UKOG shares? I’d rather buy these FTSE 250 dividend growth stocks

UKOG shares appear to offer a poor risk/reward profile compared to these FTSE 250 dividend growth stocks, which are reporting record demand, according to Rupert Hargreaves.

| 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.

UKOG (LSE: UKOG) shares have been on a tear over the past 30 days. The stock is up around 22% since the end of May as investor sentiment towards the business has improved dramatically. 

However, the company’s long-term outlook remains uncertain. Indeed, it is still relying on the kindness of strangers to keep the lights on. UKOG recently raised £4.2m by issuing new shares to fund exploration and development activities. The money was also used to repay an outstanding loan of £1.75m. 

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

While the company has made a great deal of progress over the past year with its drilling and exploration activities, it’s still not self-sufficient. It is unlikely to reach this stage anytime soon. 

On the other hand, the companies behind FTSE 250 dividend growth stocks IG Group (LSE: IGG) and Plus500 (LSE: PLUS) are highly profitable. As such, they may offer better total returns than UKOG shares over the long term. 

UKOG shares suffer

Plus and IG have both benefited from the significant increase in stock market volatility over the past few months. In its latest trading update, IG said that high levels of client activity produced trading revenue for its fiscal fourth quarter of £259m. This was nearly double last year’s figure. 

Plus has seen a similar boom in activity. The London-listed broker reported revenue of $316.6m in the three months to March. In the same period last year, the company’s revenue was just $53.9m. 

Looking at these results, it’s no surprise that shares in the financial services’ firms have outperformed the market over the past 12 months. UKOG shares, on the other hand, have fallen by around three quarters over the same time frame. 

The company’s dire need for cash is to blame. Unlike IG and Plus, which are raking in the cash, UKOG has relied on issuing new shares to fund its business activities for many years. Until the firm starts generating strong, recurring free cash flows, this is unlikely to change. That means further dilution could be on the cards, which might lead to further declines in the shares. 

Dividend champions

IG and Plus are highly cash generative. For example, in IG’s financial year to the end of May 2019, the group generated £170m of free cash from operations. This allowed management to announce a higher than average total dividend distribution, which cost the firm £171m. It also ended its last financial quarter with £357m of cash on a balance sheet, enough to support the company’s current dividend yield of 5.4% for at least two years. 

Meanwhile, in Plus’s financial year to the end of December 2019, the company generated £127m of cash from operations. This allowed it to return £100m in cash to investors with dividends and another £47m with share buybacks.

The group also has a large chunk of cash on its balance sheet. The cash balance stood at £287m at the end of the first quarter, enough to support the firm’s 5.7% dividend yield for nearly three years. 

These figures suggest that IG and Plus may be better investments for your portfolio that UKOG shares over the long run. Their cash generative nature, market-beating dividends, and strong balance sheets imply that the shares can produce strong total returns in the years ahead.

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

Rupert Hargreaves 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.

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.

More on Investing Articles

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

Lloyds shares are down 10% in 2022. What next?

Lloyds shares have dropped by almost a tenth so far in 2022. But the bank is in good shape to…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

How to aim to use the Warren Buffett method to make a million, starting today

Why do investors love Warren Buffett so much? His 3.6 million percent investment return since 1965 probably has a lot…

Read more »

Various denominations of notes in a pile
Investing Articles

3 big income stocks hiding in plain sight

There are plenty of high-paying income stocks flying under the radar right now. Paul Summers offers three examples he likes.

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

2 FTSE 100 shares I’m buying in July

Andrew Woods wonders whether these two FTSE 100 shares could bring growth to his portfolio and if he should add…

Read more »

positive mental health woman
Investing Articles

2 dirt-cheap stocks investors should buy to hold until 2030!

Recent market volatility means lots of UK shares now offer brilliant value. Here are two ultra-cheap stocks on my radar…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

My top 7 dividend shares to buy as inflation soars

Dividend shares can be an excellent way to earn some passive income. Our writer considers seven top picks to help…

Read more »

Woman looking at a jar of pennies
Investing Articles

I think the JD Sports share price is a bargain. Here’s why

Our writer explains why the JD Sports share price has led him to buy more for his portfolio.

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

Is this tech stock one of the best shares to buy now?

Jabran Khan is on the hunt for the best shares to buy now for his holdings and takes a closer…

Read more »