I reckon the recent market shake up has added the opportunities that are on offer. As a long-term investor who’s still adding to their portfolio, I’m excited – not worried – when I see good companies with falling share prices.

In this piece I’m going to look at two FTSE 250 stocks I’ve been buying recently for my own portfolio.

#1: this fintech stock looks too cheap to me

Payment processing specialist PayPoint (LSE: PAY) is a fixture in convenience stores and other small businesses across the UK. I see this business as a fintech, connecting many different payment and voucher systems.

Services provided by the company’s yellow terminals include card processing, top-ups and gift vouchers, government benefit payments, utility bill payments and banking transfers. The company also owns the Collect+ parcel collection and drop-off service.

One downside is that this is quite a complicated business, with lots of moving parts. It’s sometimes hard to follow exactly where the profits are coming from.

However, I’ve been following this business for years and I’m confident that its strong profitability and good cash generation are real. Growth prospects also seem positive, with broker forecasts suggesting earnings could rise by 10% for the year ending March 2026.

PayPoint shares currently trade on just nine times earnings, with a well-supported 6% dividend yield. That looks too cheap to me for a company with profit margins close to 20%.

I’ve been buying recently and would be happy to add more to my portfolio if funds allowed (sadly, they don’t).

#2: an automotive stock that’s safe from US tariffs?

President Trump’s tariffs are causing many car manufacturers sleepless nights at the moment. But my pick from this sector, Inchcape (LSE: INCH), is a little different.

This business operates as a distributor for car manufacturers in countries where they don’t have a large, direct presence. Effectively, Inchcape allows car makers to outsource all of their operations in some areas of the world.

The end result is that Inchcape operates extensively in Asia, Latin America and Europe. But as far as I can see, it doesn’t operate in the USA.

Although some of its clients are US or European car makers, many of them are Chinese firms that are expanding into new markets. They often have no sales in the US and don’t generally depend very heavily on US suppliers for the components they use either.

Of course, tariffs could still end up pushing up car prices globally and contributing to a broader slowdown in sales. Inchcape would likely be affected by this.

However, the company’s financial results from last year suggest to me that it’s in a strong financial position, with reduced debt and good cash generation.

What’s more, Inchcape shares currently trade on less than nine times 2025 forecast earnings, with a useful 4.8% dividend yield.

City analysts expect the company’s earnings growth to accelerate in 2026 – if they’re right, I think Inchcape could be too cheap not to consider at current levels.

The post 2 FTSE 250 dividend growth stocks I’ve been buying after recent falls appeared first on The Motley Fool UK.

Here are three great passive income stocks I think share pickers should consider today.

As you can see, their dividend yields for next year smash the Footsie’s 3.5% forward average to smithereens. I’m confident that these companies can pay a large and growing dividend for years to come too.

ITV

ITV’s had a tough few years due to evaporating advertising sales. But with marketing budgets improving, now could be the time to consider buying the broadcasting giant.

Taking a longer term view, there are other reasons why I like ITV shares. The company’s bet big on the fast-growing streaming sector, and it’s paying off handsomely. Third-quarter financials showed streaming hours at its ITVX platform soar another 14%.

Remember though, that high competition from the likes of Netflix poses a threat to future growth.

I also like the huge investment ITV’s made to create a world-leading production arm. Organic revenues at ITV Studios are tipped to rise, on average, by an industry-topping 5% through to 2026.

For 2025, the predicted dividend is covered two times over by expected dividends. This is bang on the widely-regarded safety benchmark.

Inchcape

As a major car distributor, Inchcape’s profits are vulnerable during economic downturns. Sales of big-ticket items are usually the first thing to go when people feel the pinch.

Yet despite these threats, dividends over the next few years look secure, in my book. For 2025, the predicted dividend is covered 2.4 times by expected earnings, providing a wide margin for error.

With operations in 40 countries, the firm enjoys broad geographic distribution that helps reduce risk of profits and dividend turbulence.

Speaking of distribution, I like the Inchcape’s decision to sell its UK retail operations earlier this year and become a pure-play distributor.

Doubling down here — which the firm has described as “higher-margin, more capital‐light, higher return, more cash-generative, compared to retail-only businesses” — bodes well, in my opinion. Improved cash flows could certainly give dividend growth a big boost.

Care REIT

Care REIT — which was until last month known as Impact Healthcare REIT — also enjoys healthy dividend cover, at 2.1 times.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

This adds extra strength to an already-robust dividend stock. As an operator of care and residential homes, it operates in a defensive sector where rent collection’s broadly unaffected by broader economic conditions.

That’s not all. All of its contracts are 100% inflation linked, protecting profits from rising costs. And Care REIT has its tenants locked down on ultra-long contracts (the weighted average unexpired lease term is above 20 years).

Real estate investment trusts (REITs) like this must pay at least 90% of profits from their rental operations out in the form of dividends. While earnings are being dented by higher interest rates, I think it’s worth serious consideration from dividend investors.

The post Forget the FTSE 100! Here are 3 dividend shares to consider for a great passive income appeared first on The Motley Fool UK.

Is it a brilliant bargain to consider snapping up for my diversified stock portfolio? I think it might be.

A suppressed valuation?

The company is a “leading” automotive distributor for vehicles and parts. But a cyclical sector like this might have been unappealing to investors over the past few economically difficult years.

Nonetheless, Inchcape has been trading well for some time. But the stock has moved essentially sideways for half a decade, and the valuation remains undemanding.

With the share price near 786p (25 April), it’s recently sprung up from the lows of last autumn. Part of the move higher was caused by last Thursday’s trading statement.

It covers the three-month period to 31 March, and shows a positive start to the year with “major strategic progress”.

Revenue increased by 5% year on year and that arrived organically and via acquisitions. However, translational currency headwinds offset some of the progress.

Nevertheless, the company experienced momentum in the Asia-Pacific region with “broad-based” organic growth and support from acquisitions.

The directors said an unwinding of the order bank in Europe led to “outperformance”, and key markets in the Americas are stabilising.

Despite operating in a cyclical sector, there’s little sign of stress in the business right now. In fact, it seems to be firing on all cylinders, if you’ll pardon the pun.

Focusing on distribution

One big strategic move is an agreement to sell the UK retail operation for a gain of £346m.

Chief executive Duncan Tait said the deal will complete the firm’s strategic transformation into a pure distribution business, “which is capital light, highly cash generative, higher margin, and globally diversified”.

In other sectors, distributors often do well by serving their industries without becoming embroiled in the cut-and-thrust at the sharp end of dealing with final customers. So I see Inchcape’s new focus as encouraging.

However, the company plans to commence a £100m share buyback programme on completion of the sale. I’m less sure about that because of the £1bn-or-so net debt pile on the balance sheet. When times are good, I like cyclically vulnerable businesses to pay down their borrowings.

Nevertheless, looking ahead, Tait is “confident” about the medium-to-long-term outlook for the enterprise. Meanwhile, City analysts have pencilled in an advance of around 12% for 2025 earnings.

I’m optimistic about the general economic outlook for the coming years. So it may be a good time to consider buying stocks like this one now to hold in a diversified portfolio.  

The forward-looking dividend yield for 2025 is around 5%, as I write. That’s potentially a decent income for shareholders while waiting for further improvements in earnings in the years ahead.

The post With growth in earnings and a yield near 5%, is this FTSE 250 stock a brilliant bargain? appeared first on The Motley Fool UK.

I’m looking for those diamonds in the rough that are currently trading cheap despite evidence of a bright future ahead.

A good way to asses this is the price-to-book (P/B) ratio, which is the current share price divided by book value per share (BVPS). A ratio of one shows the company is trading at fair value, with anything below one indicating an undervalued share. Price-to-sales (P/S) and price-to-earnings (P/E) are two other ratios I can use to ensure shares aren’t overvalued.

Using these metrics, I’ve identified three companies that I think have exceptional growth potential: JD Sports (LSE:STAN), Prudential (LSE:PRU), and Inchcape (LSE:INCH).

JD Sports

With £10bn in sales and a market cap of only £6bn, JD Sports’ price-to-sales (P/S) ratio is 0.6 times. This indicates the company is outdoing market expectations. This is further confirmed by estimates that it’s trading at 60% below fair value. Earnings are forecast to grow 30% per year, with analysts on average expecting the share price to increase by 58% in the coming 12 months.

However, it does have a slightly high P/E ratio of 30, twice the industry average of 14. While the company balance sheet is very clean, 1.9% profit margins are lower than last year’s 3.6%. JD Sports pays a negligible dividend of 0.8%, with a 25% payout ratio.

Prudential 

Prudential is another company that is believed to be heavily undervalued. Analysts on average forecast a share price increase of 68.5% in the coming year, although estimates vary wildly. Prudential has a fairly solid balance sheet, with £5bn of debt well covered by £17bn in shareholder equity. 

However, despite a positive outlook for the share price, earnings are forecast to grow slower than the UK market. While Prudential has an acceptable P/E ratio of 8.2 times, its earnings have been declining at an average annual rate of -13.8%. I suspect this will turn around but its worth keeping an eye on.

Inchcape

With only a £2.8bn market cap, Inchcape is not quite an FTSE 100 constituent yet – but I think it’s well on its way to being one. The company is a global distributor of luxury automobiles, managing everything in a vehicle’s lifecycle from delivery to aftersales service.

At £6.85, the Inchcape share price is down 25% over the past year. This has led to estimates that it’s undervalued by 44.5%. Analysis of the share price is fairly consistent, with an average estimate of a 63.6% increase. Furthermore, earnings are forecast to grow 20% per year going forward.

Luxury brands run the risk of losses in the event of a recession, which is one risk I would associate with Inchcape. This is compounded by the fact that its debt is not well covered by cash flows, so economic uncertainty could spell trouble for the brand.

The post FTSE 100 shares: a once-a-lifetime opportunity to get rich? appeared first on The Motley Fool UK.

The international automotive distributor’s share price is near 665p, meaning it’s down around 28% since January 2023.

Despite the stock’s weak performance, the company’s earnings have been trending higher. And on 26 October 2023, the company reported robust third-quarter results.

Strong recent business performance

Chief executive Duncan Tait said performance was strong in all operational geographies.

Looking ahead, Tait thinks the highly cash-generative and capital-light characteristics of the business will help keep the positive momentum going in the coming years. And Inchcape’s strategy aims to continue consolidating a “highly fragmented” market through growth and acquisitions.

City analysts expect earnings to increase by about 21% in 2023. And they anticipate a further advance of around 10% in 2024. Meanwhile, the directors “remain confident” about the medium- to long-term outlook for the business.

Those figures and expectations look pretty strong, to me. So, it’s a bit of a surprise to see what seems like a low valuation.

The forward-looking earnings multiple for 2024 is just over seven. And the anticipated dividend yield is about 5.6%.

Those indicators make the company look too cheap. However, it’s worth considering the balance sheet. Net debt is near £1bn. And that compares to a market capitalisation of around £2.7bn.

I’d consider the company as being on a multiple closer to 10 than seven when factoring in the debt load.

Acquisitive businesses often carry some debt and that situation introduces risk for shareholders. It’s worth keeping an eye on borrowings to make sure they don’t start to get out of control.

But for now, the interest cover from earnings is running just above five. And that’s okay as long as profits and cash flows hold up in the future.

Cyclical sensitivity

However, the multi-year financial and trading record shows the business has cyclical vulnerabilities. Inchcape was one of those firms that suffered when the pandemic hit. And its earnings plunged, as we might expect.

The directors reduced the dividends back then, but they’ve come storming back since. Nevertheless, fears of general economic weakness ahead could be one of the factors weighing on the share price and the valuation now. And a worldwide downturn is indeed another risk that investors must face up to with Inchcape shares.

However, I see the positive third-quarter update as encouraging. And the valuation is attractive.

My data provider shows that all the City analysts commenting on the company have the stock marked as either a ‘buy’ or a ‘strong buy’. And, on balance, I agree and think Inchcape is worth investors’ further research time now.  Perhaps the shares could make a worthwhile addition to a long-term diversified portfolio.

The post This FTSE 250 stock looks too cheap  appeared first on The Motley Fool UK.

Here, a handful of our Foolish contractors identify one such listed company that they rate highly!

Ashmore Group 

What it does: Ashmore is a specialist emerging markets asset manager with over 30 years of experience in these markets. 

By G A Chester. Ashmore Group (LSE: ASHM) runs a range of emerging markets funds. These include equities, government and corporate bonds, and ‘alternatives’, such as infrastructure. 

I like asset managers generally, because they’re essentially geared plays on the markets they invest in. If the company and its funds are competently managed, shareholders should enjoy a double turbo-charge to profits from inflows into the funds and the rising value of the assets the funds own. 

This can work against the company’s shareholders in periods when markets fall and there tend to be fund outflows. As such, phases of volatility are one of the risks in owning shares in asset managers. Ashmore can be particularly impacted, simply because emerging markets are generally more volatile than others. 

Nevertheless, for investors with a high conviction in the long-term growth prospects of emerging economies, Ashmore represents a geared play, available at a currently unloved share price. 

G A Chester does not own shares in Ashmore. 

ICICI Bank

What it does: ICICI Bank is an Indian multinational that provides financial services for corporate and retail customers.

By Charlie Carman. The IMF expects India will be the fastest-growing major economy this year. ICICI Bank (NYSE:IBN) can benefit from this trend as the country’s second-largest private lender.

That said, the stock recently touched an all-time high. With a price-to-earnings ratio above 19, it isn’t cheap. There’s a risk the growth potential is already priced in. However, I think the shares could continue to rise if the bank keeps delivering excellent results.

In Q1 FY23-24, the Mumbai-based lender posted a 39.7% net profit increase to $1.18bn. This was accompanied by a 38% rise in net interest income. These figures beat analysts’ expectations. Encouragingly, loan growth in India remains in double digits despite rising interest rates.

In addition, Prime Minister Narendra Modi is implementing policies to liberalise the country’s financial services, building on a process initiated in the 1990s. I wouldn’t be surprised if ICICI Bank continues to rally while India’s economy booms.

Charlie Carman does not own shares in ICICI Bank. 

Inchcape

What it does: Inchcape is an automotive distributor that provides outsourced services to car manufacturers in smaller markets.

By Roland Head. Car distribution group Inchcape (LSE: INCH) is known for its UK dealerships, but these are only a small part of its business.

About 90% of profit comes from the group’s global distribution business. Inchcape’s largest market is Latin America, which generates half the group’s profits. The company also operates in Africa and Asia, as well as Europe.

I think this business should be a good way to profit from economic growth in emerging markets. I’d expect the group’s geographic reach to provide some protection from regional downturns, although I can’t be sure of this — cyclicality is a risk.

Another concern is that the company could lose key contracts or fail to adapt to changes such as electric-vehicle adoption.

Even so, I think Inchcape looks good value at the moment. Recent trading has been stable, and the stock is trading on just nine times forecast earnings, with a 4% dividend yield.

Roland Head owns shares in Inchcape.

MercadoLibre

What it does: MercadoLibre operates a digital payments business as well as the largest e-commerce marketplace in Latin America.      

By Ben McPoland. MercadoLibre (NASDAQ: MELI) is a leader in some exciting high-growth areas across a number of emerging Latin American markets. They include e-commerce, shipping logistics, digital payments, and consumer credit. These are all intricately tied together, creating a strong network effect.

Today, its biggest markets are Mexico, Brazil and Argentina — all countries where the digital economy is set to grow for decades.

In 2022, revenue at MercadoPago, its payments business, doubled year on year. Millions across the region now use this to pay, receive, borrow, lend and invest. Processing north of $100bn in annual payments, it has rapidly become the leading fintech platform of the whole continent.        

MercadoLibre generated net revenue of $10.5bn last year, with net profit exploding to $482m from $83m in 2021. That’s a 479% increase!

Of course, the firm’s growing presence in digital banking exposes it to credit defaults as the global economy weakens. So this is worth monitoring. 

Nevertheless, I increasingly see MercadoLibre as a company for the ages. Its executives think in decades, which aligns with my own long-term (Foolish!) investing philosophy.

Ben McPoland owns shares in MercadoLibre.  

The post “My top emerging markets stock is…” appeared first on The Motley Fool UK.

Apple

What it does: Apple designs and manufactures consumer hardware products. It also provides services and software.

By Stephen Wright. I didn’t do much in the stock market in January. But I did add to my investment in Apple (NASDAQ:AAPL) with the price below $150. 

It’s hard to see Apple shares as attractive value, but I think that a closer investigation reveals that there’s a lot going on. Let’s start with the dividend.

With a yield of 0.6%, the stock doesn’t catch the eye for an income investor. But Apple’s dividend per share has increased by an average of 8% per year over the last decade.

On top of that, I think there’s some more growing still to be done. Apple has been aggressively repurchasing its stock, which increases the value of the remaining shares.

Behind that, the company has terrific returns on its fixed assets (302%) and high cash conversion metrics (89%). That’s why I’ve been buying the stock in my portfolio.

Stephen Wright owns shares in Apple.

Burberry

What it does: Burberry operates in various markets that include fashion, beauty, and fragrances.

By John Choong. Following a strong start to the year, I’ve been buying Burberry (LSE:BRBY) shares. Despite just missing analysts’ estimates in its most recent trading update, the company still showed some positive trends. For one, customers are gravitating towards higher margin and expensive products. Meanwhile, sales excluding China grew by double digits in the three quarters reported thus far.

Additionally, outgoing COO Julie Brown is bullish on China’s prospects and cited a couple of key catalysts for a strong rebound. These include the country’s strong net household deposits and government stimulus that should encourage spending. Moreover, new Chief Creative Officer Daniel Lee is expected to push the British aesthetic in his new line of products, which is key to the company’s long-term growth.

Although Burberry shares are currently trading on slightly pricey valuation multiples, the upside potential is certainly there, especially when considering its push to expand its margins and grab more market share over the next few years.

John Choong owns shares in Burberry.

Calnex Solutions

What it does: Calnex is a technology company that specialises in testing and measurement services for telecoms networks.

By Edward Sheldon, CFA. Calnex Solutions (LSE: CLX) shares experienced a pullback recently and I took the opportunity to buy more for my portfolio.

There’s a lot to like about this under-the-radar British company from an investment perspective, to my mind.

For starters, there’s high demand for its services right now thanks to the rollout of 5G networks. This is illustrated by the fact that for the six months to the end of September, revenue was up 38% year on year to £12.7m. Looking ahead, the global 5G testing equipment market is forecast to grow by around 8% per year between now and 2027.

Secondly, it’s very profitable. Over the last three years, return on capital has averaged 26%.

Third, the company is founder led. Research shows that founder-led businesses tend to be good long-term investments.

It’s worth pointing out that this is a small-cap stock. So I expect it to be volatile.

However, after the recent pullback, I like the risk/reward proposition on offer.

Edward Sheldon owns shares in Calnex Solutions.

Fresnillo

What it does: Fresnillo owns and operates gold and silver mines throughout Mexico.

By Andrew Mackie. As market indices continue to rally, I am ignoring background noise and concentrating on underlying fundamentals. Silver is one market that has really caught my attention recently.

Since November, the silver price has rallied 15%. As the largest primary silver producer in the world, one would expect the Fresnillo (LSE:FRES) share price to react positively. However, since early January its share price is down 16%. I attribute the sell-off to a broker note from UBS, who downgraded the shares to ‘sell’.

Over the past couple of years, the company has failed to reach forward production targets, due to a host of different operational challenges.

In 2022, silver production was in line with guidance, at 53.7moz. Gold production fell 15% from 2021. However, for 2023, it has raised gold production guidance due to an updated mine plan at Herradura, and an increase in volumes at Noche Buena.

I realise that investing in precious metals miners is risky. However, I believe the sell-off here has been overdone. As the economic situation deteriorates, it is important for me to have a diversified portfolio.

Silver has a history of acting extremely explosively in stagflationary-type environments. And ultimately that is where I believe we’re heading, which is why I bought some shares in the sell-off.

Andrew Mackie owns shares in Fresnillo.

Inchcape

What it does: Inchcape is an automotive distributor that operates in over 40 countries, working with most of the world’s leading car brands.

By Roland Head. I bought Inchcape (LSE: INCH) shares for my portfolio in January, just before the company completed a £1.3bn deal to expand its presence in Latin America.

Inchcape’s third-quarter update showed a 16% rise in revenue across the group’s businesses. Management were confident enough to upgrade their profit guidance for the full year slightly, as well.

I was encouraged to learn that the company had “record order books across many of our markets”. Vehicle supply from manufacturers is also expected to gradually improve this year. That should allow Inchcape to convert its order books into revenue.

The main risk is that a global recession could still cause sales to slow unexpectedly in 2023. I don’t know how likely this is.

However, my feeling is that Inchcape looks reasonably valued, on 11 times 2023 forecast earnings. I’m also attracted by the stock’s expected 3.7% dividend yield, which looks well supported to me.

Roland Head owns shares in Inchcape.

Londonmetric Property

What it does: Londonmetric Property manages and leases over 17 million square feet of UK commercial real estate.

By Zaven Boyrazian. Londonmetric Property (LSE:LMP) is a real estate investment trust specialising in commercial facilities. The bulk of its assets are strategically positioned warehouses of varying sizes, from small last-mile delivery depots to massive distribution hubs connecting business supply chains.

The firm also has a collection of retail properties leased to a diverse customer base, including Aldi, Costco, and Howden Joinery.

The revenue stream comprises of rental income, the majority of which is returned to shareholders in a juicy 4.7% dividend yield. However, the stock itself hasn’t been a stellar performer in recent months due to the impact of rising interest rates on the real estate sector.

The firm has just under £1.2bn of debt on its books. And higher interest payments mean fewer residual earnings to fund dividends. And yet, high occupancy levels of 98.7% — along with continued portfolio expansion — are still pushing net rental income up by double-digits even with increased costs.

Zaven Boyrazian owns shares in Londonmetric Property and Howden Joinery Group.

Watches of Switzerland 

What it does: Watches of Switzerland Group is a UK-focused retailer of luxury watches via its network of 171 showrooms and online platform.

By James J. McCombie: I have been making regular investments in Watches of Switzerland (LSE:WOSG) stock to add growth exposure to my portfolio.

The company’s sales have grown by 19.4% on average over the last five years. Increasing efficiency (operating margins are up from 4.45% to 11.5%) and profitability (earnings per share are up 117%) have also been delivered over the last half-decade. 

The company says that demand for luxury Swiss watches outstrips supply as evidenced by customers having to register interest. That bodes well for future growth.

Also, luxury watch brands are selective about who can sell their wares, being mindful of presentation standards. That gives incumbents like Watches of Switzerland an advantage.

But this stock is not cheap. Even after a 33% or so decline in price since late 2021, it is still trading at 17 times forward earnings, which is high for a speciality retailer. 

James J. McCombie owns shares in Watches of Switzerland.

The post 7 shares that Fools have been buying! appeared first on The Motley Fool UK.

Due to the longer duration of ISA-focused investments, I like to look for companies that pay a good dividend yield. I want companies that have paid an above-average dividend consistently for several years, along with growing it annually. The aim of this approach is that the beauty of compounding can occur within the ISA, allowing me to build up a significant return over the years.

Inchcape

The first share on my list is Inchcape (LSE: INCH), a distributor of vehicles in the UK, Europe, and Asia. After a strong 2021 with price growth of over 41%, the company struggled in 2022, falling 16.8%. Despite this, the underlying fundamentals are very appealing, with strong cash generation. The company also has low levels of debt, and significant forecast earnings growth.

The main reason for my interest in the company is the yield of 3%. It is also forecast to hit 3.7% next year. The dividend has been paid consistently for 12 years and is covered by earnings per share (EPS) 2.5 times. This is a good sign and indicates the dividend is relatively safe.

It is, of course, essential to note that profit margins are fairly low, which could cause issues if turnover growth begins to slow. Additionally, the dividend was reduced considerably in 2020 and has only grown over the last year, so this will be important to watch in case it is reduced again.

Nonetheless, the company still represents a good long-term investment opportunity. I would therefore consider adding this share to my Stocks and Shares ISA in 2023.

Glencore

The second share on my list is Glencore (LSE: GLEN), one of the world’s largest commodity traders and producers. The company has had an extremely rapid share price rise over the last two years, gaining 60.9% in 2021 and 40% in 2022. Furthermore, underlying fundamentals are impressive, with solid cash flow, reasonable profit margins, and significant growth forecasts. Turnover is expected to increase by over 30% next year, and earnings per share (EPS) is forecast to grow by a massive 187%.

I find the yield of 4.4% very appealing, more so as it is expected to hit 9.6% next year. This forecast growth is impressive, especially given that the dividend has been paid consistently for the last 11 years. It is also forecast that dividend cover will reach 2.7, indicating that EPS can sustain this new dividend level.

It is important to note that earning margins are pretty low, even after doubling from the three-year average level. Also, debt levels were very high over the last three years and are still significant at almost 47% of market capitalisation.

However, I believe that the company’s forecast dividend growth represents a good opportunity for my Stocks and Shares ISA. Therefore I would be keen to add the company to my portfolio in 2023.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

The post 2 shares I’d add to my Stocks and Shares ISA in 2023 appeared first on The Motley Fool UK.

Here are three equities I would buy for income today. 

Stocks and Shares ISA buy

A great example is the financial services company IG Group. At the time of writing, the stock supports a dividend yield of 5.1%. The corporation has a cash-rich balance sheet with no debt and is looking to increase its profits in the years ahead by expanding into different markets.

That said, the financial services industry is a highly regulated market. If there is a sudden change in the regulatory environment, the company’s profit margins could come under pressure, forcing it to cut the dividend.

Specialist financing provider

That is why I would also buy the specialist financing provider S&U (LSE: SUS) for my portfolio of UK shares. The company provides financial services, including car loans and property bridging finance, for customers around the country. 

At the time of writing, the stock supports a dividend yield of 5.1%.

Once again, the business has a robust balance sheet and is pursuing several growth initiatives that could lead to increased earnings in the years ahead.

Rising interest rates will also enable the corporation to charge more to borrowers. That could increase the income from its existing portfolio of loans. Despite these tailwinds, shares in the financial services company are trading at a forward price-to-earnings multiple of just 8.3. I think that looks cheap compared to its potential. One challenge the group could face as we advance is increased loan defaults.

The rising cost of living could cause some borrowers to fall behind on their payments.

This would have an impact on the company’s balance sheet, and it may have to reduce shareholder returns as a result.

UK shares for growth 

Inchcape (LSE: INCH) sells new and used vehicle parts and financial services for the automotive industry in 36 markets around the world.

This is a somewhat niche business, but that is no bad thing.

Sales and profits have increased gradually over the past couple of years as the company has expanded its footprint in the automotive industry around the world.

It suffered a small setback during the pandemic, but management expects growth to return over the next two years.

At the time of writing, the stock supports a dividend yield of 3.3%, and the distribution is covered 2.5 times by earnings per share. The company also has a cash-rich balance sheet.

Still, despite its strengths, I should acknowledge that the automotive industry is highly competitive. Just because Inchcape is growing today does not mean that it will be able to maintain its market share in this volatile market.

The post UK shares I’d buy for income in a Stocks and Shares ISA appeared first on The Motley Fool UK.

Riding a wave – for now

Second-hand retailers are riding a bit of a wave at the moment caused by the shortage of new cars. It’s unclear how long this will go on for. Further signs from Inchcape or its competitors that pricing remains strong, and the supply of new cars low, could see the shares perform similarly to last year. All the more so if there is a rotation out of growth shares because of inflation concerns. A value share like Inchcape could benefit from investors looking for profitable lowly-rated companies.

The investment case isn’t only about the market though. Management is also ambitious. The car retailer has a new strategy. The FTSE 250 company said the new strategy, dubbed ‘Accelerate’, features two growth pillars — ‘Distribution Excellence’ and ‘Vehicle Lifecycle Services’.

Looking at its medium-term financial outlook, in ‘Distribution Excellence’ it said it is expecting a compound annual growth rate for profits in the mid-to-high single-digits. In ‘Vehicle Lifecycle Services’, meanwhile, Inchcape said it is pencilling in at least £50m of incremental profit.

While that’s positive, car retailing is typically a low-margin industry. Inchcape is no exception. Operating margins are currently around 2%. That makes car retailing a volume-based game, so the company needs to sell a lot of cars to make a lot of profit.

Overall when it comes to car retailers I prefer Vertu Motors, which I suspect could be a takeover target. I’d be more likely to add it to my portfolio than Inchcape, as I don’t think the latter will do as well again this year. 

One of the top FTSE 250 shares? 

Meanwhile, as a Scot, perhaps I have an unconscious bias towards Caledonia Investments. But the analytical part of me thinks it’s an investment trust that could do well this year – even after last year’s strong performance.

The shares still trade at a discount to the net asset value of 17.5%. That doesn’t necessarily make them good value, but it does provide some margin of safety.

The trust is well established and has been going for 140 years. It invests in both public and private companies with top holdings on the publicly-listed side of things being Oracle, Microsoft and Texas Instruments. UK companies also feature including Polar Capital, Croda International and Unilever. Quoted companies account for 31% of the trust. Some 28% is in private companies and 30% is in funds, these are indirect investments through Asian and US-based private equity funds. The rest is cash.

The ongoing charge versus peers is quite reasonable at 0.98%. Similar trusts will often by charging double. 

The downside could be that the discount widens further and the share price falls. Caledonia’s multi-asset strategy could put investors off investing because it’s less clear what they’re getting. 

However, with access to private companies, I think Caledonia Investments adds a lot of diversification and so I’m really thinking about adding it to my portfolio. This is a share with a path to increase substantially again this year if the discount narrows and the net asset value, so the value of its investments rises. 

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