Tullett Prebon generates 60% of its earnings in US dollars, so the pound’s 15%-plus drop versus the greenback since the EU referendum has been a major positive for the company. However, even when the impact of the falling pound is excluded, the firm was able to increase its top line by 4% in the quarter, while its revenue in the first nine months of the year was 7% higher than in the same period of the previous year.

Tullett Prebon has also benefitted from the above average volatility that has been a key feature of financial markets in recent months. Its acquisitions have also positively impact on its revenue, with its Energy and Commodities division recording a rise in revenue of 10% at constant exchange rates. And with the company making progress towards its acquisition of the hybrid voice broking and information part of ICAP, its medium-term outlook is upbeat.

In fact, Tullett Prebon is expected to deliver a rise in earnings of 1% in the current year, followed by further growth of 12% next year. This shows that the company is moving in the right direction after five years of falling earnings. Its share price doesn’t yet appear to factor-in the improved outlook for the company, since it trades on a price-to-earnings growth (PEG) ratio of 0.8. This indicates that it has a wide margin of safety as well as significant upside potential.

Good track record

However, Tullett Prebon isn’t the only appealing stock in the financial services sector. Wealth management company Henderson (LSE: HGG) trades on a price-to-earnings (P/E) ratio of 12, which is only slightly higher than Tullett Prebon’s P/E ratio of 11.7. However, Henderson has a more stable track record of earnings growth, with its bottom line having risen in four of the last five years. This shows that it may have a lower risk profile than Tullett Prebon and could be less volatile in future years.

Furthermore, Henderson has a higher yield than Tullett Prebon, with the former’s yield being 4.7% versus 4.4% for Tullett. Both companies have scope to raise dividends at a faster pace than profit in future, since Henderson’s dividends are covered 1.7 times by profit and Tullett Prebon’s shareholder payouts are covered 1.9 times by profit. Therefore, either would make a sound income investment over the medium to long term.

However, with Tullett Prebon likely to benefit from volatility in financial markets to a greater extent than Henderson, it seems to be the superior buy ahead of the US election and a potential US interest rate rise.

The post A weak pound makes this stock even more appealing appeared first on The Motley Fool UK.

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Peter Stephens 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.

AstraZeneca

The world is getting more populous, and also more wealthy. These certain demographic trends mean that there will be a bright future for Big Pharma.

Of the drugs companies, one of my picks is AstraZeneca (LSE: AZN). What appeals to me about this business is its unerring focus on scientific research as the means to long-term profitability.

Instead of messing about with the tax rules, like Pfizer is doing, or acquiring other companies, AZ’s route to riches is innovation. And it is working. Its portfolio of anti-cancer drugs is amongst the strongest in the medical industry. And the breadth of its past winners means that it will also do well as countries such as India, China and Malaysia expand their healthcare systems.

Astra’s recent successes have already driven the share price higher, but I think there is more to come from this company. A predicted 2015 P/E ratio of 15.93, with a juicy 4.12% dividend yield means this pharma business is fairly priced, and a decent income buy.

Direct Line Group

Another high-yield star I’d like to pick is Direct Line Group (LSE: DLG), an insurance company which has been rising steadily over the past year. This is one of the most dependable companies you can think of, generating prodigious amounts of cash year-in and year-out.

Despite recent price rises, this firm is still reasonably priced, with a forecast P/E ratio of 13.00 and a dividend yield of 3.42%. The sustained and growing profitability of this business is demonstrated by the earnings per share progression:

2012: 13.42p
2013: 22.58p
2014: 25.96p
2015: 29.05p
2016: 27.62p

This is another income share to tuck away in your portfolio.

Tullett Prebon

Tullett Prebon (LSE: TLPR) is a broker which is currently in talks to takeover the broking business of its competitor ICAP.

This is a strong and highly profitable business, which will stand to gain by consolidating the interdealer broking sector. It is also keenly priced, with a P/E ratio of 9.09 and an attractive dividend yield of 4.83%, which is well covered by its profits.

Increased regulation in banking and markets is driving this consolidation, and I think Tullett could well end up as a big fish in the pond of inter-dealing broking. So this company is another of my dividend picks.

The post 3 Dividend Winners For Your Portfolio: AstraZeneca plc, Direct Line Insurance Group plc & Tullett Prebon plc appeared first on The Motley Fool UK.

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

It is with this in mind that I turn my own thoughts on one or two areas which are of particular interest to me.

Inter-dealer brokers are a fantastic play on the changing winds of monetary policy…

Inter-dealer brokers like ICAP (LSE: IAP) and Tullett Prebon (LSE: TLPR) have long lamented the pains of ultra low interest rates, low market volatility and reduced trading activity at the banks. However, ever more hawkish noises emerging from the Federal Reserve and the Bank of England are a sign that the outlook is beginning to brighten for these companies.

Given that their revenues and earnings (commissions) are largely dependent upon transaction volumes within financial markets, as opposed to the overall direction of the underlying asset prices, rising interest rates are great news for inter-dealer brokers.

Some shrewd investors saw this opportunity a long time ago and bought both companies heavily, prompting notable gains in the shares over the last 12-18 months. However, with transaction volumes still some 30% below their pre financial crisis peaks, the current recovery could still have legs to go further in the coming quarters.

In addition to their advantageous position when it comes to rates, both companies are much more attractive from a risk perspective, relative to the banks and asset managers. Most notably because they lack the heavy balance sheets, mortgage credit risks and the exposure to the overall direction of markets that many of these comparative companies have.

Furthermore, on a price-to-earnings basis, valuations are also reasonable — with Icap trading on 16.1x and Tullett at 15.5x 2014 earnings. This compares favourably with the riskier banks, insurance companies and asset managers, whose current multiples range from 15x to 19x 2014 EPS.

As a result, Tullett and ICAP are two companies that I will be keeping a very close eye on over the coming quarters.

Did I mention insurance companies already, non-life insurance companies?

I wrote at length about this recently; however, it is an idea that is well worth a quick recap as this industry is also one of the fortunate few that will benefit from higher rates over the medium term.

Given that Hiscox (LSE: HSX) and Beazley (LSE: BEZ) were among the non-life companies to derive a considerable portion of their earnings from their bond portfolios before the financial crisis, they should also be among those to benefit from a gradual push higher in rates.

Furthermore, on a price-to-earnings basis, both companies are also attractively valued with each trading at a discount to the wider non-life sector as well as the riskier banking sector.

Given that the non-life sector currently averages 17.8x and the banking sector 19.2x 2014 earnings, the 14.4x multiple at Hiscox and the 13.7x figure at Beazley are particularly attractive when considering the medium term outlook for earnings.

You can read more about my view on insurance here.

Barclays could also be worth a go, for those with the requisite stomach…

If, for whatever reason, the above industries are not of interest, then you might like to consider a company like Barclays (LSE: BARC), whose fixed income, currencies and commodities (FICC) business has been the bane of its existence of late.

With interest rate and FX volatility likely to return to markets over the coming quarters, the once-prized FICC business could soon begin to make a more meaningful contribution to earnings.

However, those that do venture here would do well to consider the potential for further skeletons to emerge from the closet, in addition to the group’s complex capital structure that sees most of its earnings eaten by bondholders.

The post 5 UK Stocks Set To Profit From The Fed Raising Rates: ICAP PLC, Tullet Prebon Plc, Barclays Plc, Hiscox Ltd & Beazley Plc appeared first on The Motley Fool UK.

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James Skinner owns shares in ICAP & Beazley. The Motley Fool UK has recommended Barclays and Beazley. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.