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.

Legendary growth investor Jim Slater used the PEG ratio — which looks at earnings growth — to find fast-growing companies to invest in. I’ve been using the same technique to find new stocks for my portfolio. Here are my three top picks for August.

A long-term winner?

Recruitment group Robert Walters (LSE: RWA) specialises in supplying professional staff for sectors such as finance, law, and IT. Profits are bouncing back fast and are already above 2019 levels.

I think one factor that’s helped the group’s recovery is its geographic diversity. More than 70% of fee income comes from outside the UK, with 45% from the Asia Pacific region. This means that, unlike some rivals, Robert Walters isn’t dependent on just one geographic market.

Of course, recruitment is cyclical. Companies are quick to stop hiring when the economy slows. That’s always a risk. But Robert Walters had more than £120m of net cash at the end of June, providing a healthy safety net.

Robert Walters’ PEG ratio for the next 12 months is just 0.5. That reflects strong earnings growth forecasts. I think this growth stock has further to go.

Profiting from the logistics boom

US firm Somero Enterprises (LSE: SOM) designs and sells machinery to produce perfectly flat concrete floors. The company is a market leader in this sector, especially in the US.

Demand is very strong as modern warehouses need flat floors for high racking systems and robotic picking. Growth in internet retail has made this even more important.

The big risk here is that demand will slump in a recession — Somero suffered badly in 2008/9. A slowdown seems likely to me at some point, but I don’t see any cause for concern just yet. In July, Somero said trading in its core US market was ahead of expectations so far this year.

Somero’s pre-tax profit has risen from £1.2m in 2012 to £24.6m in 2020. There’s plenty of cash on the balance sheet and the company has a record of paying generous dividends.

I think this well-run business could have further to go. It’s a share I’d be happy to buy.

A below-the-radar growth stock

Lender S&U (LSE: SUS) provides financing for used car buyers and property loans. The founding Coombs family still own a majority of the company’s shares and the business is overseen by chairman Anthony Coombs.

Most of S&U’s profits come from its car finance business, which targets customers with imperfect credit ratings. Historically, this has been very profitable, with an operating margin of more than 40%.

Admittedly, lenders like S&U sometimes suffer from a surge of bad debt during recessions. This is a risk here, in my view, especially as the company targets borrowers who can’t get mainstream loans.

However, this family-run business has been operating successfully since 1938. Broker forecasts suggest that the group’s earnings will by around 35% in both 2021 and 2022. With a PEG ratio of just 0.5 and a tempting 3.6% dividend yield, I would be happy to buy S&U today.

The post 3 explosive growth stocks to buy in August appeared first on The Motley Fool UK.

As the owner of residential and commercial bridging finance lender Aspen Bridging, the FTSE firm has benefited from robust demand in the UK housing market during the pandemic.

According to Bridging Trends, £455 million of loan transactions – usually short-term lending helping people buy a new home before selling their old one – were completed in the UK in 2020. That was down 38% on 2019 as the sector was battered by the closure of housebuilding sites in the first Covid lockdown.

However, a recovery driven by people eager to take advantage of the Government’s stamp duty holiday, and high street banks taking longer to process mortgages, helped the bridging sector hit a total of £250 million in loans in the third and fourth quarters combined.

The housing market rally could be halted when the Stamp Duty holiday ends on June 31^st, and if the closure of the furlough scheme in September leads to higher unemployment.

But until then, at least, I expect demand to remain high.

I could use this opportunity to snap up FTSE-listed housebuilding stocks, but I see greater growth in the bridging market and subsequently S&U’s shares.

Why I’m bullish

S&U this week posted a profit before tax of £18.1million for the year to January 31^st 2021, down from £35.1million in 2020 as it paid the price of Covid.

However, Aspen Bridging is one of the leading companies in the bridging sector and could benefit from the rush of people looking to complete house moves before the Stamp Duty holiday ends.

High street banks could be faced with a mountain of mortgage applications and if there are delays then customers will turn to bridging finance to ensure their purchase gets over the line.

The FTSE All-Share S&U should also benefit from a tougher UK economic backdrop in the months ahead. The high street banks may become more cautious in their lending and frustrated purchasers or sellers could turn to bridging as a solution.

I also see more bridging finance demand from developers keen to turn abandoned commercial units such as pubs into residential homes and homeowners seeking short term loans to refurbish their properties by adding office space.

The FTSE All-Share stock could also see more demand for its Advantage Finance motor company as drivers hunt for cheaper used cars.

S&U also benefits from being a family-owned company, which I think gives it an advantage over its peers when cementing relationships with brokers and customers.

Risks to consider

There are a couple of issues, however, that might stop me buying S&U’s shares.

A particularly severe economic downturn could stall the housing market rally and flatten demand for bridging finance. I also fear that short-term lending still carries a negative public reputation because of high fees and interest rates.

However, overall, I expect a strong share-price climb heading into the Stamp Duty holiday for this FTSE All-Share stock and in the likely tough economic months ahead.

The post Why I’m ignoring housebuilders and buying this FTSE All-Share stock instead appeared first on The Motley Fool UK.

S&U has been around for decades and during this time it has built a leading motor finance and bridging loan business, which has generated tremendous returns for investors.

One of the reasons why I think the business has been able to outperform many of its peers in the industry is the fact that the group is still family-owned.

Research shows that family-owned businesses tend to perform better over the long term compared to non-family-owned because the family members make better long-term capital allocation decisions. In other words, they prioritise long-term investment over short-term profitability.

That certainly seems to be right with S&U. Over the past six years, the company’s earnings per share have more than doubled, rising at a compound annual growth rate of around 16% since 2014. The per share dividend has been increased by 100% since 2014. And it doesn’t look as if the firm is going to slow down any time soon. 

Beating the market 

In a trading update published today ahead of S&U’s half-year numbers, which will be released at the end of September, the company said: “In contrast with the current low levels of consumer confidence in the UK, demand for Advantage’s motor finance is healthy and transactions are ahead of last year.“

Customer numbers at Advantage, S&U’s motor finance business, are up 7% year-on-year according to the report, and the rest of the business is trading in line with expectations.

Commenting on the outlook for the market, S&U said that “despite a recent downturn in the new car market, the used car market remains robust and is likely to continue to do so, even assuming a no-deal Brexit.“

City analysts are currently expecting the company to report earnings per share growth around 7% this year, putting it on a forward P/E of 8.5. A full-year dividend of 124p is also expected to give a dividend yield of 5.9%.

Opportunity to buy

If S&U is not for you, then Tritax Big Box Reit (LSE: BBOX) could also offer market-beating returns. This real estate investment trust invests in logistics facilities around the UK, and business is booming.

According to its results for the six months ending 30 June, Big Box’s portfolio value has increased by nearly 13% since the end of 2018, and the contracted rent roll is up almost 4%. On the back of this growth, management has decided to increase the firm’s interim dividend by 2.2%. 

This is just the latest in a string of dividend increases from the company. The distribution has grown at a compound annual rate of around 8% since 2014 as Big Box’s book value has quadrupled. After this growth, the dividend yield currently stands at 4.7%, with further increases likely as the firm continues to invest in its portfolio. Rent increases should also help push earnings and the dividend higher. 

After a recent pullback, shares in Big Box are currently changing hands at a forward P/E of 21 and book value per share of just 1.1 — one of the lowest multiples placed on the stock for some time. I think investors should make the most of this opportunity and snap up shares in this leading industrial property owner today.

The post £3k to invest? I’d buy these 2 dividend growth stocks without delay appeared first on The Motley Fool UK.

The bank’s performance is improving. The share price doesn’t reflect this yet, in my view, but I think patient investors will be rewarded at some point.

As I’ll explain, I think Barclays could be a great choice if you’re looking for an ISA buy. I’ve also found a smaller financial stock that looks attractive to me after recent news.

Things can only get better?

Barclays’ shareholders received another surprise last week when the head of the group’s investment banking division, Tim Throsby, left suddenly after just two years.

Chief executive Jes Staley will take direct charge of this division, where recent performance has been disappointing. Staley is facing calls from activist investor Edward Bramson to scale back investment banking, but the CEO has made the division a core part of his strategy for the bank’s turnaround.

I’m not too concerned by all of this. Big banks’ internal workings are very difficult for ordinary investors to understand. What I can see is that the big picture is improving at Barclays.

I’d buy these numbers

Excluding the cost of legal settlements and other misconduct costs, pre-tax profit rose by 20% to £5.7bn in 2018. The bank’s underlying return on average tangible equity, a measure of profitability, rose from -1.2% to 8.5%.

The end result was that cash generation improved enough to allow Staley to increase the dividend from 3p to 6.5p, a level last seen in 2015. A further 16% increase to 7.6p is expected for 2019, giving the stock a forecast dividend yield of nearly 5%.

Barclays shares remain very cheap on other measures too. Trading at about 155p, the bank’s stock sits at a discount of 41% to its tangible book value of 262p per share. That discount may have been justified when the bank was losing money. But if the Barclays’ profitability continues to improve, I expect the shares to trade much closer to their book value.

In my view, Barclays offers real value and an attractive income at current levels. I rate them as a buy.

A small-cap alternative

Small-cap lender S & U (LSE: SUS) specialises in non-prime car loans and property bridging finance. This £228m firm has been in business since 1938 and has traded on the London Stock Exchange since 1983. It’s small, but has a long history.

The company is still owned and managed by the founding Coombs family. This continuity has provided patient shareholders with big gains over the years. Since 1999, the group’s share price has risen by 720%. The dividend has risen by 490% over the same period and hasn’t been cut since 1993, the earliest date for which I could find records.

S&U shares have fallen by 20% over the last year as the firm has warned of slowing growth and tightened its lending criteria. I don’t really have a problem with this — it suggests a prudent long-term view from experienced management.

Last week’s results showed the firm generate a return on equity of nearly 18% — an impressive figure. With the shares trading on 7 times forecast earnings and offering a 6.5% dividend yield, I rate S&U as a buy.

The post Why I think Barclays shares could be perfect for my 2019 ISA appeared first on The Motley Fool UK.

This company, which is still family operated, has generated a tremendous amount of wealth for shareholders over the past 10 years. According to my research, the stock has produced a total return for investors of 23.9% per annum in the past decade, more than doubling the overall market return over the same time frame.

And I see no reason why S&U cannot continue to beat the market over the next decade. Today, the group unveiled a record set of results and the 10th year of profitable growth. Overall profit before tax increased to 14% to £34.6m.

Advantage Finance, S&U’s Grimsby-based motor finance business was the most significant contributor to the bottom line, reporting a profit before tax for the year of £33.6m — the 19th consecutive year of record profitability for this business division.

Quality business 

Even though past results are never a guide to future performance, S&U’s track record over the past two decades implies that the company is well prepared for whatever the world throws at it. The fact that the business was able to survive the financial crisis (and continue to produce record profits) when so many of its larger, more liquid peers collapsed, stands testament to management’s stewardship.

That’s why I am recommending the company for an ISA today. As well as its impressive track record, the stock also yields 7% (although after jumping 12% following today’s record results the yield has dropped to 6%) and trades at a P/E of just 8. 

According to my calculations, if the company continues to compound investor capital at 23.9% per annum, it will take just 17-and-a-half years to turn a £20,000 ISA investment into £1m.

Bricks and mortar 

Another stock I believe has the potential to make you a million is property developer U and I Group (LSE: UAI).

U and I has an attractive business model. The company develops properties and returns the profits to investors while retaining a portion for further reinvestment. In this financial year, the business is targeting £45m to £50m in development and trading gains, similar to the goal laid out last year.

If the company meets its target, the City believes it could pay out 13.4p per share in dividends for 2019, giving a dividend yield on the current price of 7.2%. At the same time, it looks as if the stock is trading at a significant discount to the gross value of its development assets.

According to the group’s figures, at the end of August 2018, U and I’s net asset value per share was 284p. Even though this number is now a few months out of date, I think it is still relatively reliable and tells us that shares in the company are trading at a discount of nearly 30% to net asset value. 

So, if you’re looking for a cheap property stock yielding more than double the market average, then I strongly recommend taking a closer look at U and I. When combined in a portfolio with S&U, this property income play could also help you reach that £1m ISA target.

The post Planning a £1m ISA? These two 7%+ yielders could help you get there appeared first on The Motley Fool UK.

I still own a few banking shares, but I’m starting to look for financial stocks to replace them in my portfolio. Increasingly, I feel that more attractive long-term returns are available elsewhere in the financial sector.

New rules hit revenue

Shares of online trading firm CMC Markets (LSE: CMCX) were down by 9% at the time of writing, following a profit warning this morning.

The company says that new European regulations limiting the amount of leverage available to retailer traders means that full-year revenue is expected to fall by about 20%, below previous guidance of 10%-20%.

In turn, this means that profits for the year are also likely to be lower than expected.

A buying opportunity?

I suspect these new rules will turn out to be a short-term headwind to which the company and its customers will adapt.

For example, CMC is already generating more than 50% of its UK and European revenue from professional and institutional clients, who are exempt from the new rules. And like its larger rival IG Group, CMC is also using its trading infrastructure to expand into stockbroking, via a partnership with Australia’s ANZ Bank.

Chief executive Peter Cruddas still has a 63% shareholding in this highly profitable business, which he founded in 1989. In my view Mr Cruddas is likely to work through these latest challenges and return the business to growth.

After today’s fall, the shares trade on about 13 times forecast earnings and offer a yield of more than 5%. I think that’s too cheap for a business which generated an operating margin of 32% last year. I’ve added the stock to my buy list for further research.

Expert management

Another small financial stock which benefits from owner-management is car loan specialist S & U (LSE: SUS). Chairman and vice-chairman Anthony and Graham Coombs have a combined 24% stake in this firm, which was founded by relative Clifford Coombs in 1938.

The firm published its half-year results today, showing continued strong growth. Group revenue rose by 23% to £44.5m during the six months to 31 July, while pre-tax profit was 17% higher at £16.7m.

Group receivables — a measure of S & U’s loan book — rose by 22% to £279.8m, including continued growth at the firm’s new property loan business, Aspen Bridging.

What could go wrong?

Bad debt levels at the firm’s Advantage car loan business averaged 24.7% over the 12 months to 31 July, compared to 21.9% at the end of January 2018.

These figures seem high but appear to be fairly normal in the sub-prime sector, where borrowing costs are high to reflect the likelihood of default.

The company says that it’s tightened underwriting standards and is starting to see impairment rates fall back towards historical levels. It’s also worth noting that return on average capital employed remained high, at 15.4%, during the first half. That’s only slightly lower than the 16.4% seen last year.

The stock trades on just 10 times forecast earnings with a dividend yield of 4.7%. I’d be happy to buy the shares at this level.

The post Don’t waste money on banking stocks. These dividend shares could smash the FTSE 100 appeared first on The Motley Fool UK.

The privately-owned competitor has announced plans to add around 5,000 extra UK sellers to its service. Its new ‘Marketplace+’ feature reaches out to sellers who wish to use Deliveroo’s own delivery network, while still running their own deliveries too — allowing a flexible mix of both channels.

That collides head-on with Just Eat’s maturing service, which also uses a mix of its own drivers plus restaurants’ own systems, and it could be a game changer.

For me, this highlights a few key things about investing in growth stocks, the main one being to keep re-assessing your original decisions in the light of new developments.

When the news changes…

I was bullish about Just Eat when I last looked back in November, mainly because of the company’s early mover advantage and the list of impressive names on its roster — Just Eat had recently signed up KFC. I’d seen it as providing significant barriers to entry, and the shares went on to top 900p.

But this latest news has made me re-examine my view, on several counts. Deliveroo’s new tool opens the market up to thousands of extra outlets with its flexibility. And there isn’t really any long-term commitment needed from food sellers to these delivery systems.

Just Eat’s forward P/E of over 40 was risky but I’d thought it a risk worth taking. I’ve changed my mind, and knowing when to sell your mistakes is a key part of growth investing. If I’d bought at 790p at the time, I’d be selling now for a loss of 5p. 

An overlooked growth stock?

I recently looked at how running a growth screen over the FTSE’s shares can help us find candidates, and one that satisfied my criteria was auto lender S&U (LSE: SUS). I was looking at companies with low PEG ratios (which relate the P/E to growth forecasts from analysts), while keeping clear of any with worrying debt.

S&U passed the test with PEG multiples of just 0.6 for this year and next, as the City has earnings growth forecasts of 19% and 16% pencilled in for the two years. And that comes after a similar 19% rise for the year to January 2018 — a period which brought in the 18th year in a row of profit rises.

Chairman Anthony Coombs told us that “the markets in which we operate remain strong,” pointing to the Finance and Leasing Association’s data showing that “used car sales increased by 6% in number and 12% in value in 2017.“

Dividends too

But S&U isn’t attractive for its growth characteristics alone — it also pays handsome dividends. The 105p per share paid for the year just ended provided a yield of 4.6%, was almost twice covered by earnings, and represented an inflation-crushing rise of 15% over the previous year. In fact, between 2014 and 2018, S&U’s dividend has almost doubled from 54p. Forecasts suggest similar rises this year and next.

There’s surely some risk should interest rates eventually rise and the current lending boom start to cool. But with a 2020 forward P/E of under 10, I think that’s already in the share price.

The post Why I’d dump crashing Footsie champion Just Eat plc and buy this growth plus dividend stock appeared first on The Motley Fool UK.

Recently, the picture has been one of contrasting performance, with FTSE SmallCap S&U up around 20% since the start of the year and FTSE 100 giant Randgold down by a similar order. Here’s why I’d sell the soaring small-cap stock but buy the out-of-favour blue-chip.

Advantage S&U

S&U sold its home credit arm in 2015, leaving Advantage Motor Finance as its core business. In its annual results, released in March, the company reported an 18th successive year of record profit at Advantage. Pre-tax profit increased 20% to £30.2m on 30% higher revenue of £78.9m.

Management said today, in a Q1 update ahead of the company’s AGM, that trading “remains strong.” This bodes well for City analysts’ forecasts of a further 20% rise in pre-tax profit this year (to £36.3m) and a 17% increase in earnings per share (EPS) to 238p.

At a current share price of 2,700p, S&U’s market capitalisation is £324m and the forward price-to-earnings (P/E) ratio is 11.3. The P/E appears cheap for the EPS growth forecast. Furthermore, a well-covered 119p forecast dividend adds a generous prospective yield of 4.4%.

Bubble waiting to burst?

Interest rates have been at historically unheard of lows for the best part of a decade. This has fueled a rise in UK household debt to unprecedented levels, a notable part of which has been a vast increase in the number of cars bought on credit. The big concern I have about S&U is that car finance looks to me like a credit bubble waiting to burst.

Current interest rates, employment figures and a recent upturn in wage increases above inflation may reduce the immediate risk, but erring on the side of caution, I’m inclined to see S&U as a stock to sell at this stage.

Golden opportunity

The poor performance of Randgold’s shares so far this year wasn’t helped by a trading update last week. Q1 gold production was down 11% year-on-year and profit for the quarter was 24% lower than in the same period in 2017. However, management maintained its full-year production guidance and I believe the depressed share price represents a good opportunity to buy a slice of one of the world’s highest-quality gold-miners.

At a current share price of 5,740p, Randgold has a market capitalisation of £5.4bn and trades on a forward P/E of 22.7, based on a consensus EPS forecast of $3.42 (253p at current exchange rates). Following a doubling of the dividend last year to $2 from $1, analysts are forecasting another hike to $3 (222p) this year, giving a prospective yield of 3.9%.

The P/E and yield look highly attractive to me for a world-class miner. The company’s balance sheet is also as strong as they come: $739.5m cash and no debt.

The post Why I’d sell this small-cap star but buy this FTSE 100 stock appeared first on The Motley Fool UK.

Another record year in the books

One stock that fits the bill in my eyes is sub-prime auto lender S&U (LSE: SUS). Full-year results released this morning showed the group notched up increased profits for the 18th year in a row while  dividend payouts increased 15% to 105p, which equals a yield of 4.4% at today’s share price.

As this substantial increase in shareholder returns suggests, the last year was another quietly great one for S&U. Pre-tax profits rose a full 20% to £30.2m while revenue increased 32% to £79.8m as management invested significant capital into bringing on board new customers, which should begin to flow through the business as profits in the coming quarters.

Customer numbers for the year rose 26% as the group’s brand recognition rose and contributed to a very significant increase in applications. This allowed for a substantial uplift in new policies written while still maintaining the acceptance rate at a low 3%, showing the conservative outlook the management team, led by the twin grandsons of the founder, takes towards growing the business.  

This slow but steady progress is necessary in the cyclical field of lending, particularly the sub-prime type. And with a stable and growing used car market boosting demand for its services now and a history of growing profitably even through cyclical downturns, I reckon S&U could be a great growth and income pick for long-term investors.

Near-monopoly profits on the Isle of Man 

But if S&U is a bit too risky for you and you prefer higher income potential from your holding, I think Manx Telecom (LSE: MANX) could fit the bill. As its name says, this £200m market cap firm is the major provider of fixed line, mobile and broadband solutions for businesses and customers on the Isle of Man.

This market-leading position in a market that is too small to attract the attention of larger telecoms firms produces significant pricing power for the firm and cash returns for its investors.

In fiscal year 2017, revenues of £78.5m produced free cash flow of £20m, of which £12.6m was paid out to shareholders in dividends that currently yield 6.2%. While revenue fell from £80.8m in the year prior and EBITDA also dropped from £27.7m to £271.m year-on-year, the company is in good shape and actually offers decent if unspectacular future growth prospects.

Most of this growth will come from the global solutions segment, which among other things sells UK SIM cards to international travellers, particularly Chinese ones, before they ever even reach Heathrow. Last year revenue from this division rose 6.2% and with positive momentum expected in the data centres business in 2018 following the loss of a single big customer last year, Manx should see revenue returning to positive growth this year.

Although the business won’t be growing by leaps and bounds, its dominant position in its core market, growth opportunities and large dividend, make it one stock conservative, long-term income investors may come to love in their retirement portfolio. 

The post Two high-yield dividend plus growth stocks I’d buy for an ISA appeared first on The Motley Fool UK.