Cash cow still delivering

Shares in SSE (LSE: SSE) dipped quite sharply in the wake of the Brexit result, though they’ve pulled back most of the loss to reach 1,505p as I write. The drop seemed bizarre, as SSE only does a tiny fraction of its business in Ireland and mainland Europe — about 3% of turnover in the last full year. The firm promptly issued a statement saying the exit “presents no immediate risk” to its operations, though it did raise the risk of uncertainty over the regulatory framework within which it works.

SSE looks a safe Brexit bet to me, and at the shares’ post-vote low point you could have tied in a forecast dividend yield of 6.6%! As it stands, there’s still a 6% yield on the cards, with 6.1% pencilled in for 2017, as EPS looks set to remain pretty much level.

SSE’s current share price is only around 13 times forecast earnings for this year, and for a company with such high and transparent dividend payouts, that looks cheap to me.

Cheap housing

The crash in housebuilders looks overdone, in my opinion, and at 395p apiece I see Barratt Developments (LSE: BDEV) shares as too cheap. They have bounced back a little since the vote, but we’re still look at a 32% fall since close of play on referendum day. That’s dropped the shares to a price-to-earnings multiple of just 7.2, which is only around half the long-term FTSE 100 average.

What’s more, Barratt’s forecast dividend yield now stands at 7.3%, rising as high as 8.8% on 2017 forecasts. Sure, the UK’s GDP growth is likely to at least slow, and we could even fall back into recession. And yes, house prices could well fall back a little, as demand seems likely to cool. But falling land prices also provide an opportunity for housebuilders to top up their land banks at a lower cost.

I really do see the kind of emotional over-reaction that we usually get in times of crisis here, and Barratt Developments is looking like a good contrarian opportunity to me right now.

Battered insurance

The insurance sector has also received a pummelling, but why should an insurer that does its business 100% in the UK be damaged by the vote result? That’s what’s happened to Direct Line Insurance Group (LSE: DLG), whose shares have shed 8.3% since the big event to reach 343p.

Are we, as a nation, suddenly going to stop insuring our cars, our homes, and all the other things we hold dear simply because we’re not going to be in the European Union for much longer? Of course not. No, the cash is still going to keep pouring into Direct Line’s coffers for it to hand out to its shareholders in the form of dividends, and the forecast yield for this year now stands at 7.3%!

That’s from shares on a forward P/E of only 12, which looks like a screaming buy to me.

The post Are dividends from SSE plc (6%), Barratt Developments plc (7.3%) and Direct Line Insurance Group plc (7.3%) now simply unmissable? appeared first on The Motley Fool UK.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

A strong recovery

Shares in Fresnillo (LSE: FRES), the world’s biggest producer of silver and Mexico’s second largest gold producer, have put on a storming 76% since the end of September, to 1,026p today. That comes after a four-year decline in earnings is set to come to an end with a strong recovery forecast this year — and growth forecasts put the shares on attractive-looking PEG ratios of 0.2 and 0.5 for this year and next.

Fresnillo’s production has been rising along with the soaring price of the shiny stuff, and that should further boost this year’s profits. But the shares are now on a forward P/E of 52 for this year, dropping only as far as 31 based on 2017 forecasts — with a 2017 dividend yield of only around 1.5% on the cards. A valuation like that is based on an assumption that precious metals prices will continue on up, and it seems like a very risky one.

Soaring gold shares

The price of gold has been pushing Randgold Resources (LSE: RRS) shares through the roof too, with a 62% gain since September to 5,660p. And with three years of falling earnings set to reverse with a forecast 39% rise this year, Randgold shares aren’t quite as highly rated as Fresnillo’s — they’re on P/E multiples of a relatively modest 30 and 26 for this year and next, though expected dividend yields are even lower at less than 1%.

With Randgold being very conservative in the exploration projects it undertakes, and with a total production cost of a little under $800 per ounce, any further gold price rises should be geared up nicely to Randgold’s bottom line.

If you really must invest in a gold miner, Randgold could be the one to go for — but you’d be gambling purely on sentiment towards gold prices, with no real rational valuation of the stuff possible. And any drop in the price would result in a bigger fall in Randgold’s earnings.

Safety in insurance

I think we’re on more solid ground with insurer Admiral Group (LSE: ADM) and its 60% share price rise in 18 months, to 1,919p, as that gain has been on the back of a sound fundamental performance rather than on the fancies of gold watchers.

With a policy of returning cash to shareholders, Admiral is expected to provide a total dividend yield of 6.1% this year, rising to 6.5% next, so you’d actually have enjoyed a better return than just the share price appreciation. But the company will be pushed to maintain dividend levels like these unless its business can keep on growing. Fortunately, Admiral has been doing well from the motor insurance business in the UK with premiums rising, and there’s further overseas expansion on the cards over the next few years.

All in all, Admiral is easily my pick of these three for the one most likely to sustain its share price growth with the least risk.

The post Can Fresnillo plc, Randgold Resources limited and Admiral Group plc keep on flying? appeared first on The Motley Fool UK.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Look for the best dividend yields, I say, because as well as finding companies that have the cash to provide their shareholders with income, it can also highlight those whose shares are unfairly depressed.

Solid liquidity

I reckon Lloyds Banking Group (LSE: LLOY) offers one of the best, with a 6.8% yield forecast for the current year. I do feel a little caution over the rate of recovery of Lloyds’ dividend after the bank was first allowed to start handing out cash in 2014, and I wonder if a slightly more conservative approach might have been better for the long term.

But the speed at which the bank has hiked its dividends does suggest it is confident in the strength of its balance sheet, and its liquidity ratios all look solid. The dividend would be covered 1.7 times by forecast earnings this year, and the mooted rise to 7.9% next year would see 1.5 times cover — and I really wouldn’t like to see cover drop any lower than that.

The high yield is partly down to Lloyds shares having fallen 25% over the past year, to 66p, and that gives us a forward P/E of only 8.5 based on 2017 forecasts — which I think makes Lloyds’ dividend a very cheap one.

Oily cash

The big question hanging over the dividends at Royal Dutch Shell (LSE: RDSB) is whether they will be maintained, especially as this year’s forecast 7.3% yield would be nowhere near covered by earnings.

But with EPS set to bounce back in 2017, the 7.2% yield currently predicted for that year would be just about covered. And with rival BP insisting it will keep its annual payments going, I doubt Shell will want to break ranks. In fact, Shell has already announced a first-quarter dividend of 4.55p per share, and if we see the second payment maintained in July’s interim results I think that will raise confidence for the full year.

And the further oil prices recover, the more confidence we’ll surely have — Brent Crude is already at $48 per barrel, and how long will it be before it breaches the $50 level? I’m hoping Shell’s yield will drop, but only when Shell shares recover from their current price of 1,759p.

Insurance winner

If you harbour any doubts about the insurance sector’s ability to generate cash, take a look at Direct Line Group (LSE: DLG). Last year’s dividends were boosted by a special payment of 27.5p per share from the sale of the firm’s International division, but even without that we saw a total yield of 5.5% on the company’s year-end share price.

Direct Line has a policy of growing its regular dividends ahead of inflation, and also of paying back surplus cash in the firm of special dividends. This year we have a total yield of 5.9% forecast, on the current share price of 375p, and the City is expecting that to rise slightly to 6% in 2017 — and it looks to me like the cash should be able to support decent special dividends into the future quite nicely.

Direct Line shares appear to have had a pretty erratic 12 months, having lost 3.5% so far in 2016. But that’s been in line with ex-dividend dates, and so the reality is smoother than it looks. Right now, we’re looking at a forward P/E of around 13, which is relatively high in the insurance business — but for Direct Line’s levels of dividends, I’d call it good value.

The post 3 great dividends: Lloyds Banking Group plc (6.8%), Royal Dutch Shell plc (7.3%) & Direct Line Insurance Group plc (5.9%) appeared first on The Motley Fool UK.

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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended BP and Royal Dutch Shell. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

After Lloyds Banking Group pleased investors with its much-expected dividend, plus an extra unexpected special payment, will Barclays (LSE: BARC) do anything to perk up its shareholders? Barclays shares have actually ticked up a little in the past few days, presumably in anticipation, and in line with improving banking sentiment — but we’re still looking at a 40% fall since the end of July 2015, to today’s 171p.

Current expectations suggest a 22% rise in EPS for the year just ended December 2015, with forecast rises of 10-14% penciled in for the next two years. That puts the shares on a P/E of 8.2 for 2015, dropping as low as 6.3 by 2017. And, remarkably for a FTSE 100 bank, Barclays shares are on PEG ratios of between 0.4 and 0.7 — and values that low are usually seen at smaller-cap high-growth companies.

With dividends set to yield 3.8% and growing, I’ve considered Barclays as cheap for quite some time, and I’m expecting upbeat results.

Cheap insurance

Shares in Direct Line Insurance Group (LSE: DLG) have had a better time recently with an 8% gain in 12 months to 388p, but it’s been erratic. And though there’s a 20% EPS rise predicted, a P/E of close to 13 suggests there’s already a fair bit of that built in to the share price.

After the sale of its international division, Direct Line made a special cash payment to shareholders of 27.5p per share, and analysts are guessing at a total of around 41.5p for the whole year, which would yield 10.7%. The problem going forward is that the cost of winter storm damage, estimated at between £110m and £140m, will hit the bottom line, and the mooted 19p (4.9%) dividend for 2016 would only be around 1.5 times covered by forecast earnings — and that could be stretching it a bit fine.

I think Direct Line is still a solid investment, but I see better insurance bargains out there.

Soaring houses

Housebuilding has been a massive post-recession success, with Taylor Wimpey (LSE: TW) one of the bigger winners with a 355% share price rise over the past five years, to 188p. But even after such a climb, expectations for the year just ended put the shares on a relatively modest P/E of 12.5 — with forecasts dropping it to 11 this year and 10 next. On top of that, forecast dividends stand at 5.2% and they’re rising strongly.

Is that optimism well placed? Well, the firm’s year-end trading update suggests it is, with chief executive Pete Redfern speaking of “building more homes than at any point in the last six years and delivering a record operating profit margin of over 20%“. Completions rose 7% to 13,341 homes, with a 9% average selling price rise to £254,000.

With a record year-end order book up 27% on the previous year, I see plenty still to come from Taylor Wimpey.

The post What Should We Expect From Barclays PLC, Direct Line Insurance Group PLC And Taylor Wimpey plc Results Tomorrow? appeared first on The Motley Fool UK.

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Alan Oscroft owns shares in Lloyds Banking Group. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.