The Sirius Minerals share price? I’d buy this FTSE 250 dividend growth stock first

Why wait for Sirius Minerals (LSE: SXX) to come good? This FTSE 250 (INDEXFTSE: MCX) could be about to deliver a pleasant surprise, says Roland Head.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Are you tempted by the Sirius Minerals share price? The FTSE 250 company’s North Yorkshire potash mine has the potential to be a cash cow operating on a global scale. It could make investors rich… eventually.

However, there’s a long road ahead, and I can still see a number of risks for shareholders. I think it will be at least five years before the mine turns a profit. Until then, the SXX share price is likely to remain volatile.

In my opinion, there are better opportunities for investors elsewhere in today’s market. Here, I’m going to look at two stocks I think are of more immediate interest.

Ahead of expectations

I’m staying with the mining theme for my first pick. For investors who’ve bought at the right times, Egypt-based Centamin (LSE: CEY) has delivered attractive returns. I think we may be seeing another such buying opportunity.

During the first quarter of the year, the company reported a better-than-expected set of mining results. Gold production at the Sukari mine was 116,183 ounces during the period, ahead of forecasts for 105,000oz-115,000oz. Costs were at the lower end of the firm’s previous guidance and the grade — or gold content — of the ore extracted from the firm’s underground mine improved.

A turning point?

Back in February, I flagged up risks at Centamin, pointing out costs had risen and gold production had fallen for a number of years. However, news flow since then has generally been positive and the price of gold has risen significantly.

Centamin should benefit directly from the higher price of gold, as the company doesn’t hedge any of its output. This is made possible by a solid financial position — at the end of March, the company had cash and liquid assets of $332m and no debt.

The shares don’t look cheap, on 19 times forecast earnings. But the dividend yield of 4.6% should be backed by surplus cash and the company is due to release guidance for 2020 and 2021 in the next few weeks. If positive, this could provide further support for the shares. I’d view Centamin as a speculative buy.

A great comeback story?

Superdry (LSE: SDRY) interim boss Julian Dunkerton is back in the hot seat at the fashion retailer he co-founded in 2003. I think the problems he faces can be explained with a simple comparison:

 

2015

2019

Sales

£486.6m

£872m

Underlying pre-tax profit

£63.2m

£41.9m

That’s right. The company’s sales have risen by 80% since 2015, but underlying profits have fallen by 34%. Profit margins have collapsed.

This suggests to me Superdry’s product ranges have lost their appeal, resulting in heavy discounting. Dunkerton certainly believes the management team who took over following his departure are largely to blame for the company’s problems.

One of the business’s previous hallmarks was that discounting was limited. Dunkerton plans to return to this with fresh design and a constant flow of new products, which he believes will support full-price sales and a premium brand message.

I could fill some space here with a discussion of the group’s finances. But to be honest, I don’t see much point. If Dunkerton can deliver his promise to return the company’s profit margins to 10%+ in three years, then I believe the shares are very cheap at the current price. If he fails, then further problems seem likely.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Superdry. 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.

More on Investing Articles

Shot of a young Black woman doing some paperwork in a modern office
Investing Articles

With an 8% dividend yield, I think this undervalued FTSE stock is a no-brainer buy

With an impressive yield and good track record of payments, Mark David Hartley is considering adding this promising FTSE share…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£9,500 in savings? Here’s how I’d try to turn that into £1,809 a month of passive income

Investing a relatively small amount into high-yielding stocks and reinvesting the dividends paid can generate significant passive income over time.

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

Dividend star Legal & General’s share price is still marked down, so should I buy more?

Legal & General’s share price looks very undervalued against its peers. But it pays an 8%+ dividend yield, and has…

Read more »

Investing Articles

Dividend shares: 1 FTSE 100 stock to consider buying for chunky shareholder income

This company’s ‘clean’ dividend record looks attractive to me and I’d consider buying some of the shares to hold long…

Read more »

Investing Articles

3 of my top FTSE 250 stocks to consider buying before April

Buying undervalued UK shares can be a great way to generate long-term wealth. Here, Royston Wild reveals a handful on…

Read more »

Ice cube tray filled with ice cubes and three loose ice cubes against dark wood.
Investing Articles

Just released: our 3 top income-focused stocks to buy before April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Investing Articles

Is this the best chance to buy cheap FTSE 100 shares in a generation?

I want to buy shares when they're cheap, and sell... never, just keep taking the dividends. And the FTSE 100…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

Could NatWest shares be 2024’s number one buy for passive income?

For those of us looking to earn some long-term passive income, how does NatWest's 7% dividend yield sound? It sounds…

Read more »