The Motley Fool

Are these 3 shares too good to miss?

Today, I’m looking at three fallen cyclical shares with decent dividends.

Housebuilding and construction

At today’s 1,030p or so, housebuilder and construction company Galliford Try’s (LSE: GFRD) shares are well down from the 1,800p they achieved during 2015. Yet the company remains upbeat. 

In a trading statement released on 12 July, Peter Truscott, the firm’s chief executive, reassured us that despite forward uncertainty due to the Brexit vote, underlying demand for new homes continues. He reckons ongoing availability of mortgage finance and the government’s Help-to-Buy scheme make him confident about the outlook for the company’s housing-related activities. 

Meanwhile, he says, the late-cycle nature of the construction sector and the firm’s public sector focus should help maintain momentum, and the company’s order book is already 82% full for 2017. 

Galliford Try certainly looks tempting with a forward price-to-earnings (P/E) ratio of  6.7 for year to June 2017 and a forward dividend yield running at  9.7%. Such metrics suggest the market expects trouble ahead. At some point, the firm’s trading cycle will turn down, but the big question is, when will that be? Perhaps the valuation markdown is overdone for the time being?


Engineering firm GKN (LSE: GKN) designs and manufactures drive shafts and axle joints for vehicles around the world. The firm also operates businesses in aerospace, powder metallurgy and agricultural machinery. The shares touched 413p during 2014 but now sit around 308p. However, the directors seem bullish and City analysts following the firm expect earnings to grow by 11% during 2017.

The forward P/E rating is around 10 for 2017 and the dividend yield sits at 3.1% with forward earnings covering the payout more than three times. It’s worth keeping an eye on the firm’s debt, though. The last reported level of net debt was £918m, which compares to projected pre-tax profits of £685m for 2017. However, a pension deficit around £2bn could combine with borrowings to cause problems if profits dive in any macroeconomic downturn that could be ahead.


UK-focused challenger bank Aldermore Group (LSE: ALD) saw its shares touch 316p in July 2015. Is today’s 135p or so a bargain? Possibly, but it depends on where the macro-economy is going, because even though Aldermore is a racy challenger bank, it’s still a bank and as such is one of the most cyclical firms listed on the stock market. 

City analysts expect the firm’s earnings to flatline during 2017, and the directors acknowledge that the impact of Brexit remains unknown, despite being bullish about Aldermore’s prospects in the longer term. The shares could look attractive to you if you think the valuation derating is sufficient to counter any cyclical shock on the horizon, or if you believe the firm’s underlying growth and market share grab can override any cyclical slowdown. The forward P/E ratio sits at 5.5 for 2017 and City analysts expect a forward dividend yield of 3.1% with the payout covered almost six times by forward earnings.

What now?

These three firms all have inherently cyclical business models and the market seems to have marked them down in anticipation of trouble ahead. If taking a chance on such cyclicals now seems too risky to you, you might be interested in looking at a company identified by The Motley Fool analysts as a Top Growth Share.

The firm has a decent record of rising dividends and a clearly identified path to growth. If the dividend keeps rising, share-price appreciation could follow.

You can download this free research now by clicking here.

Kevin Godbold has no position in any shares mentioned. The Motley Fool UK owns shares of GKN. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.