The Motley Fool

Should you buy these high-yielding shares today?

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.

Question mark made up of pound symbols
Image source: Getty Images.

Essentra (LSE: ESNT) hasn’t had the best of it in recent times. The business support play has seen its share price dip by almost a fifth during the past 12 months as investors have fretted over the progress of its turnaround strategy. Indeed, just this week it sank to its cheapest since last February in the run-up to today’s full-year results.

But Friday’s release has given Essentra’s stock value a welcome shot in the arm, the stock last dealing 6% higher on the day.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

The FTSE 250 business advised that pre-tax losses had narrowed to £5m in 2017 from £63m in the prior period.

Revenues rose 3% to £1.03bn, although this was thanks to favourable foreign currency movements — on a like-for-like basis they actually slipped 2% from 2016 levels. Having said that, the impact of hurricane activity in the US and Puerto Rico took a bite out of the top line in the period.

Commenting on the results, chief executive Paul Forman said: “I have previously expressed that restoring Essentra to sustainable, profitable growth is not a rapid journey, and we clearly have a lot of work still to do. However, together we have made great progress and tangible improvement in 2017, so we are already well on our way.”

Back to growth

With Essentra predicted to move back into a period of earnings expansion now — rises of 19% and 14% are forecast for 2018 and 2019 — brokers are also expecting the firm to start lifting dividends again too.

So after paying a 20.7p per share reward for each of the past three years, Essentra is anticipated to lift the dividend to 20.8p this year and again to 20.9p next year. Consequently investors can tap into tasty yields of 4.4% and 4.5% respectively.

That being said, cautious share pickers should recognise that these projections aren’t very well covered. Predicted dividends are covered just 1.3 to 1.4 times by predicted earnings through to the close of fiscal 2019, well below the widely-accepted security benchmark of 2 times and above.

Now Essentra is expecting to make further headway in 2018 and to finally report a return to like-for-like sales growth this year. Its progress is to be lauded, although it still has some way to go, and I therefore do not believe risk-averse investors should splash out on the stock today, particularly given its slightly-toppy forward P/E ratio of 17.9 times.

Bumper yields well protected

Indeed, I would be much happier to take my investment cash and to spend it on National Express Group (LSE: NEX) instead, and not just because of its far superior valuations.

The 8% earnings improvement predicted for 2018 leaves the bus operator dealing on a forward P/E multiple of just 11.5 times. An extra 4% profits rise is predicted for next year, and these bright projections lead to expectations of handsome dividend expansion.

The 13.51p per share reward of last year is anticipated to rise to 14.8p this year, and again to 15.8p in the following period. These figures yield a chunky 4.1% and 4.4% respectively.

To put the cherry on the cake, dividend coverage through to the end of 2019 stands at an impressive 2.1 times.

I am impressed by the splendid progress National Express continues to make in foreign climes, and with the company steadily expanding its international footprint I am convinced that both earnings and dividends should continue their trek higher.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Essentra. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.