With that in mind, here’s a FTSE 100 utility share which, while unpopular, could perform well over the long run. It seems to offer a mix of income and value investing potential.

Defensive appeal

United Utilities (LSE: UU) has recorded a share price fall of almost 20% in the last year. There are concerns among investors regarding the regulatory risk that the water company faces. It’s set to reduce average bills by 10.5% in real terms between 2020 and 2025. While this is positive news for the company’s customers, it could put the financial prospects of the business under a degree of pressure. This has called the affordability of its dividend into question.

With United Utilities now yielding around 5.7%, it appears as though investors may have factored in potential slow dividend growth over the long run. Its current income return is high by its own historical standards, and indicates that it could offer a margin of safety. Further evidence of this can be seen in the stock’s valuation. It currently has a forward price-to-earnings (P/E) ratio of under 14, which indicates that its shares offer good value for money.

Of course, the company could have defensive appeal over the medium term. The current FTSE 100 bull market will not last in perpetuity, and defensive shares with lower correlation to the wider economy could gain in popularity. United Utilities could therefore become an increasingly appealing income share to own over the coming years.

Improving outlook

Also offering income potential within the utility industry is Fulcrum Utility Services (LSE: FCRM). The independent multi-utility infrastructure and services provider released a trading update on Wednesday which highlighted its strong performance in the six months to 30 September. It has seen an increase in its order book of 5%, which now stands at £44.1m.

Two significant contracts were built out during the period. The first is a large gas pipeline to a food manufacturing plant, while the second is a large high voltage electricity infrastructure project for a battery storage site.

The company continues to grow its utility asset estate and the associated annuity revenue streams. The integration of Dunamis is also progressing well, with increasing numbers of collaborative gas and electricity opportunities being generated.

Looking ahead, Fulcrum is expected to post earnings growth of 8% in the current year. This has the potential to boost its dividend payments, with it currently having a dividend yield of 3.7%. Since dividends are covered 1.9 times by profit, they seem to offer scope to rise at a brisk pace. As such, the stock could be a worthwhile income investment for the long term.

The post A cheap FTSE 100 dividend share that I’d buy and hold for 10 years appeared first on The Motley Fool UK.

With that in mind, here are two high-yield stocks which could be worth buying right now, helping to keep income returns above inflation.

Improving outlook

Reporting on Wednesday was multi-utility infrastructure and services provider Fulcrum Utility Services (LSE: FCRM). Its trading update for the financial year to 31 March showed that it’s executing its strategy. It’s also on track to perform in line with expectations, while acquisition activity remains high.

For example in February, the company acquired The Dunamis Group, an electrical infrastructure company. The integration is progressing well, with significant cross-selling opportunities on offer.

The company also announced the acquisition of CDS Pipe Services alongside its trading update. It provides a range of specialised engineering services and will be acquired for £1.4m. The deal will be satisfied through a mix of new shares in the company and cash, with the potential to act as a positive catalyst on its financial performance.

In terms of outlook, Fulcrum is forecast to post a rise in its bottom line of 5% in the next financial year. However, dividends are due to rise by around 25%, which puts the stock on a forward yield of around 4.2%. And since dividend payouts are covered 1.7 times by profit, there appears to be scope for them to rise further.

Impressive outlook

Also offering a high dividend yield at present is water services company Pennon (LSE: PNN). The company’s share price has declined by 32% in the last year as investors become increasingly cautious about the prospects for a wider utility industry. Regulatory change within the sector could lead to a squeeze on profitability, which is causing the market to include a wider margin of safety when valuing stocks.

This means that Pennon now has a dividend yield of around 7%. This is historically high for the company and is backed-up by a forecast earnings growth rate of between 10% and 12% over the next two financial years. This should allow dividends to increase by around 7% per annum during the same time period. As such, beating inflation could be relatively straightforward for investors in the company.

Furthermore, the stock has a current price-to-earnings (P/E) ratio of just 11.5. This suggests that it could be undervalued and has the potential to deliver capital growth as well as a high income return. While volatile and uncertain in the near term, the stock could prove to be a strong performer in the long run.

The post 2 high-yield stocks I’d buy right now appeared first on The Motley Fool UK.

Today I’m going to highlight two small dividend stocks I believe could be profitable long-term buys.

A long-term cash machine?

Fulcrum Utility Services (LSE: FCRM) has two main sources of revenue. Much of the group’s income comes from building gas and electricity infrastructure for property developments, such as factories and housing estates.

However, the group is also licenced to own and operate gas and electricity distribution networks, such as those it builds and others it acquires. This business attracts me, as I believe it should provide long-term recurring revenue, in addition to the cyclical income from new-build projects.

Today’s half-year results suggest that both businesses are performing well. Revenue rose by 8.3% to £19.6m during the six months to 30 September, while pre-tax profit climbed 19.4% to £3.7m.

Fulcrum ended the period with an order book worth £33.7m, up by 11% from the end of March. Shareholders will be rewarded with an interim dividend of 0.7p per share, a 17% increase on last year’s payment.

How cheap is the stock?

Fulcrum shares have performed strongly this year and are no longer in bargain territory. But, I think the shares may still be attractive. The company hopes to expand its utility asset ownership, and is expanding its services in the area of electric vehicle charging infrastructure.

Consensus forecasts put the group on a forecast P/E of 16 for this year, with a prospective yield of 3.1%. This valuation is supported by net cash of £14.5m, which now accounts for around 12% of the share price. In my view, the stock remains worth buying.

A sustainable 9% yield?

A dividend of 9% is usually seen as a warning of problems to come. But once in a while, the market throws up a genuine opportunity to lock in a massive income.

I believe Connect Group (LSE: CNCT) could be one such stock. This group’s main business is the distribution of newspapers and magazines to retailers. It also has a parcel business, Tuffnells, and a specialist book-selling unit. Concerns about the group’s future focus on falling sales of newspapers. The company is hoping to adapt to this situation by finding other opportunities for early morning deliveries.

Last year’s results showed resilient trading. Although revenue and profits fell by around 3%, Swindon-based Connect generated earnings and free cash flow of around 11p per share, providing cover for its dividend payout of 9.8p per share.

That’s equivalent to a yield of 9%, at the last-seen share price of 109p.

Crucially, last year’s sale of Connect’s education division enabled management to reduce net debt from £141.7m to £82.1m. I see that as a fairly comfortable level of borrowing relative to the group’s profits, which are running at around £35m-£40m per year.

I’m considering a buy

The outlook for this year is fairly similar. Adjusted earnings of 16p per share put the stock on a forecast P/E of just 6.7, while a forecast dividend of 10p per share should give a yield of 9.3%.

I believe this valuation is probably too cheap, given the apparent stability of the group’s trading.

The post 2 small-cap dividend stocks I’d buy and hold for the next decade appeared first on The Motley Fool UK.

Margin of safety

Having released a somewhat disappointing trading update in March, shares in project management specialist WYG (LSE: WYG) have underperformed in recent weeks. In fact, they are down by 30% in the last three months, which is indicative of declining investor sentiment.

This is unsurprising, since WYG reported a combination of programme deferrals on existing contracts and some delays in the confirmation of new contracts in its fourth quarter. This meant that operating profit was lower than anticipated, although it was still up 25% on the previous year.

Looking ahead, the company has a strong order book of secured contracts. This has the potential to improve its bottom line. Its international operations continue to perform ahead of expectations in both revenue and profitability, which indicates that its long-term potential remains high.

Following its recent share price fall, WYG now trades on a price-to-earnings (P/E) ratio of just 8.3. This indicates that it may have significantly greater upside potential than downside risks at the present time. That’s especially the case since it is expected to report a rise in earnings of 20% in the current year, which puts it on a price-to-earnings growth (PEG) ratio of only 0.4.

Growth potential

Also offering a high forecast growth rate is multi-utility infrastructure and services provider Fulcrum Utility Services (LSE: FCRM). It is expected to record a rise in earnings of 8% in the current year, followed by further growth of 10% next year. With its shares trading on a PEG ratio of only 1.3, it seems to offer growth potential at a reasonable price.

According to the company’s most recent trading update, it is performing as expected. Its order book increased by 33% in the most recent financial year. This indicates that its earnings growth potential beyond the next two financial years could be relatively impressive.

Fulcrum Utility Services’ share price could also gain a boost from its income potential. It currently yields 3.5% from a dividend which is covered around twice by profit. This suggests that its shareholder payouts could increase at a faster pace than inflation. It has a sound track record in this space, since dividends have more than doubled in the last two years on a per share basis.

At a time when higher inflation is becoming a reality, Fulcrum Utility Services could become increasingly popular among investors due to its low valuation, growth prospects and income potential. As such, now could be the right time to buy it.

The post 2 small-cap growth stocks with bargain-basement valuations appeared first on The Motley Fool UK.