With markets dipping recently, I decided to see if there were any new value stock opportunities on the FTSE. During my search, I ended up stumbling across an attractive income stock instead.
Sabre Insurance Group (LSE: SBRE) certainly fits my value criteria, with a forward price-to-earnings (P/E) ratio of only 8.6. That gives it a lot of room for growth if markets recover. But it also boasts a very attractive 9.3% dividend yield.
Usually, when I see that combination, I expect to find a share price that’s been in decline for years. But not here — Sabre is actually up about 30% over the past two years.
So, is it an untapped income opportunity with strong prospects, or a value trap?
Let’s take a look.
A tough industry
Despite a rise in profitability and improving margins, Sabre’s share price has suffered a moderate decline in the past few months. This could be attributed to falling gross premiums and a weakening UK motor insurance market.
Management has prioritised margin over volume to protect against “external macro shocks,” but this has come at the cost of headline revenue and future growth rates.
Now, analysts forecast stable (but not growing) profits for 2025, which could limit capital appreciation in the short term. But for income investors, that wouldn’t be a huge issue — so long as the dividends remain steady.
That’s where things start to look questionable. With very little cash flow, even a mild profit hit could risk a dividend cut.
Where things could go wrong
There are some notable risks to account for, including ongoing claims inflation and premium declines if the UK car insurance market remains soft. Also, it relies on its disciplined pricing strategy to draw business, which could limit growth.
Additionally, Sabre underperformed both the wider market and its insurance peers over the past year, reflecting investor caution. If sector conditions worsen or claims inflation spikes, Sabre may be forced to reduce dividends or see further share price declines.
I’d say the risks may outweigh the potential returns in this case. Fortunately, there are many other options.
A safer pick?
For risk-averse investors, a more stable income stock to consider is the student accommodation developer Unite Group (LSE: UTG). It’s not quite as impressive with only a 6.3% yield, but it looks more sustainable. It may not be ‘the best’ stock out there (that’s very subjective, after all). But it could be worth further research.
As a real estate investment trust (REIT), it’s required to return 90% of profits to shareholders as dividends. That adds a level of reliability for those seeking passive income.
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The caveat is that REITs tend to underperform in weak markets. Subsequently, Unite shares have lost a third of their value this year as the UK property market struggled. So long as that continues, returns may be limited.
Final thoughts
Unite’s current price looks significantly undervalued, with a P/E ratio of only 7.8. With the UK housing market already hinting at a recovery, 2026 could be a good year for Unite Group.
But November is always a difficult time to pick stocks, and the upcoming Autumn budget adds extra uncertainty. While I think it’s a promising REIT to consider, I’d wait until the month’s end before making any big decisions.
