2 ‘hidden’ income stocks for 2017 and beyond

The runaway success of Big Yellow Group (LSE: BYG) has been nothing short of spectacular, from opening its first store in 1999 to becoming the UK’s favourite self-storage company and market leader. Uninterrupted growth has meant that the group’s share price has increased tenfold since 2003.  Annual revenues at the Bagshot-based company ballooned to £101m last year, with the promise of further growth to come.

Sweet spot

One of the problems with high growth firms is that investors often pile in to companies with a proven track record such as Big Yellow Group and send the shares soaring, leaving a very lofty valuation, with little room for failure. These can often be tricky investments, as the market has already priced-in much of the future growth potential, and any hiccups along the way can lead to massive market corrections.

In these situations I often find it best to wait for large share price retracements, or pull-backs, to ensure the best entry point and a more favourable valuation. It would be foolish to pay over the odds for any company, and of course who doesn’t love a discount? I think we have reached this sweet spot with Big Yellow Group.

Perfect time to buy

Earlier this month the FTSE 250 company issued a pleasing third quarter update, with like-for-like revenue increasing by 5%, compared to the same quarter the previous year, and up 6% for the financial year to date. The company did warn, however, that new supply in its key areas of operation, particularly London, would remain constrained over the medium to long term, due to the uncertainties around the UK’s economic outlook. Nevertheless, I think the business is well placed to face down most challenges.

Big Yellow’s share price has pulled-back strongly since reaching all-time highs of 886.5p last year, with the shares losing a fifth of their value since May. The prospective dividend yield has crept up to 4% for the current year to March, rising to 4.8% by 2018/19. A P/E ratio of 20 may still seem a little high, but this falls to 17 by FY 2019, and is well below historical levels for Big Yellow. In my view this could be the perfect time to buy for rising dividends and long term growth.

New terminal

Another mid-cap firm that’s been keen to reward its shareholders with healthy dividends in recent years is payment processing specialist PayPoint (LSE: PAY). As part of its strategy to refocus on retailers, the company recently launched its new PayPoint One terminal, which combines an electronic point of sale function, card payments and PayPoint bill payment services, to cater for the convenience store market.

PayPoint expects to achieve a rollout of the new terminal to around 4,000 by the end of March, and has so far been well received. The company has been paying a progressive dividend since 2005, which at current levels provides income seekers with a solid 4.7% yield for the year to March, rising to 5.3% for FY 2019.

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