Around 90% of the business is owned by the 97-year-old chairman JG Murray and his family. A lot of investors are put off of investing in family-owned businesses, but I believe that a high level of ‘skin in the game’ nicely incentivises management to drive the company forward. In this particular instance, liquidity levels can be low and this should be considered by anyone mulling over an investment. 

Aside from massive insider ownership, there are a few points of note about the company: it has strong margins and cash flows but is not focused on driving growth.

Over the last five years, the share price has increased 220% taking it past fair value, in my opinion, given its patchy growth history. Revenue increased 16% in H1 and profit followed suit, increasing 6%, but results have historically moved within a range so I’d urge investors not to get over-excited about growth here. 

Basic earnings per share came in at 15p and 11.9p is being paid out as an interim dividend. The shares offer a 4% yield. The company is interesting, but I’m not sure the payout is enough considering the sluggish growth on show over the years and more stable FTSE100 candidates offering a similar payout with better coverage and prospects.

It is one to watch however, and I’d consider a purchase if it were to offer a 6% to 7% yield in the future. 

Suits me?

Moss Bros (LSE: MOSB) increased its interim dividend by 6.3% today. If we extrapolate that rise to the final dividend too, the shares offer a prospective 6.5% yield. That’s a pretty impressive payout and might be sufficient to tempt investors away from larger, more stable cash cows. 

The group’s revenue increased by 4.3% in the first half, with 2.8% like-for-like growth. These are solid figures, but it is important to note that the LFL figures include a number of shop refits that cost the company a significant amount of cash. Once the wave of refits is finished, I’d expect LFL figures to drop off a bit. Investors should take that into account when valuing the company. 

The company sells suits and accessories but also offers a for-hire service. Unsurprisingly, when one does well, the other tends to falter a bit. More recently, customers have been buying, so hiring revenues decreased 8.4%, which is a shame, given the latter’s impressive 70% gross margins. 

I’m not sure Moss has much of a competitive advantage to differentiate itself from a number of other formalwear retailers and competition online. That could explain low operating margins at 6.3%, despite the profitable for-hire segment. 

The yield is only thinly covered by earnings, although more soundly so by cash flows. The company is conservatively financed too, with a cash balance of £21.5m. I reckon Moss looks attractive at current prices, but I’m still not 100% sold on the company. It has significant fixed costs and I worry a downturn could see profits evaporate rather quickly, placing pressure on the dividend. 

The post These under-the-radar income stocks offer market-beating payouts appeared first on The Motley Fool UK.

Heating up or cooling down?

The first is air conditioner, pump and heater rental firm Andrew Sykes (LSE: ASY). The company operates in the UK, Europe and the UAE and mainly targets the commercial rental market. Shares of the firm currently trade at a relatively sedate 14 times trailing earnings and come with a 4.7% annual dividend yield.

Aside from a solid valuation and attractive dividend, I’m attracted to the company’s high margin, diversified business model. Renting out equipment, particularly in stable macroeconomic environments such as now, is highly profitable and generates prodigious cash flow. This is evident in the company’s 2016 results, which showed EBITDA margins were an impressive 31% and operations kicked off £15m of net cash on £65m in sales.

It was this cash flow that allowed the company to safely pay out £10m in dividends while still improving its net cash position to £17.6m at year-end. And with operations in a slew of large, wealthy countries the company’s downside is relatively protected against a downturn in any single market. Indeed, this was clear in 2016 as the group increased sales, profits and dividends even as a mild summer in the UK dented demand for air conditioning units.

With a reasonable valuation, bumper dividend, high margins and well-managed business model, Andrew Sykes is one small cap I’ll keep my eye on in the future.

A throwback business with forward-looking management

The second stock I’ve found that might meet value investors’ criteria is iron foundry Castings (LSE: CGS). While the business of metalworking may no longer be the growth industry it was a century ago, Castings is still a highly profitable business that trades at 13.9 times earnings and returns plenty of cash to shareholders.

Last year these shareholder returns amounted to a whopping 9.3% dividend yield when including a special 30p payout to shareholders. Although this payout is unlikely to be a regular occurrence, the company’s baseline 2.9% dividend yield is nothing to sneeze at.

As for the business itself, performance over the past few years has been uneven but with earnings largely unchanged from where they were in 2012. However, this isn’t too much of a worry as the group has no debt whatsoever and is setting the stage for future growth by investing in its high-tech machining capabilities. New foundries, 3D printers and automated manufacturing have allowed the company to better serve automotive customers and maintain margins in the face of low-cost competition from Asia.

These machining operations provide higher margins than the traditional foundry business and are set to grow nicely beginning next year as new contracts that are already signed begin paying off. If Castings can continue to maintain profits in the foundry business and grow the higher-margin machining business I reckon shares could be priced for perfection at their current valuation.

Add in a great dividend that is well-covered by earnings and Castings certainly looks to me like a solid income option as long as the automotive industry continues to hum along nicely.

The post 2 supercharged income stocks trading at bargain prices appeared first on The Motley Fool UK.