There’s nothing that warms the cockles of an investor’s heart more than a surging share price — except, perhaps, one that carries further on up. And that’s why I’m looking at three that might just do that.
Paying dividends
The insurance sector has had a mixed year, but Direct Line Insurance (LSE: DLG) has seen its shares climb 32% over the past 12 months, to 394p — and over two years we’ve seen a 58% gain.
Part of the attraction is Direct Line’s ability to generate enough cash to pay handsome special dividends. They’re not guaranteed, obviously, but 2014 brought in a total dividend (including two special payments) of 27.2p — and that was a yield of 8.6% on the year-end share price. This year has so far brought an exceptional special payment of 27.5p per share from the sale of the firm’s International division, so that boosts this year’s figures considerably.
We’re looking at a prospective P/E of around 12.5 this year, and though earnings are expected to fall back a little in 2016, we should still see a P/E of only a little over 14. Despite the price rises, Direct Line does not look overvalued to me.
Footie and Broadband
BT Group (LSE: BT-A) has been plodding along perhaps a little unnoticed, but at 464p its shares are up 27% in 12 months — and over five years they’ve almost trebled.
First half results last week provided evidence that BT’s plans are working, with its investment in acquiring Champions League rights helping add 106,000 pay-TV customers in the second quarter alone. Coupled with steady growth in the company’s fibre broadband network, the long-term is looking good for BT investors.
But are the shares still good value? Despite the strong rise, they’re still on a forecast P/E for 2016 of only around the FTSE long-term average of 14. We have some slowing of earnings growth on the cards, but I can’t see the longer term upwards trend failing to continue.
Ignore at your peril
“Never invest in retail” is one of my favourite rules of thumb, especially not in the fashion business, because it’s a highly competitive and fickle market. But if you’d followed that advice, like me you’d have missed out on a 12-month rise in NEXT (LSE: NXT) shares of 24% — and a stunning 275% surge over five years!
I don’t really know how NEXT does it, but it keeps on getting it right year after year, and has posted five straight years of double-digit earnings growth while competitors have been struggling to attract the pretty young things to their racks of fashionable finery. I reckon it’s mostly down to NEXT’s superb buyers, who always manage to get the right stuff in at the right price level.
The P/E is the highest of these three at around 18 for January 2016, but top quality companies do command higher-than-average prices — and there’s a 5% dividend yield penciled in for the current year.
