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Why I’d buy this 4.5% dividend yield and this palladium ETF in January

With risk appetite returning to financial markets, now could be a great time to go dividend shopping. And I would argue that buying shares in SThree (LSE: STHR) in particular could prove to be a brilliant idea.

It’s not just that the recruitment specialist trades on a bargain-basement forward P/E ratio of 10.5 times. Nor that it offers up a huge 4.5% corresponding dividend yield. It’s that its low rating, blended with the possible release of full-year financials on January 27, could help its share price to surge.

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It’d be foolish to claim that SThree is immune to the broader slowdown in the global economy, of course. But thanks to the company’s focus on the specialised STEM segments — that is Science, Technology, Engineering and Mathematics — it is still managing to keep growing net fees (up 5% in the 12 months to November 2019). And this is putting it in a strong position to keep offering larger and larger annual dividends.

The FTSE 250 firm claimed in mid-December that “in our key growth markets, the new financial year has started well with good demand, and this gives us confidence that we will continue to outperform materially in our international markets.”

Confirmation that trading remains sunny later this month would surely prompt a flurry of buying activity, helped by a recent weakening in the share price.

Showing some metal

Much has been made of gold’s ascent to seven-year highs in early 2020, but another safe-haven asset that’s also ripped higher of late is palladium. The platinum group metal (or PGM) has just struck record peaks around $2,120 per ounce, a far cry from the $420 it was trading at at the start of the last decade.

There are ways for share investors to get exposure to palladium, for example by buying stock in FTSE 100-listed Anglo American, which owns and operates PGM mines in South Africa and Zimbabwe. However, the fragile supply and demand outlook for some of the company’s other commodities (like coal, iron ore and diamonds) would discourage me from purchasing the share.

On the charge!

A much simpler way to ride the palladium price boom is by buying a financial instrument that’s backed by physical holdings of the metal like an exchange-traded fund (ETF). One such device is the Aberdeen Standard Physical Palladium Shares ETF, which rises and falls in value according to movements in spot palladium prices in London.

The asset surged 58% in value in 2019 as palladium prices rocketed, and as I type, is currently dealing at record tops around $202. And if recent broker commentary is to be believed, it looks as if the ETF should continue to surge — the boffins over at UBS, for instance, have said recently said that “significant upside risks” to their $2,000 forecasted average for palladium prices in 2020 are building.

And it’s easy to see why the number crunchers are so bullish as macroeconomic tension boosts flight-to-safety interest, signs of a US-Chinese trade deal boost hopes of growing industrial demand, and operational problems in South Africa continue to whack supply.

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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.