Regular readers will know that I’m not exactly Lloyds Banking Group’s biggest cheerleader right now.
I’m not bothered that the FTSE 100 bank last week beat profit forecasts for the third quarter. On an annual basis, pre-tax profits still fell 7% to £1.8bn for the July-September period. And, as the Brexit saga drags the UK economy lower, I’m expecting this downward profits trend to continue.
I’m also not attracted by Lloyds’ near-6% dividend yields for this year. In my opinion, the following dividend heroes instead are in much better shape to deliver stellar long-term earnings growth, stocks whose yields also sail past that of the bank.
The 7%+ yielder
Ibstock’s facing up to some profits pain in the immediate future, thanks to production troubles at its brick-making facilities, problems that City analysts believe will translate into an 11% earnings drop in 2018.
While disappointing, my positive take on the business remains robust, thanks to heaving shortages of bricks in the UK. This imbalance will take an age to remedy and thus I remain confident that Ibstock’s bottom line will surge in the years ahead.
In the meantime, the FTSE 250 firm’s balance sheet is thought to be solid enough to support a 15.3p per share dividend for this year, creating a mammoth 7.1% yield. This, combined with its forward P/E ratio of 11.1 times, makes it a great buy right now.
The 8%+ yielder
I’d also happily buy Stobart Group, despite some near-term troubles here too, as well as its high prospective P/E multiple of 40.4 times.
The FTSE 250 business fell to its cheapest level for 19 months last week on news that losses widened to £18m for the March to August period, from £12m from a year earlier, due to troubles at its civil engineering business.
City analysts may be forecasting an 84% earnings slump in the year to February, but I’m convinced that the longer-term outlook remains strong. At its Energy division, volumes of biomass continue to surge, while rising passenger numbers at London Southend Airport — which jumped 37% in the first half to 838,742 travellers — bodes well for profits at its Aviation arm.
In the more immediate term, Stobart is thought to be robust enough to pay an 18.5p per share dividend for this year, resulting in a chubby 8.6% yield.
The 10% yielder
PayPoint takes the prize, though, for the business with the biggest forward dividend yield of the lot (well, in this article at least). City boffins are anticipating an 84.6p per share reward for the fiscal year ending March 2019, a figure that creates a show-stopping 10% yield.
The small-cap, whose technologies provide a range of retailer services, as well as the capacity for customers to make payments, is expected to record a 1% earnings fall this year. The profits picture is much rosier further down the line, however, as adoption of its retail gizmos takes off across Britain (it remains on course to have its groundbreaking PayPoint One terminals in 12,400 shops by the end of the current fiscal year).
At current prices, PayPoint carries a prospective P/E ratio of 13.4 times. This makes the business an absolute steal, in my opinion.
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Royston Wild owns shares in Ibstock. The Motley Fool UK owns shares of PayPoint. The Motley Fool UK has recommended Lloyds Banking Group. 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.