Regular readers will know that Lloyds Banking Group and its monster dividend yield (which currently sits at a chubby 5.2%) don’t move me in the slightest.
Given the probability of sinking revenues and soaring impairments as the UK drives itself off the Brexit cliff, I’m not tempted to buy in for even a second. Indeed, my bearish take on the business was reinforced by the terrible first-quarter financials released by industry rival Barclays today, numbers which underlined the intense pressures on the banking sector applied by the tough political and economic environment.
I’d much rather buy FTSE 250 income hero 888 Holdings (LSE: 888) because of its superior profits outlooks for the near term and beyond. And oh yes, its forward yields soar above those of Lloyds too.
Roll the dice
888 is a great play on the online gambling explosion and latest results in March proved just why.
Adjusted pre-tax profits at the business swelled 11% in 2018 to $86.7m, thanks to the progress being made on foreign shores and particularly so in Continental Europe (excluding the UK, revenues at its core Casino and Sports divisions swelled 17% and 18% last year).
There’s plenty of evidence to suggest that the trading environment should remain conducive to more excellent profits growth looking down the line too. 888 cited recent research from H2 Gambling Capital predicting that the value of the global online gambling industry will swell from $50.8bn in 2018 to $70.3bn within the next five years, reflecting the increased use of mobile devices, better internet connectivity for users, and regulatory changes which are opening up new markets to the online operators.
And the FTSE 250 firm is well placed to capitalise on these favourable conditions by bolstering its geographic footprint. Over the past year it’s secured new gaming licences in Sweden, Malta and Portugal and introduced new platforms like 888Poker.it in Italy. Meanwhile, away from Europe, 888’s also engaged in further acquisition activity to enhance its operations in the hot growth market of the US and rolled out new websites like 888Sport in New Jersey.
6%+ dividend yields
The impact of competitive and regulatory troubles in the UK are expected to push earnings heavily to the downside in 2019 — a 24% drop is predicted by City analysts, in fact. However, the bottom line is anticipated to bounce back next year and a 10% rise is forecast.
And with 888’s overseas operations creating a bright profits outlook beyond the immediate term, the number crunchers expect dividends to remain on the right side of generous. This means that dividend yields of 6.3% and 6.7% for this year and next can be enjoyed.
At current share prices, the company sports a forward P/E ratio of 12.6 times, more expensive than Lloyds but a figure I consider to be attractive value given the growth rate of the market in which it operates and the ambitious steps it’s taking to boost customer numbers. All things considered I reckon, unlike the banking giant, that 888 is a terrific buy right now.
