Will these Footsie big-yielders prove to be expensive mistakes?

Royston Wild considers the investment outlook for two Footsie big-hitters.

| 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.

Despite enduring fears over macroeconomic turbulence in emerging regions, Ashmore Group (LSE: ASHM) has remained a popular pick with dividend chasers thanks to its market-mashing yields.

The financial giant was able to ride out years of earnings volatility before finally succumbing to the pressure of vast outflows in the last fiscal year. Indeed, Ashmore elected to cut the dividend to 12.1p per share in the period to June 2016 from 16.65p in the prior year.

And despite expectations of fresh bottom-line pressure in the current year — an 11% earnings decline is currently anticipated — Ashmore is expected to get shareholder rewards chugging higher with a 17p payout. This projection yields a very-decent 4.6%, taking the FTSE 100 average of 3.5% to bits.

Big questions remain over the health of these developing markets, but investors will be encouraged by Ashmore’s latest financials released today. These showed assets under management rising 4% quarter-on-quarter during July-September, to $54.6bn.

Ashmore chief executive Mark Coombs commented that “the ongoing recovery in emerging markets asset prices through 2016 and the attractive returns on offer across a diverse range of investment themes are causing investors to reconsider their underweight positions.” The company has been battered by massive net outflows in recent times.

However, one could argue that Ashmore’s share price rise to 27-month peaks leaves it looking a tad top-heavy at present, the firm dealing on a forward P/E rating of 21.4 times.

Should investor appetite for its far-flung regions sour again and outflows pick up — a very possible scenario, in my opinion — then investors should expect another hefty stock value fall at Ashmore.

Money master

Sub-prime lender Provident Financial (LSE: PFG) released reassuring trading details in Friday business.

Provident announced that “the group performed well through the third quarter of the year,” adding that “credit quality in all three businesses is very sound and reinforces confidence in delivering good results for 2016 as a whole.”

At its Vanquis Bank division, Provident saw customer numbers leap 13% between July and September, while receivables edged 7% higher. Meanwhile, customer numbers at its CCD division remained stable from June, Provident noting that “demand and customer confidence in home credit have remained robust.”

All is not completely rosy at Provident however, the company advising of regulatory concerns as CCD awaits full FCA authorisation to trade, and the regulator continues its study into the UK credit card industry.

Still, the City is convinced Provident has what it takes to keep earnings rising, and advances of 13% and 7% are pencilled-in for 2016 and 2017 respectively.

Subsequent P/E ratios of 17.7 times and 16.6 times may edge above the FTSE 100 mean of 15 times, but expected dividends of 129.6p per share for 2016 and 140.1p for next year compensate for this. These figures yield 4.3% and 4.6%.

Should Provident avoid excessive FCA action, as is widely expected, the lender could prove to be a very lucrative long-term selection for investors.

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 considered so you should consider taking independent financial advice.

Royston Wild 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.

More on Investing Articles

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

With a spare £500 I’d buy these UK shares

A financial services giant, a FTSE 250 distributor, a FTSE 100 tech stock, and a gold miner are on the…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Should I buy this defensive FTSE 100 stock for growth and returns?

This Fool takes a closer look at a FTSE 100 stock to see if it could boost his holdings via…

Read more »

Young female analyst working at her desk in the office
Investing Articles

I robbed Mr Market of this cheap FTSE stock!

This FTSE 250 stock has crashed by almost 30% in six months. But I recently bought into this battered business…

Read more »

Mature people enjoying time together during road trip
Investing Articles

3 reasons I’m backing NIO shares to soar!

NIO shares have bounced up and down this year. But where will the share price go next? My bet is…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Up 300%, is the Hurricane Energy share price an opportunity too good to miss?

This Fool looks at why the Hurricane Energy share price has soared in the past 12 months. Should he buy…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

The BT share price crashes 20% in a month. Buy now?

The BT share price has crashed by almost a fifth since coming close to £2 on 12 July. After this…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

How I’d invest £1,000 in growth shares today to target £5,000 in a decade

Our writer reckons he could do well by choosing the right growth shares today and holding them in his portfolio…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

How passive income from stocks can speed up early retirement

By investing patiently over the years, buying quality shares has given me enough passive income to retire 10 or even…

Read more »