Should you buy these high-yielding shares today?

This article looks at two dividend dynamos that could make investors a fortune.

| 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.

Essentra (LSE: ESNT) hasn’t had the best of it in recent times. The business support play has seen its share price dip by almost a fifth during the past 12 months as investors have fretted over the progress of its turnaround strategy. Indeed, just this week it sank to its cheapest since last February in the run-up to today’s full-year results.

But Friday’s release has given Essentra’s stock value a welcome shot in the arm, the stock last dealing 6% higher on the day.

The FTSE 250 business advised that pre-tax losses had narrowed to £5m in 2017 from £63m in the prior period.

Revenues rose 3% to £1.03bn, although this was thanks to favourable foreign currency movements — on a like-for-like basis they actually slipped 2% from 2016 levels. Having said that, the impact of hurricane activity in the US and Puerto Rico took a bite out of the top line in the period.

Commenting on the results, chief executive Paul Forman said: “I have previously expressed that restoring Essentra to sustainable, profitable growth is not a rapid journey, and we clearly have a lot of work still to do. However, together we have made great progress and tangible improvement in 2017, so we are already well on our way.”

Back to growth

With Essentra predicted to move back into a period of earnings expansion now — rises of 19% and 14% are forecast for 2018 and 2019 — brokers are also expecting the firm to start lifting dividends again too.

So after paying a 20.7p per share reward for each of the past three years, Essentra is anticipated to lift the dividend to 20.8p this year and again to 20.9p next year. Consequently investors can tap into tasty yields of 4.4% and 4.5% respectively.

That being said, cautious share pickers should recognise that these projections aren’t very well covered. Predicted dividends are covered just 1.3 to 1.4 times by predicted earnings through to the close of fiscal 2019, well below the widely-accepted security benchmark of 2 times and above.

Now Essentra is expecting to make further headway in 2018 and to finally report a return to like-for-like sales growth this year. Its progress is to be lauded, although it still has some way to go, and I therefore do not believe risk-averse investors should splash out on the stock today, particularly given its slightly-toppy forward P/E ratio of 17.9 times.

Bumper yields well protected

Indeed, I would be much happier to take my investment cash and to spend it on National Express Group (LSE: NEX) instead, and not just because of its far superior valuations.

The 8% earnings improvement predicted for 2018 leaves the bus operator dealing on a forward P/E multiple of just 11.5 times. An extra 4% profits rise is predicted for next year, and these bright projections lead to expectations of handsome dividend expansion.

The 13.51p per share reward of last year is anticipated to rise to 14.8p this year, and again to 15.8p in the following period. These figures yield a chunky 4.1% and 4.4% respectively.

To put the cherry on the cake, dividend coverage through to the end of 2019 stands at an impressive 2.1 times.

I am impressed by the splendid progress National Express continues to make in foreign climes, and with the company steadily expanding its international footprint I am convinced that both earnings and dividends should continue their trek higher.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Essentra. 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 »