A frankly disastrous trading update at the start of April has seen investors scurry from Rank Group (LSE: RNK) like there is no tomorrow.
The gambling giant’s share price has slumped to levels not seen since February 2015, the intense selling action kicking in after Rank advised that fading footfall at its casinos and bingo halls caused like-for-like revenues to flatline during the 40 weeks to April 1.
Sure, the result was clearly disappointing and caused brokers to scribble out and downgrade their earnings estimates with some gusto. But there was still some cheer to emerge from the release as it underlined the exceptional revenues potential of the online gaming market — Rank saw turnover from its digital operations soar 17% in the 40 weeks.
A record of steady earnings growth has allowed it to consistently lift the dividend year after year and, while the business is expected to print a rare 4% earnings reversal in 2018 in the wake of this month’s update, thanks to its exceptional cash generation this is not predicted to prove a barrier to further payout growth. The company managed to magic net debt of £33m during July-December 2016 into net cash of £4m during the latest half-year period.
City analysts are expecting the FTSE 250 firm to raise the 7.3p per share dividend paid in the 12 months to June 2017 to 7.9p in the current fiscal period, meaning that investors can enjoy a huge 4.5% yield.
And helped by an anticipated return to earnings growth in fiscal 2019 — a 6% profits improvement is estimated — Rank should have the firepower to raise the dividend again to 8.5p, or so say the number crunchers. Consequently the yield for next year moves to 4.9%.
Whilst Rank’s retail operations are clearly going through a sticky patch, I reckon a low forward P/E ratio of 11.4 times reflects this. And I am confident the rich potential of the online gambling market means it remains a solid growth and income stock for long-term investors.
Crack the code
Those not fancying a slice of Rank may want to take a look at Morses Club (LSE: MCL) instead, another share which offers up yields that smash up much of the competition.
A payout of 6.8p per share is expected when the doorstep lender reports for the 12 months ending February 2018. And with earnings predicted to keep swelling by double-digit percentages — rises of 18% and 17% are forecast for fiscal 2019 and 2020 respectively — dividends are expected to rise at a fair lick too.
The dividend projection for this year stands at 7.6p, and it moves to 8.9p for next year. Yields subsequently stand at an eye-popping 5.8% and 6.8% for these years.
Like Rank, Morses Club can also be picked up for next to nothing, the AIM-quoted stock trading on a forward P/E ratio of 9.9 times. This is much too cheap in my opinion given the rate at which demand for its credit is picking up. Total issued credit boomed 21% last year to £174.3m. And there’s the the rapid improvement in the quality of its loans book too as customer numbers rose 6% in fiscal 2018, helped by an 18% uptick in the quantity of ‘highest tier’ customers.
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Royston Wild 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.