I’d buy this FTSE 100 takeover target AND this 7.7% yielder today

Royston Wild looks at two shares, including this possible FTSE 100 (INDEXFTSE: UKX) takeover target, that could make you a fortune.

| 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.

Having long been a fan of Smurfit Kappa (LSE: SKG), it comes as little surprise to me that the paper-based packaging powerhouse has come into the crosshairs of a potential suitor.

The FTSE 100 goliath has been approached by International Paper in recent months and has rejected two takeover offers thus far, the last of which at the back end of March valued Smurfit Kappa’s shares at around €37.54 apiece.

The Dublin company said at its AGM earlier in May that its US rival’s proposals had been “unanimously rejected… on the basis that they entirely fail to value the Group’s true intrinsic business worth and prospects.” This is unlikely to be the end of the matter, however, and all signs point to Smurfit Kappa’s resolve being tested again.

Profits jumping

Latest trading details also released this month underline why the Footsie firm is the apple of International Paper’s eye. It reported a 22% uplift in earnings before interest, tax, depreciation and amortisation (EBITDA) during January-March, to €340m, while its EBITDA margin jumped 2.7% in the quarter to 15.7%.

And trading has remained robust since. “Trading in the second quarter remains very encouraging,” it commented, before adding: “We are excited about our prospects in the short, medium and long-term and expect our 2018 EBITDA to be materially better than 2017.”

This confidence shouldn’t come as a shock as a supply shortage in Smurfit Kappa’s major markets maintains strong volumes and ever-improving margins.

The packaging giant hasn’t had the best of it in recent years as rising input costs have weighed. However, with the company having cracked the problem of how to pass these extra expenses on, the business is expected to bounce back with profits rises of 28% and 3% in 2018 and 2019 respectively.

And these forecasts make Smurfit Kappa exceptional value for money, the firm sporting a forward P/E ratio of 14.6 times as well as a corresponding sub-1 PEG reading of 0.5. What’s more, chunky dividend yields of 2.6% and 2.7% for 2018 and 2019 respectively provide an extra sweetener.

The 7%+ yielder

While I think there’s plenty to get stuck into over at Smurfit Kappa, those seeking chunkier near-term dividends may want to give Stobart Group (LSE: STOB) some attention.

Thanks to the financial fruits of its long-running disposal problem the FTSE 250 firm has been able to offer share pickers yields that smash those of the broader competition, with dividends having trebled during the past five years.

And with additional asset sales in the offing, Stobart is predicted to lift the dividend again in the year to February 2019, to 18.5p per share, even though earnings are predicted to dip 84% year-on-year. This means investors can enjoy a colossal 7.7% yield.

Moreover, with profits expected to rebound 96% in fiscal 2020, the dividend should increase again to 19.1p, in turn nudging the yield to 8%.

A forward P/E ratio of 45.1 times may appear too toppy for many. But I reckon the rampant progress Stobart’s aviation and energy divisions are making means it is worth such a premium, while those mountainous dividends offset much of the pain as well.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

More on Investing Articles

Young black woman walking in Central London for shopping
Value Shares

Down 70%, could Burberry be one of the FTSE 100’s best value stocks?

Burberry shares have tanked due to a slowdown in the global luxury goods market. Are we now looking at one…

Read more »

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

At the lowest level since 2020, is this US icon a good stock to buy?

Jon Smith's on the hunt for stocks to buy on the other side of the pond, but isn't sure this…

Read more »

Investing Articles

This 9.75% yielding FTSE 100 share is a total no-brainer for second income

This FTSE 100 insurance company is an absolutely brilliant source of second income and Harvey Jones reckons it will be…

Read more »

Dividend Shares

I could make £14.2k of passive income from £99 a week with this secret sauce

Jon Smith explains why sacrificing the immediate reward of dividends today can boost his long-term passive income prospects.

Read more »

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

Which looks the better bank buy right now: Lloyds or NatWest shares?

Lloyds shares are a very popular pick among FTSE 100 investors, but I think there are several better choices overall,…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£9,000 in savings? Here’s how I’d target a £14,616 annual passive income with M&G shares!

Big passive income can be generated over time with 9.5%-yielding M&G shares, especially if the dividends paid are used to…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

If I’d put £1k in this FTSE 100 stock five years ago, here’s how much I’d have now!

Mark David Hartley works out what sort of profit he’d have made by investing in this FTSE 100 pick pre-pandemic.…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

After crashing 50%, is now the perfect time to buy this world-class FTSE 250 share?

The worst-performing share on the FTSE 250 over the last year is also the most exciting one of all. How…

Read more »