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.

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The Dow Jones is close behind with a 3.62% gain, while the S&P 500 is lagging, up only 1.55% this year. Meanwhile, China’s SSE 50 is down 0.37%.

This may be great news for British growth hunters but what does it mean for those seeking value?

Still value to be found

If you’re a value investor, don’t give up hope yet. There’s still a wealth of undervalued bargains to be found on the FTSE 100 and FTSE 250.

One to consider, for example, is Sabre Insurance Group (LSE: SBRE). The moderately small £320m insurance firm is down 51.5% in the past five years. But with strong earnings growth, it now looks attractively priced. It has a price-to-earnings (P/E) growth ratio of just 0.23, suggesting the market’s yet to realise its full potential.

Even if the price doesn’t recover, the stock’s income potential makes it well worth considering. At 9%, its yield is far above average, having grown 44% in the past year. The risk being that coverage is a bit thin, with 91% of earnings going to shareholders. For now, this is sustainable but if earnings don’t improve, a cut’s likely.

Companies with smaller market-caps can be volatile, so analysts appear split on where the price may head. While some envision growth of 52.9% in the coming 12 months, others expect a 15.9% drop.

Encouragingly, earnings per share (EPS) doubled between 2023 and 2024, from 7p to 14p. Earnings are expected to continue growing at a rate of around 7% for the next three years.

Too risky?

For those looking for a safer bet, BP Marsh and Partners is a £231m small-cap outfit to think about that invests in insurance firms. With a return on equity (ROE) of 35.8% and a current ratio around 40, it appears both highly profitable and extremely liquid.

But the best part is the P/E ratio of just 2.36. This implies deep value versus peers and is supported by 165% revenue and 97% earnings growth, year on year.

Yes, its small market-cap and exposure to insurance cycles add risk, not to mention volatility from low momentum. But overall, it seems the market’s yet to price in this growth machine, so it could deliver a big payday for patient investors.

The bottom line

For value hunters, these two shares could be hidden gems on the UK stock market. Still, they should only be considered as part of a diversified portfolio, with neither allocated more than 5% of a portfolio.

BP Marsh and Partners seems to be printing money, with sky-high profitability. But whether that profit will convert to share price gains remains to be seen. Only time will tell.

Meanwhile, Sabre’s a high risk/high reward value play with lots of promise, but further growth could be impacted by rate changes or economic instability. However, a high yield and seven-year track record makes it an option to look at for both value and income.

The post With the UK stock market near record highs, these top shares are still dirt cheap! appeared first on The Twelfth Magpie.

Sabre Insurance Group (LSE: SBRE) certainly fits my value criteria, with a forward price-to-earnings (P/E) ratio of only 8.6. That gives it a lot of room for growth if markets recover. But it also boasts a very attractive 9.3% dividend yield. 

Usually, when I see that combination, I expect to find a share price that’s been in decline for years. But not here — Sabre is actually up about 30% over the past two years.

So, is it an untapped income opportunity with strong prospects, or a value trap?

Let’s take a look.

A tough industry

Despite a rise in profitability and improving margins, Sabre’s share price has suffered a moderate decline in the past few months. This could be attributed to falling gross premiums and a weakening UK motor insurance market.

Management has prioritised margin over volume to protect against “external macro shocks,” but this has come at the cost of headline revenue and future growth rates.

Now, analysts forecast stable (but not growing) profits for 2025, which could limit capital appreciation in the short term. But for income investors, that wouldn’t be a huge issue — so long as the dividends remain steady.

That’s where things start to look questionable. With very little cash flow, even a mild profit hit could risk a dividend cut.

Where things could go wrong

There are some notable risks to account for, including ongoing claims inflation and premium declines if the UK car insurance market remains soft. Also, it relies on its disciplined pricing strategy to draw business, which could limit growth.

Additionally, Sabre underperformed both the wider market and its insurance peers over the past year, reflecting investor caution. If sector conditions worsen or claims inflation spikes, Sabre may be forced to reduce dividends or see further share price declines.

I’d say the risks may outweigh the potential returns in this case. Fortunately, there are many other options.

A safer pick?

For risk-averse investors, a more stable income stock to consider is the student accommodation developer Unite Group (LSE: UTG). It’s not quite as impressive with only a 6.3% yield, but it looks more sustainable. It may not be ‘the best’ stock out there (that’s very subjective, after all). But it could be worth further research.

As a real estate investment trust (REIT), it’s required to return 90% of profits to shareholders as dividends. That adds a level of reliability for those seeking passive income.

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.

The caveat is that REITs tend to underperform in weak markets. Subsequently, Unite shares have lost a third of their value this year as the UK property market struggled. So long as that continues, returns may be limited.

Final thoughts

Unite’s current price looks significantly undervalued, with a P/E ratio of only 7.8. With the UK housing market already hinting at a recovery, 2026 could be a good year for Unite Group.

But November is always a difficult time to pick stocks, and the upcoming Autumn budget adds extra uncertainty. While I think it’s a promising REIT to consider, I’d wait until the month’s end before making any big decisions.

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However, it’s not enough to simply chase the highest yields on offer. A dividend needs to be sustainable, backed by a strong track record of payments and ideally supported by earnings growth.

Finding yields above 7% can be especially tempting, but investors need to be wary of ‘dividend traps’ – companies that pay big dividends until the moment profits falter and the payout’s slashed. With that in mind, I’ve been searching for opportunities where the headline yield looks attractive, but the fundamentals also stack up. 

One small-cap insurer has caught my attention: Sabre Insurance Group (LSE: SBRE).

Specialist car insurance

Sabre Insurance Group’s a UK-based motor insurer that sells policies primarily through brokers, but also directly to the public via its Insure 2 Drive, Go Girl and Drive Smart brands. What makes it a little different from mainstream insurers is its focus on higher-risk drivers and specialist lines, including motorcycles and taxis.

This strategy requires more sophisticated underwriting, as the risks are more complex than standard car insurance. But the trade-off is higher profit margins. 

Of course, there’s a flip side – the market for these specialised products is smaller, which could limit long-term growth prospects. Expanding into other areas would bring it into direct competition with giants such as Direct Line and Admiral. The share price, which is down nearly 46% over the past five years, arguably reflects this slower growth profile.

Strong income potential

Where Sabre does shine however, is in its appeal to income-focused investors. The dividend yield currently stands at an impressive 10%, with the next payout of 3.4p per share due on 24 September.

The payout ratio sits at just over 91%, which may seem high but isn’t unusual for insurers. More importantly, the dividend’s backed by a consistent record: seven years of payments and two years of consecutive growth. 

The most recent growth figures are striking – the full-year dividend leapt from 4p per share in 2022 to 13p in 2024, an increase of 44% year on year. That’s a serious commitment to rewarding shareholders.

Is the business solid?

Looking under the bonnet, Sabre’s balance sheet shows no debt and assets comfortably covering its liabilities. Its net margin has doubled from 6% to 14% in just two years, while the price-to-earnings (P/E) ratio’s fallen from 24 to under 10, leaving the stock looking undervalued compared to peers. 

Earnings have also beaten expectations for four years running, suggesting management has a good handle on underwriting risks.

So while the share price decline may give some investors pause, the company’s financial health and improving earnings picture make me more optimistic. 

For those seeking to build a second income, Sabre looks like a reliable dividend-payer to consider, as it could help boost the average yield of a portfolio.

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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.

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The update opened with a headline announcing “strong progress against core strategic initiatives“. So what was the bad news hiding behind it?

Share price plunge

The Sabre share price had been picking up a bit in 2022, following on from a previous year of weakness. But then this happened, as the share price chart shows.

It’s all down to plummeting profits in the half, as the motor insurer reported inflationary pressure on its cost of claims.

The “extraordinary inflationary pressures” spoken of have led Sabre to change its strategy. It’s putting up prices in an effort to support profitability, at the expense of pursuing new customers to grow the business.

The bottom line is not pretty, with H1 profit after tax plunging to £3.5m. That’s after an £18m profit in the same period the previous year, and a profit of £30m for the whole of 2021.

Contagion

The surprise news has already sent ripples through the motor insurance sector. At the time of writing, the Direct Line Insurance Group share price has dipped by 10%. And Admiral Group shares are down a heftier 14%.

Sabre said it continues “to expect to pay a dividend for 2022, albeit at a reduced level, before returning to more normal levels in 2023.“

I’m not quite sure what normal levels mean, or whether this will instil any real confidence in investors. Sabre’s dividend did yield 4.6% last year. But the annual payments had been falling for a couple of years as earnings had been declining.

Rapid rebound?

So what next? Chief executive Geoff Carter said: “We believe that taking prudent and assertive action now, in conjunction with our normal pricing discipline, means that we are protecting the underlying profitability of the business, and will allow a rapid rebound to our expected levels of performance.”

So is Sabre Insurance an attractive recovery buy now, in the hope that these expected levels of performance will return?

Well, Sabre shares had been on a price-to-earnings (P/E) ratio of about 15. And in the current market, I can’t help seeing that as a bit high. Direct Line, by comparison, is on a multiple of approximately 10, while Admiral is down closer to seven.

Watching the sector

What the P/E might turn out like when full-year earnings are out is the big unknown. And it’s going to be very hard for investors to work out any kind of objective valuation until then.

Meanwhile, I’m sure all eyes will be peeled for first-half results from Sabre’s motor insurance rivals. Direct Line has first-half results due on 2 August. And Admiral is set to deliver its H1 figures the following week, on 10 August.

So what’s my take on the Sabre Insurance share price slump? Right now, it’s just too hard to form an opinion on whether it’s overdone and whether I’m looking at a recovery candidate. I’m just going to keep watching.

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Here are three companies I would buy today, all of which offer dividend yields of 6%, or more. 

UK dividend shares

The first company on my list is the Gore Street Energy Storage Fund (LSE: GSF). With a dividend yield of just over 6%, at the time of writing, I think this company looks incredibly attractive as an income investment. It is also an excellent way for me to build exposure to the green energy industry. 

Gore Street buys and builds energy storage facilities. The goal of these facilities is to stabilise the electricity supply through the peaks and troughs of renewable energy generation. The market for this energy storage capacity is only likely to increase as the country invests more and more in renewable energy. 

Still, this is not a risk-free investment. The company has been using a lot of debt to fund its expansion. This could have an impact on profit margins if interest rates suddenly increase. 

Insurance challenger

Mid-cap insurance group Sabre Insurance (LSE: SBRE) offers a dividend yield of around 6.3%, at the time of writing. The company helps consumers find car insurance and has been doing so for several decades. It owns a portfolio of well-known brands, although these only make up a relatively small share of the overall car insurance market. 

The company’s smaller size is not a significant drawback. It can actually be beneficial, especially in a market where insurance rates are falling. In these weak markets, Sabre can pick and choose its customers to maximise profitability. 

Despite this advantage, the company’s most considerable challenge is competition and the potential for additional regulations, which could hit profit margins. 

Global giant

Vodafone (LSE: VOD) is one of the most respected dividend stocks in the FTSE 100. That is why I would buy the telecommunications giant for my portfolio today as an income play. At the time of writing, the stock supports a dividend yield of 7%, which is more than double the market average. 

I am optimistic about the company’s potential because its infrastructure network across Europe means it is one of the largest data-driven network providers. This is a strong competitive advantage in a world that is increasingly driven by data and data processing. 

Cash flows from the organisation’s telecommunications business should more than cover its dividend as we advance, although I am worried about the company’s debt.

Vodafone’s debt levels have increased rapidly over the past 10 years, and management needs to focus on reducing borrowing, or it could jeopardise the group’s financial position. 

Even after considering this risk, I think the company has attractive income credentials. 

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A hangover from Covid-19 lockdowns, a soft pricing environment, and weak car sales owing to supply chain issues have all caused trading to disappoint. It’s possible that some or all of these problems will continue to hamper the dividend stock into 2022 too.

However, as a long-term investor, I’m extremely tempted to buy Sabre shares at current prices. This is primarily because the insurer carries a mighty 6.7% dividend yield for 2022. It’s also because there’s a chance Sabre may have touched rock bottom. And that means premiums may start rising again from next year. It recently commented that “further tentative signs that market prices may be starting to correct.”

I’m also encouraged by Sabre’s potentially-lucrative entry into the motorcycle segment this month. It’s signed a deal to become exclusive underwriter for MCE Insurance, one of the biggest bike insurance distributors in the business.

Going green

The not-so-snappily-titled Triple Point Energy Efficiency Infrastructure Company (LSE: TEEC) is another dividend stock I’m considering buying. And it’s not just because its yield sits at a decent 5.3% for the fiscal year to March 2022. Renewable energy stocks like this could prove to be shrewd assets to own as demand for low-carbon electricity shoots through the roof.

TEEC invests in a broad range of ‘green’ energy projects to help the government hit its net zero target by 2050. Its most recent bit of business in September saw it snap up a portfolio of hydroelectric power projects in Scotland.

Its best-known investment to date is in combined heat and power (or CHP+) assets on the Isle of Wight which supply heat, electricity and carbon dioxide to APS Salads, the UK’s largest producer of tomatoes.

Now TEEC isn’t one of the biggest renewable energy stocks out there. But it has a packed acquisition pipeline that could help it generate big shareholder returns in the future. I’m thinking about buying it even though, like any acquisition-focussed entity, it faces the constant danger of overpaying for an asset.

A brilliant dip buy

The PayPoint (LSE: PAYP) share price has fallen significantly in recent weeks. And as a bargain lover this has set my antenna quivering. The retail technology giant now trades on a P/E ratio of 12 times for the fiscal year to March 2022. Furthermore, its dividend yield has jumped to a mighty 5.8%.

PayPoint makes terminals which allow retailers to execute transactions, receive parcels and take bill payments from customers, and benefit from EPOS functionality. Its technology is cutting edge and demand for its PayPoint One terminals continues to steadily climb. It installed an extra 324 machines during the three months to June.

A high-profile failure of its systems could prove devastating for PayPoint’s profits. But although a past lack of such problems isn’t necessarily a reliable indicator for the future, I’m reassured by the company’s record on this front.

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FTSE 250 dividend stocks

The first company I’d buy for my portfolio of dividend stocks is the insurance business Sabre Insurance (LSE: SBRE).

With a historical dividend yield of around 8.2%, this company offers one of the highest dividend yields in the FTSE 250. However, analysts expect the payout to fall this year due to the pandemic.

On a forward basis, the company could yield 5.6%. That’s still pretty good in my eyes. While the organisation remains cautious about the rest of the year, Sabre is starting to see an improvement across business lines, according to its recent trading update. I think this could support future dividend growth. 

The biggest challenge the business faces is remaining competitive in the fiercely competitive UK car insurance market. If Sabre can’t stay ahead of its competition, the company could struggle to grow. This would hurt profit and dividend growth. 

Even after taking this into account, I would buy the company for my FTSE 250 dividend stocks portfolio. 

Growing profits

I would also buy Jupiter Fund Management (LSE: JUP). According to the company’s latest trading update, for the three months ended 31 March, assets under management (AUM) were £58.8bn, up £0.1bn from the end of 2020.

As the company earns a management fee on the assets under its administration, rising AUM indicates higher profits. That’s just what City analysts are expecting for 2021. They’ve pencilled in earnings growth of 7.8% for the year. 

Based on these forecasts, the stock trades at a forward price-to-earnings (P/E) multiple of 10.7. I think that books cheap, especially when combined with the company’s 6.4% dividend yield.

The main risks and challenges facing the business today are competition, which could force the company to lower management fees. More regulation may also lead to increased costs, which could depress profit margins and profitability.

Despite these risks, I would still buy. 

Rebound expected 

Most financial companies reported significant losses last year as they prepared for defaults due to the coronavirus crisis. Close Brothers (LSE: CBG) was no exception. Group net income slumped around 50% last year. 

However, analysts are expecting a strong recovery over the next two years. Net income could return to pre-pandemic levels by 2022, according to City projections.

Based on the fact that many other lenders have recently been revising their losses lower due to fewer than expected write-offs, I think the company stands a good chance of outperforming these projections. Although, I should say this is just my view, and it is far from guaranteed. Another coronavirus wave could send losses skyrocketing, and this would set Close Brothers’ recovery back by as much as a year. 

Still, with a dividend yield of 3.6% at the time of writing, I would add the company to my portfolio of FTSE 250 dividend stocks. 

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In fact, I’d buy this insurance giant before full-year results come are released on Tuesday, March 16. Sabre Insurance earlier declared that “an attractive full-year dividend” could be coming down the pipe.

I feel that this FTSE 250 share’s operating model should lay the foundations for bulky dividends long after 2021 too. Its brands like Insure2Drive and Drive Smart are niche operations that offer insurance to drivers who struggle to get cover elsewhere. This translates into higher premiums that in turn create excellent profit margins and help produce lots of cash.

Car sales are slipping

Of course no UK stock is without its risks. And Sabre Insurance faces a couple of not-insignificant problems in the near term and beyond. New car sales in Britain are falling, putting pressure on the average premium sizes that insurers enjoy. The Society of Motor Manufacturers and Traders (SMMT) has said that new vehicle demand slumped 35% last month, the worst February result since 1959. The body cut its 2021 sales forecasts by 60,000 units too, to 1.83m.

Shuttered car showrooms and Covid-19 lockdowns have obviously fed through to those shocking SMMT numbers. Though it’s possible that new vehicle sales could continue to struggle as the year progresses. A lumpy economic recovery could cause individuals and companies to hold off spending on new sets of wheels. Ongoing uncertainty over vehicle emissions legislation in the UK might keep damaging new car volumes too.

A long-term worry for UK insurance shares like Sabre is the steady fall in the number of new drivers. Test pass rates in Britain fell to four-year lows in 2019/20, latest data shows. It reflects the growing cost of driving lessons and changes to testing. But it’s also been caused by the rising cost of motoring and growing environmental awareness.

A top UK dividend share

That said, I still think Sabre Insurance is an attractive pick at current prices.

City analysts expect annual earnings at the company to fall 3% in 2021 before rebounding 6% in 2022. As a consequence, Sabre trades on a forward price-to-earnings (P/E) ratio of 16 times. It’s a figure I think makes the UK share much more attractive than fellow car insurance giant Admiral. The latter trades on an earnings multiple that sits in the mid-20s for 2021.

As I suggested earlier, the prospect of big dividends is why I think Sabre Insurance looks like a great ISA buy. The company’s balance sheet is rock-solid and solvency coverage of 186% in September flew above its target range of 140% to 160%. Consequently, City brokers are tipping big dividends for both 2021 and 2022, which create chunky yields of 6% and 6.3% respectively.

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