Are J Sainsbury plc, Hiscox Ltd and Mondi plc 3 super income stocks?

Should income-seekers pile into J Sainsbury plc (LON: SBRY), Hiscox Ltd (LON: HSX) and Mondi plc (LON: MNDI)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today’s trading statement from Hiscox (LSE: HSX) shows that the insurer has made a good start to the year, with gross written premiums rising by 10% in the first quarter of the year.

Notably, Hiscox’s retail division performed well, with gross written premiums increasing by 30% in the USA as its broker channel business and direct and partnerships division both delivered growth. This contributed to a rise in gross written premiums for the retail segment of 9.7%. And with gross written premiums for Hiscox’s London Market moving higher due to new product lines, the company seems to be in a strong position to deliver further growth.

However, with Hiscox currently yielding 2.7%, it seems to lack income appeal. And while the company is performing well and dividends are covered 2.2 times by profit, there seem to be better income plays available elsewhere over the medium-to-long term. Plus, with Hiscox trading on a price-to-earnings (P/E) ratio of 16.3, it also seems to lack upward rerating potential compared to a number of its insurance industry peers.

Potentially powerful

Similarly, packaging and paper specialist Mondi (LSE: MNDI) also has a yield below that of the FTSE 100. While the main index yields around 4%, Mondi’s yield currently stands at 3.5% and this could lead many investors to feel as though it’s not a worthwhile income play.

However, Mondi has huge scope to raise dividends at a rapid rate in future. That’s because its dividends are currently covered 2.4 times by profit and this indicates that they could rise at a much faster rate than profit and still remain highly affordable. Furthermore, with Mondi having delivered profit growth in each of the last five years, it’s a relatively stable business that should provide its shareholders with a robust and consistent income outlook.

In addition, Mondi currently trades on a P/E ratio of just 11.8, which indicates that it offers significant upward rerating potential. Certainly, there may be more exciting stocks around, but for income seekers Mondi has real potential.

Strong income appeal

Meanwhile, Sainsbury’s (LSE: SBRY) may be viewed as a rather lacklustre income stock by many investors. That’s largely because its bottom line continues to offer a disappointing growth outlook and this could lead to a lack of dividend growth over the medium term.

However, Sainsbury’s still has huge income appeal. That’s partly because its yield stands at an impressive 4%, but also because its current strategy is set to boost profitability in future years. A key part of this is the decision to acquire Home Retail, which should provide Sainsbury’s with excellent cross-selling opportunities and could revitalise its top and bottom lines.

Furthermore, Sainsbury’s has a new pricing strategy which is simpler and could resonate well with consumers who are experiencing real-terms wage growth for the first time since the start of the credit crunch. As such, Sainsbury’s remains a super income stock.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Sainsbury (J). 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.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »