These two companies are both specialists in their own respective industries and have adopted a policy of returning as much as possible to investors, which is great news for income seekers.
On top of their attractive income credentials, both companies trade at discount valuations. Crest, for example, is currently dealing at a forward P/E of 7.8. Meanwhile, shares in Sabre are changing hands at a forward P/E of 13.8. This might look expensive at first glance, but considering the fact the company reported an operating profit margin of just under 32% last year, I think the company is undervalued.
Indeed, Sabre’s insurance peer Admiral, which last year reported an operating profit margin around the same level, is currently changing hands at a forward P/E of approximately 16.
As mentioned above, both Crest and Sabre operate relatively unique businesses in their own industries.
While most of the listed homebuilders are concentrating on supplying the affordable end of the housing market, where property prices range between £150,000 to £300,000, Crest’s focus is on the middle section of the market. The group sold just over 3,020 homes last year at an average selling price of £393,000. Of these, 637 homes qualify as affordable, which drags down the average slightly.
Sabre is also targeting a premium market. In the highly competitive UK motor insurance market, its business is “biased toward the specialist, higher premium segments,” which has translated into strong growth for the company over the past five years.
The fact that both Crest and Sabre target premium segments of their respective markets is, in my opinion, great news for income investors. Premium segments of any market tend to be less susceptible to recessions and economic downturn, implying these companies should continue to generate steady profits even in the most uncertain times. That’s great news for income-seeking investors.
At the same time, both companies are reporting above-average profit margins. As I noted earlier, Sabre’s profit margins are some of the highest in the UK insurance market. Crest’s five-year average operating profit margin is approximately 19.5%, according to my calculations, which is nearly double the current homebuilding industry average of 9.2%.
Best income stocks
Both companies’ market-leading profit margins should mean that their market-beating dividend yields are here to stay for the foreseeable future. At the time of writing, shares in Crest support a dividend yield of 8.3% and shares in Sabre yield 6.9%. Additionally, both companies have a positive net cash balance, giving them headroom to sustain the payout, or even increase it if the going gets tough.
So overall, these two companies have market-beating dividend yields, attractive valuations, and sector-leading profit margins. Combined, all of these factors tell me they’re great high-yield stocks to include in your ISA. I don’t think they’ll let you down.
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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.