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I’d buy this FTSE 100 takeover target AND this 7.7% yielder today

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Having long been a fan of Smurfit Kappa (LSE: SKG), it comes as little surprise to me that the paper-based packaging powerhouse has come into the crosshairs of a potential suitor.

The FTSE 100 goliath has been approached by International Paper in recent months and has rejected two takeover offers thus far, the last of which at the back end of March valued Smurfit Kappa’s shares at around €37.54 apiece.

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The Dublin company said at its AGM earlier in May that its US rival’s proposals had been “unanimously rejected… on the basis that they entirely fail to value the Group’s true intrinsic business worth and prospects.” This is unlikely to be the end of the matter, however, and all signs point to Smurfit Kappa’s resolve being tested again.

Profits jumping

Latest trading details also released this month underline why the Footsie firm is the apple of International Paper’s eye. It reported a 22% uplift in earnings before interest, tax, depreciation and amortisation (EBITDA) during January-March, to €340m, while its EBITDA margin jumped 2.7% in the quarter to 15.7%.

And trading has remained robust since. “Trading in the second quarter remains very encouraging,” it commented, before adding: “We are excited about our prospects in the short, medium and long-term and expect our 2018 EBITDA to be materially better than 2017.”

This confidence shouldn’t come as a shock as a supply shortage in Smurfit Kappa’s major markets maintains strong volumes and ever-improving margins.

The packaging giant hasn’t had the best of it in recent years as rising input costs have weighed. However, with the company having cracked the problem of how to pass these extra expenses on, the business is expected to bounce back with profits rises of 28% and 3% in 2018 and 2019 respectively.

And these forecasts make Smurfit Kappa exceptional value for money, the firm sporting a forward P/E ratio of 14.6 times as well as a corresponding sub-1 PEG reading of 0.5. What’s more, chunky dividend yields of 2.6% and 2.7% for 2018 and 2019 respectively provide an extra sweetener.

The 7%+ yielder

While I think there’s plenty to get stuck into over at Smurfit Kappa, those seeking chunkier near-term dividends may want to give Stobart Group (LSE: STOB) some attention.

Thanks to the financial fruits of its long-running disposal problem the FTSE 250 firm has been able to offer share pickers yields that smash those of the broader competition, with dividends having trebled during the past five years.

And with additional asset sales in the offing, Stobart is predicted to lift the dividend again in the year to February 2019, to 18.5p per share, even though earnings are predicted to dip 84% year-on-year. This means investors can enjoy a colossal 7.7% yield.

Moreover, with profits expected to rebound 96% in fiscal 2020, the dividend should increase again to 19.1p, in turn nudging the yield to 8%.

A forward P/E ratio of 45.1 times may appear too toppy for many. But I reckon the rampant progress Stobart’s aviation and energy divisions are making means it is worth such a premium, while those mountainous dividends offset much of the pain as well.

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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.

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