financials. Earnings grew by a staggering 94.3% over the past year, reflecting some serious operational efficiency.

Looking ahead, the prospects remain bright. Analysts forecast earnings growth of 9.07% per year, suggesting that recent success isn’t a one-off event but part of a longer-term trend.

However, potential investors should be aware that the share price has been volatile over the past three months. This volatility, while not uncommon in the construction sector, may be unsettling for some investors. But with such a steep rally over the last year, a retreat is not a huge surprise.

Overall

In conclusion, both Record and Keller offer compelling cases. Despite some risks, I think their current potential undervaluation makes them attractive options for those willing to play the waiting game. I’ll be buying shares at the next opportunity.

The post 2 dirt-cheap dividend shares I’d buy for long-term passive income appeared first on The Twelfth Magpie.

Rules of the game

The game goes like this. I have to work incredibly hard, as without that, there’s no way I can earn enough to pull off these two goals:

1. Get a mortgage on a house and pay it off by the time I retire
2. Build up a £500,000 investment portfolio, independent of the equity in my home

Now, that’s quite a daunting challenge, but I think it’s possible. I’d need to start with just £5,000 and invest an extra £200 a month over 25 years at a total yearly return of 12.5% including price gains and dividends. That would get me to roughly £500,000.

What’s great is that I plan to do all of my investing through a Stocks and Shares ISA. So, I won’t have to pay any tax when I come to sell my investments, or when I receive dividends.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Now, to hit my £2,300 a month dividend income target, I’d need a range of companies yielding 5.5% per year, as well as ririsng in price regularly. Of course, the risk is that this doesn’t happen.

Shares like these

I like businesses like Record (LSE:REC), which is a currency management firm in the UK. It offers a dividend yield of 6.8%. That’s more than I bargained for, but one thing I’ve learned is to have low expectations and overachieve on them.

I like that the business has a very stable balance sheet. It has less than 20% of its assets balanced by different forms of debt. Also, it’s growing very fast. Over the past three years, its earnings have grown at a 20.7% rate as an annual average.

Also, because the shares have grown in price consistently, if I’d bought them five years ago, I’d be getting 11% of my initial investment every year in dividends now. That’s because the dividend yield applies to the present price, not what I initially paid.

However, I also need to be aware of the risks if I invest in Record. One of the main ones is that its assets are growing faster than its revenues, which can be an indication that the business is becoming less efficient. Over time, this could reduce how fast the shares grow in price.

Covering my bills

If I can build up a portfolio of five to 10 quality and high-dividend businesses like Record, I’ll have great diversification that will help to protect me from anything going wrong in one company.

If all of these businesses average out to a 5.5% dividend yield, I’ll have £27,500 a year. That will also be tax-free because of my ISA.

With that, I might not be taking luxury holidays, but it will certainly give me the ability to do many of the things that I enjoy and live a nice, stress-free life without any active work. To me, that’s true financial freedom.

At the moment, Record is on my watchlist, and I might invest when I have some more spare cash.

The post Here’s how I’m planning for a £2,300 a month second income appeared first on The Twelfth Magpie.

But building up to that point is not easy, which is why I’m starting early. 

There are several ways to earn income passively but I think the best is through dividend shares. These are shares that pay a certain percentage of earnings to investors annually. A dividend yield is the percentage of the share price that is paid out.

For example:

A 10% dividend yield on a £1 share will earn me 10p for each share I own.

By investing in dividend shares, I could eventually earn enough from them to live off. However, if the value of my investment decreases then I risk losing more money than the dividends pay out.

What shares should I choose?

Since 1984, the average annual price return of the FTSE 100 has been 6.8%. By simply investing in an FTSE 100 index fund, I could achieve similar returns. However, to profit from dividends I would need to build my own portfolio of stocks that pay a regular dividend. 

One example is Record (LSE:REC), a provider of derivative management services in the UK and internationally. Record has its own an excellent track record of paying a high dividend, with a current yield of 7.76%.

However, over the past three months, many Record insiders have been selling their shares. This likely contributed to the price falling 27% in the past year. If it continues to do so, that would negate my dividend profits. 

But the low price could also be a good buying opportunity. Some analysts estimate Record to be trading at 10% below fair value and forecast future earnings to grow at 5% per year. I think 2023 was a tough year, so I believe the Record share price will go up again when the market improves. 

Other examples of good dividend-paying UK stocks to invest in today include Vodafone, HSBC, and ITV. But companies change their dividends often, so I’ll be on the lookout to add new stocks to my portfolio regularly.

How long will it take?

To estimate the time needed to reach £1,487 of passive income a month, we can use industry averages.

While some FTSE 100 companies pay much higher dividends, I think 6% is a good average to work on. I can expect a well-diversified selection of FTSE 100 stocks to achieve close to an average 7% annual return, as noted above. Using these figures, it would take me over 45 years to reach my goal with only £13,000.

That isn’t ideal, as it puts me past my desired retirement age. 

To get the total down to 20 years, I would contribute a further £180 a month into my investment and use a dividend reinvestment plan (DRIP). The compounding returns would grow my investment to £331,112 in 20 years, paying out an annual dividend of £17,842 a year — approximately £1,487 a month.

At this point, I could start withdrawing the dividend payments — or continue reinvesting them to secure even more passive income.

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Equally, I need to account for any unexpected crises that may occur in my old age. I might encounter health issues that could require further expenses not fully provided by the national health service. That’s particularly true if I want to be more comfortable.

The Pension and Lifetime Savings Association (PLSA) has estimated that a single person will need £31,300 for a moderate income in retirement, an increase of £8,000.

Let’s take a look at some of the strategies I’m employing now to make sure I’m set up well for my elder years.

Investment portfolio

To have a stable retirement while also maintaining my lifetime savings, I’d want to invest in passive income shares that are likely not to depreciate in price. To give an example of one company that I could choose, I’ve looked at Record (LSE:REC).

It’s a currency management firm, and it’s actually near the top of my watchlist at the moment, even independent of the passive income.

The company has a dividend yield of around 7% right now. However, over the past 10 years, it’s been more common for it to be about 5%.

The great thing about me investing in Record near retirement is that while it yields around 5% per year, its share price is also more than 60% over the last 10 years. Additionally, it’s currently trading around 30% below its high, with a price-to-earnings ratio of about 12.

Risks for Record

While I think the shares look promising for retirement, I think there are some company-specific risks for me to consider.

For example, its net margin at the moment, while still pretty good, is lower than normal for the firm. Currently around 22%, it would need to improve this to maintain growth in the share price as it’s common for it to be around 26% over the last 10 years.

Also, while the shares have grown in price over time, there is some volatility, with periods of price stagnation and decreases. Therefore, it’s vital I buy at a good valuation. I must remember that any loss in price is likely temporary as long as the financial reports remain appealing.

My retirement strategy

To yield the £31,300 estimated as a necessity by the PSLA for a moderate retirement, I’d need £626,000. I know that might seem a lot, but I don’t think it’s unattainable. I started investing as early in life as possible because time in the market grows my savings the most.

As an example, an average 10% annual return from the S&P 500 with £5,000 invested and £200 added per month over 32 years creates £678,072. That’s more than enough to hit my target. What’s more, to achieve that, I could start at 28 years old, and I’d be able to retire at 60.

Of course, I wouldn’t put all my money in Record shares. There are plenty of great companies with 5% yields in the US and the UK. Therefore, I’m confident my strategy is a winning one, as I can also diversify.

The post Pension needs estimate rises £8K. These income shares could support my retirement appeared first on The Twelfth Magpie.

Notably, it’s selling at around 30% below its high.

I’ll break down the strong profitability, the stable balance sheet, and its leading growth.

Of course, there are always risks if I invest, so I’ll take a close look at those too.

What does it do?

Record is a financial services firm that specialises in currency management.

It offers currency risk solutions for institutions such as pension funds, charities, foundations and corporations.

The organisation tailors its services to the specific needs and risk tolerance of its clients. Most of its revenue comes from Switzerland, but it also has a presence in the UK, US, and other countries.

Leading financials

Some of the key figures I like include a 20.8% revenue growth rate over the last three years as an annual average.

Also, it has a high gross margin of almost 100%, which is massively higher than the industry median gross margin of 52%. Additionally, it only has 3% of its equity balanced by debt.

The reason I like this investment is that it looks relatively low-risk to me. Of course, I also want to make sure the shares are trading at a fair valuation.

Good value

Some analysts might look at Record’s price-to-earnings ratio of around 14 and think it’s not that cheap. After all, the industry median is a little lower than that.

But, by projecting the firm’s earnings forward, assuming 11% growth as an average over the next 10 years, I estimate each share is really worth around 90p.

To do this, I used a method called discounted cash flow analysis.

My result shows a potential 25% discount on the shares as they’re trading at around 70p at the moment.

Risks

Now, there’s no guarantee the firm will grow at 11% per year, and some investors might say I’ve been a bit optimistic here.

After all, the 10-year average growth for its earnings per share is 7.8%. But it’s been increasing recently, which is why my estimate is higher.

Nonetheless, if something bad happens to the business or macroeconomic factors worsen, the earnings could be much lower than I expect.

The result would be some volatility in the price. However, the discount I estimated is often called a margin of safety because it acts like a safety net for such bad events.

Also, the firm has really low momentum indications. That means that its not exactly a hot pick right now.

Therefore, if I buy the shares, I need to have the patience to sit around and wait. Catching the active trader bug and selling before the investment has time to mature could be fatal to my opportunity here (and not The Motley Fool way).

The hefty yield

The shares also come with a nice 7% dividend yield, so I think this company is a stellar choice for me.

It has also been much higher than this in the past, and it was only really down in 2020 due to the pandemic.

It’s one of my best picks at the moment. I’m making a couple of investments in February, and Record is right at the top of my list right now.

The post With a 7% yield, I’m convinced this penny stock is selling at 25% off appeared first on The Twelfth Magpie.

Today I want to look at two companies that are on my watch list as possible buys for 2024.

Quality brands going cheap?

My first choice is AIM-listed construction materials group Michelmersh Brick Holdings (LSE: MBH). This brickmaking business owns a collection of premium brands producing a range of specialist bricks and related products.

I think this premium focus differentiates Michelmersh from larger UK brickmakers, which tend to produce mass-market, standard products.

Customers choose specific Michelmersh brands for prestigious projects and are happy to pay a little extra – they don’t want standard, generic bricks.

Its latest trading update seemed encouraging to me. Management admitted that “contraction in the construction industry” has created more difficult conditions. But it said the “diversity of our customer base and [our] broad product channels” are helping to support a quality order book.

Importantly, Michelmersh is said to be trading in line with expectations. Unlike some rivals, the company hasn’t needed to cut its profit guidance this year.

The main risk here is that the current construction slowdown will become longer or more serious than expected. Brickmakers have quite high costs and if Michelmersh is forced to make significant cuts to production, then profits could be hit.

I can’t rule out that risk completely. But I’ve followed Michelmersh for a while and my impression is that it’s very well run, with experienced management. They’ve been through tough times before.

In the meantime, it looks cheap to me. The shares currently trade on around nine times 2024 forecast earnings. There’s also a 4.9% dividend yield that should be covered twice by earnings.

I see Michelmersh as a decent possible buy at current levels, as part of a balanced portfolio.

A penny share with a 6%+ yield

My second choice is currency management specialist Record (LSE: REC). This £147m business boasts 30% profit margins and a track record of strong cash generation. At the last update, the company was managing $84.5bn of currency exposure for its clients.

However, Record shares have fallen out of favour with investors this year, perhaps because of slowing growth in the business.

This share price slump means that shareholders are set to benefit from a forecast dividend yield of 6.6% for 2023/24. I think the shares probably offer good value at this level.

My main concern is that Record has struggled to deliver consistent growth in recent years. The company is now expanding into other areas of asset management in a bid to expand, but it’s not yet clear to me how successful this will be.

Even so, I think these risks are priced into Record shares at current levels. The group’s core business looks strong to me, and I don’t see much risk to the dividend next year.

In my view, this is a good quality business at a very reasonable price and worthy of further research.

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