Those looking to build big income flows at low cost should pay newspaper publisher Reach (LSE: RCH) close attention. This a share that carries a bulky 4% forward dividend yield and a rock-bottom forward P/E ratio of 4.5 times.
Reach isn’t quite out of the woods just yet. The stresses across its print division that create its low valuation remain significant. It’s why the small-cap saw like-for-like revenues across its physical titles drop 7.3% during the five months to November.
However, the rate of decline is steadily improving. Meanwhile the reasoning for its increased focus on digitalisation is becoming much more apparent. Digital revenues boomed 14% in the period to November versus the healthy 9.3% rise of a year earlier.
Marketing budgets are on the march
I’m excited to see what additional progress Reach’s print and digital titles have made more recently. Full-year financials are slated for Monday (February 24), and I reckon more share price gains could be built following these results.
Reach has already soared almost 200% in value over the past 12 months. That low rating, though, leaves plenty of space for more meaty share price gains.
Recent better news on the state of the British advertising sector has raised my hopes of a strong set of numbers from Reach. According to the latest IPA Bellwether report, a net balance of +4% of companies raised their total marketing budgets in the fourth quarter of 2019.
And the broader outlook for 2020 looks quite promising too. The study, published by IHS Markit and the Institute of Practitioners in Advertising, showed that a net balance of +15.7% of firms expect their total marketing spend targets to be increased, up markedly from the net balance of +3.4% reported a year earlier.
The right medicine for dividend growth
I’m also expecting positive news when Dechra Pharmaceuticals (LSE: DPH) releases interim results on Monday.
The business, which provides medicines for companion animals and livestock, doesn’t offer the same sort of dividends as Reach. Indeed, the forward yield sits at just 1.2%. That said, the rate at which it is raising annual payouts still makes it a great pick for income chasers. The full-year dividend for the last fiscal year (to June 2019) was hiked 24%, for example.
Dechra certainly reminded the market of its exceptional growth prospects when it updated in January. Then it said that even though supply-side issues hammered performance in North America, the strength of its European operations (where net revenues jumped 13%) allowed group net sales to rise a chubby 7%.
Investor appetite for the FTSE 250 firm could also be boosted if Dechra advises that the “significant progress” it has previously made in solving those supply problems has continued.
Dechra is a company that doesn’t come cheap. Right now it trades on a forward P/E multiple of 30 times. I believe however that this is a fair reflection of the brilliant profits opportunities that the fast-growing animal care industry provides.
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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.