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Shares in the over-50s travel and insurance group Saga (LSE: SAGA) have rebounded in recent weeks as investors have bought back into the business’s turnaround plan. 

Saga is moving away from riskier and more capital-intensive underwriting towards a broking service, where it takes a fee for connecting buyers (customers) and sellers (underwriters). At the same time, management has been investing heavily in Saga’s travel business, buying a new cruise ship, Spirit of Discovery, to market directly to customers. 

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Customers are still flocking to Saga’s offers, and a new membership programme should only improve satisfaction and resale rates. The new scheme, only recently launched, now has 740,000 members according to a trading update issued by the group today. 

City analysts believe Saga’s growth initiatives will help the company maintain its dividend at last year’s 9p level, indicating that the shares yield a desirable 9%. 

What’s more, even with earnings set to slide 2.1% this financial year, the shares trade at a forward P/E of 9.7, which in my view, more than takes into account the group’s issues and leaves plenty of scope for upside if Saga performs better than expected in the years ahead. 

Going against the market 

With shares in brewing and pub company Marston’s (LSE: MARS) down by 35% over the past two years, it seems that investors are terrified about the firm’s prospects. However, the fundamentals of this pub operator remain strong, and I believe the recent decline is an excellent buying opportunity for income seekers. 

For the 26 weeks to 31 March, Marston’s underlying revenue increased by 20% to £528.1m, with pre-tax profit rising by 8% to £36.3m, underpinning the firm’s dividend payout of 7.6p per share (a yield of 7.8%), which is covered almost twice by profit.

And as well as Marston’s growth and market-beating dividend yield, shares in the pub operator trade on a P/E ratio of just 6.8. While the company is expected to report a decline of 8% in earnings per share for this year, growth is expected to return in 2019 (the City has pencilled in earnings growth of 5%), which does not seem to justify the stock’s current depressed valuation. 

Market disruptor 

Hastings Group (LSE: HSTG) is rapidly becoming a force to be reckoned with in the car insurance industry. Thanks to its customer-focused, low-cost offering, the number of in-force policies at the group climbed 10% in the 12 months to March, helping gross written premiums surge 16% to £942.2m. Its share of the motor insurance market increased to 7.4%, up 70 basis points from a year earlier. 

Healthy sales growth has allowed Hastings to grow dividends to investors at a staggering rate in the past three years. Indeed, since 2015 the distribution has jumped 473%. 

And as the group continues to grab market share, City analysts believe this trend will continue. With earnings expected to leap 21% for 2018, analysts are forecasting dividend growth of 10.1% for the year to 13.9p per share, and a further payout expansion in 2019 of 26% to 17.5p per share, meaning yields stand at 5.4% and 6.8% respectively for 2018 and 2019.

Since its IPO in 2015, Hastings has proven to investors that it can not only succeed but thrive in the insurance market, and I believe, based on this record, the shares deserve a much higher valuation of 10.6 (P/E) than they currently command. 

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Rupert Hargreaves owns no share 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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