Two FTSE 100-beating dividend stocks I think could be takeover targets

These two ‘sustainable investing’ stocks are smashing the returns from the FTSE 100 (INDEXFTSE: UKX) right now and Edward Sheldon thinks they could become takeover targets.

| 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.

The asset management industry is going through a challenging period. Not only are investors gravitating to low-cost passive tracker funds and ditching actively managed funds — just look at Neil Woodford’s woes — but regulators have increased their focus on the industry significantly which is causing costs to soar.

As a result, there’s been considerable consolidation within the sector in recent years as firms have acted to strengthen their market positions and boost their margins, and this is a trend that looks set to continue. With that in mind, here’s a look at two highly profitable niche asset managers I think could be takeover targets.

Impax 

Impax Asset Management (LSE: IPX) focuses on sustainable investing which seeks to consider both financial return and social/environmental good. Founded a little over 20 years ago, the group offers a range of thematic and unconstrained global equity strategies as well as real asset funds focused on the growth opportunity arising from a sustainable economy.

It’s this niche focus I believe makes Impax a prime takeover target as public interest in issues such as climate change and environmental protection is increasing and the demand for sustainable investments is on the rise. Impax, which has won awards for its sustainable investing in the past, could be a great fit for a larger asset manager looking to boost its presence in this area, in my view.

Impax has grown significantly over the last decade and today’s half-year results show further progress. The group enjoyed inflows of £887m over the six months to 31 March, boosting assets under management by 6% to £13.3bn, while revenue and profit before tax jumped 32% and 69%, respectively.

Moreover, in a statement of confidence from management, the interim dividend was hiked 36%. Chief executive Ian Simm commented: “Impax’s specialist expertise as investors in the transition to a more sustainable economy is resonating with a range of asset owners around the world, and the company remains well placed for further growth.”

Impax shares have fallen on today’s results, but I would view any share price weakness as a buying opportunity. The shares are not particularly cheap (forward P/E of 25), but given the growth story, I think they deserve a premium.

Liontrust

Another asset management company I think could be a takeover target is Liontrust (LSE: LIO), which runs a range of specialist investment funds and also has a focus on sustainable investing. It had just under £13bn in assets under management at 31 March.

While many other asset management companies have been struggling recently, Liontrust has been thriving. For example, for the year to 31 March, the group enjoyed record net inflows of £1.8bn, which boosted its assets under management by 21%. This is a particularly strong performance given the UK asset management industry as a whole experienced negative retail fund flows in six out of the seven months to the end of February.

Liontrust shares currently trade on an attractive P/E of just 13.2 which I think could increase the group’s takeover appeal. There’s also a healthy yield of around 4% on offer right now. Overall, I see considerable investment appeal in this small-cap champion.

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.

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Liontrust Asset Management. 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

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

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

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

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »