But these league tables need to be treated with caution.

As nobody’s able to predict future payouts with any certainty, yields tend to be calculated on a historical (‘trailing 12 months’) basis. And using this methodology, having returned 6p to shareholders over the past year — and given its current (8 January) share price of 48.95p — it’s fair to say that the bank’s stock is, indeed, yielding 12.3%.

Bad news

But in March 2024, the bank’s shares halved in value after it said it had received an increase in complaints and that the “associated costs are likely to materially impact the Group’s profitability in 2024”.

The directors immediately cut the dividend for 2024 to 1p. Therefore, based on the company’s current share price, the ‘true’ yield’s a more modest 2.1%.

With the company promising only “measured progression in 2025”, it’s likely to be several years before the bank’s in a position to return (in cash terms) to its previous level of dividend.

However, although the stock’s status as a dividend share has been tarnished, I wonder whether it could be an excellent growth share for me.

A specialist lender

Vanquis provides finance to those with a “less than perfect credit history”. Due to the increased risk of default, its lending rates are high. For example, its credit cards have an APR of 37.9%.

At first sight, this feels like the most vulnerable are being exploited. But it’s estimated that 3m people borrow on the black market where there’s no regulation and interest rates are far higher.

By charging more, the bank’s able to earn a higher margin than rivals. During the first six months of 2024 (H1 24), it reported a net interest margin of 18.8%. Lloyds Banking Group’s was 2.94%.

However, these margins are reported before potential bad debts and loan write-offs. And this is where Vanquis has a major problem. During H1 24, these accounted for 43% of total income.

A different approach

To counter this, the bank‘s transitioning to a new business model. At the moment, most of its 1.7m customers are described as “under financial pressure”. Vanquis is now looking to expand into the “stretched but managing” cohort.

And to help further manage the risk of default, it plans to adopt a new money management app called ‘Snoop’. This uses artificial intelligence (AI) and open banking data to help users control their spending. It reckons the average customer can save £120 a month with the product.

In future, these savings will be used to help those customers in financial difficulty. Until now, bad loans would’ve been written-off with a negative impact on the bank’s bottom line. Under this new approach, an impairment charge is avoided helping to maintain earnings. In this situation, the bank claims “everybody wins”.

I think the new strategy being pursued by Vanquis is an interesting one. But I think it’s a little too early to tell whether it’s going to work. I’m therefore going to watch how the bank performs over the next six months or so before revisiting the investment case later in 2025.

The post Is the 12.3% yield on this UK dividend stock too good to be true? appeared first on The Motley Fool UK.

Subprime lending

Vanquis is what is known as a subprime lender. In simpler terms, it provides loans to people who have weaker credit scores and are seen as higher-risk customers.

Let’s start by taking a look at what’s happening with the Vanquis share price. As I write, the shares are trading for 107p. At this time last year, they were trading for 178p, which is a 39% drop over a 12-month period.

I am aware that many shares have fallen due to macroeconomic issues including soaring inflation and rising interest rates.

Opportunity or one to avoid?

Vanquis’ dividend yield of 14.5% is what brought my attention to it as a potential income stock. When such a high yield is on offer, I instantly think two things. Either the share price has dropped substantially or the business is performing so well and has such great future prospects that it is rewarding its shareholders. The first scenario is what’s happened here.

It is worth noting that with Vanquis shares falling, they do look dirt-cheap on a price-to-earnings ratio of just five.

Vanquis has had its fair share of issues in recent years. A mis-selling scandal in 2021 led to a change in operations, which now means the business has rebranded and focuses on consumers with higher credit scores.

There are signs that Vanquis may have turned the corner, in my opinion. Its latest results, a six-month report for the period ended 30 June 2023, released at the end of July, showed some signs of life but they were a mixed bag overall. Interest income grew by 5% due to higher use of credit cards and vehicle financing products.

I believe this current upturn in fortunes for Vanquis has been driven by the cost-of-living crisis, which has been created by rising interest rates and inflation. The bad news is rising rates have led to a lot more defaults on its products. This has led to an overall loss for the business in this period. For more context, Vanquis has had to write off £85.6m in the past 12 months, compared to £38.5m a year ago. However, it did declare a dividend of 5p per share.

An income stock I’m keeping on my watch list

I’ve decided against buying Vanquis shares for my holdings. The uncertainty of the economy, coupled with recent performance as well as historic issues have helped me make my decision.

From an income stock perspective, I believe Vanquis’s yield is misleading. The shares do look cheap, but I would only buy them if I believed there is a certainty for recovery. Overall, I believe there are better stocks out there for me and my holdings.

The post 14% yield! Is this income stock an opportunity or one to avoid? appeared first on The Motley Fool UK.

Typically, dividends of this calibre are a giant red flag to stay away. But occasionally, investors are presented with a rare opportunity to snatch up shares at a massive discount, locking in a higher yield – even a double-digit one. Is Vanquis such an opportunity? Or should I steer clear?

Investigating the yield

High payouts can be created in one of two ways:

1. Management feels confident in financial performance and bolsters the dividend per share
2. The stock price falls off a cliff

In the case of Vanquis, it’s the latter. The share price was already trading at depressed levels following the pandemic in 2020. But after the group published its latest results, the market-cap tumbled once again. And over the last 12 months, the stock is down 40%, sending the yield even higher.

So the questions now are, why did the share price drop? Is it a short-term problem? Or is there a more fundamental issue?

Fixing the 2021 scandal

To understand what happened with Vanquis, it’s important to know what this business actually does. As a subprime lender, the group offers loans to individuals with weaker credit scores. But in 2021, customer complaints went through the roof as loan products were being mis-sold. Consequently, management was forced to shutter its consumer credit division.

Today, the firm is in the middle of a turnaround plan. Part of this involved rebranding the group from its original name, Provident Financial. And to avoid falling into a similar trap, the company is shifting its focus to higher credit quality customers, reducing the risk profile.

Looking at the latest results, this new strategy seems to be working. Interest income has grown 5% on the back of rising receivables. It seems the increased use of credit cards and demand for vehicle financing, as well as personal loans, is creating a small tailwind.

Unfortunately, even with the credit quality of its customers improving, the latest rounds of interest rate hikes have continued to trigger impairment charges. Customers are defaulting on their loans. And in the last 12 months, Vanquis has had to write off £85.6m versus £38.5m a year ago.

What now?

With impairments jumping so rapidly, total pre-tax profits collapsed, from a gain of £46.9m in 2022 to a loss of £14.5m, triggering the sudden drop in valuation last July. However, despite this, dividends were maintained at 5p per share. And the horizon does look a bit brighter.

Providing the macroeconomic picture doesn’t deteriorate further, the group expects impairment charges to fall by the end of 2023 and continue to improve throughout 2024. And the £447.3m of cash on its balance sheet provides a liquidity buffer to weather the storm.

So while the picture isn’t pretty, does this mean the 14.5% dividend yield is sustainable? Maybe. Things seem highly dependent on the state of the British economy, which is beyond the control of management.

In other words, this income stock has a lot of risk. And that’s not something I’m keen to add to my income portfolio today.

The post 14.5% dividend yield! Should I buy this FTSE 250 income stock? appeared first on The Motley Fool UK.

Let’s get down to business

The company I’m referring to is Vanquis Banking Group (LSE:VANQ). The British bank focuses on retail customers, offering credit cards and related services. Over the past year, the stock is down 37%, helping push up the dividend yield to 12.81%. At this level, it’s one of the highest-yielding shares in the FTSE 250.

The stock dived at the end of July following some poor results. For H1 2023, the loss before tax was £14.5m. This compares to a profit of £46.9m from the same period last year.

Much of the 37% loss over the past year can be accounted for in the fall over the past few weeks since the results came out.

However, with the results, the management team confirmed that the dividend per share would remain the same, at 5p.

What the forecast looks like

The bank pays two dividends a year, the smaller one being from the half-year results. The larger one comes after the full-year results in Q1.

At the start of the year, the dividend forecast was for a 13p and a 5.5p dividend, to total 18.5p. As it happens, it was 10.3p and 5p, totalling 15.3p. Using the share price of 119.4p gives us the 12.81% yield.

Currently, the forecast for 2024 is for an 8p and a 5.5p dividend, or an annual dividend of 13.5p. For 2025, This rises to 11.7p and 6.5p, all-in being 18.2p.

If I assume the same share price of 119.4p, then the yield next year could be 11.3% and for 2025 it could be 15.24%.

Weighing up the probability

Even though the forecasts aren’t wildly out of the realms of probability, I’m a little sceptical about the yield potential. Naturally, we don’t know where the share price is going to be in the coming years. So basing the yield on the current price is unfortunately flawed to some extent.

If the struggles at the company continue, then the share price could fall even further. Even though this would push the yield higher, I think this is bad news. This is because continued poor performance will likely see the dividend cut. It would need to do this to preserve cash flow.

Therefore, I’m not saying that the yield won’t stay above 10% in the near future. The next dividend per share won’t be confirmed until early 2024. Yet do I feel income investors should be very careful when considering whether to buy this stock or not? Absolutely!

The post A 15% yield? Is this FTSE 250 dividend forecast achievable? appeared first on The Motley Fool UK.

Although Provident shares have risen by 40% over the last 12 months, the stock is down by 30% since the start of this year. I’m wondering whether this could be an opportunity for me to buy in to this well-established business at a bargain price.

Doorstep lending is over

Provident Financial’s consumer credit division (CCD) has been operating for more than 100 years. This business provides high-cost loans that are collected by door-to-door agents. This business will now be run-off or sold. This decision is being made against the backdrop of a wave of claims from current and former customers alleging “irresponsible lending”.

The numbers involved are quite large — Provident set aside £23.4m to address claims last year and is trying to win approval to cap future claims at £50m, plus costs. I think the company is right to exit this business, which lost £75m last year.

The exit process has already started. Customers numbers in CCD fell from 522,000 to 311,000 last year. This was due to a reduction in new lending and higher write-offs due to Covid-19.

However, getting out of this business completely won’t be cheap. Provident’s management expects to spend around £100m exiting the CCD business, even if it’s sold.

For me to buy PFG shares at the current price, the group’s remaining operations will need to look much healthier than CCD. Fortunately, I think they do.

Modern products have profit potential

Provident Financial plans to focus on three main products in the future. These are credit cards, unsecured loans, and motor finance. Provident is already active in these areas, through its Vanquis Bank and Moneybarn operations.

Although the company will continue to focus on the bad credit segment of the market, management says it will target “sub- and near-prime segments”. Borrowing costs will be much lower than they were for doorstep loans, but my understanding is that lending criteria are tougher.

Covid-19 caused an increase in bad debts and a drop in new lending last year. Vanquis and Moneybarn both remained profitable despite these pressures, generating a combined pre-tax profit of £49m, down from £195m in 2019.

Provident Financial share price: my decision

I reckon that Provident’s remaining businesses will probably be successful on their own. What worries me is the uncertain cost of exiting the CCD operation. I can’t see anyone queuing up to buy this, except at a knock-down price.

I tend to avoid investing in situations where there are legal complications and large, uncertain future costs. As an outside investor, I can’t measure the risks accurately. This makes it hard to value the business.

At a share price of 235p, I reckon Provident Financial might turn out to be cheap. Or it might not. I don’t know.

On balance, I don’t think the shares are cheap enough to reflect the risk of further problems. I’ll be steering clear until it resolves some of its current issues.

The post The Provident Financial share price is crashing: should I buy? appeared first on The Motley Fool UK.

UK shares to avoid 

The first company on my list is doorstep lender Provident Financial (LSE: PFG). Ethical considerations aside, this lender has some severe problems. It’s currently dealing with a “flood” of complaints from borrowers who claim the business has misled them.

There were 10,000 complaints to the Financial Ombudsman Service in the second half of 2020. These claims cost the business £25m. 

While PFG is trying to work out a plan to deal with these issues, it’s also facing an investigation from the Financial Conduct Authority. These are two severe headaches for the firm, and they’re unlikely to go away anytime soon. Shareholders may have to foot the bill if claims exceed Provident’s resources. 

That said, the group may turn things around. Its profitable Vanquis credit card and Moneybarn car finance operations are still performing well. If it can dispose of the doorstep lending issues and concentrate on these divisions, Provident’s fortunes could improve. 

Despite this, I’m not planning to include the stock in my portfolio of UK shares any time soon.

Coronavirus lending 

Funding Circle‘s (LSE: FCH) IPO in 2018 caused a stir in the City. The company aimed to revolutionise the lending market, connect borrowers and lenders directly, and remove the need for a bank in the middle. 

Unfortunately, the firm hasn’t lived up to the hype. It’s consistently lost money since 2015. 

However, unlike many UK shares, the group performed well in 2020. The firm’s involvement in the Covid support scheme helped it expand loans under management to a record £4.2bn. Despite this, the business made an operating loss of £106m for the year. Fee income rose 25% to £220m. 

While management believes Funding Circle’s outlook is bright, I’m not convinced. If the firm hasn’t been able to make money in the past five years, when will it make money? If the group keeps losing money, sooner or later it’ll run out of cash. That’s why I plan to avoid the stock at all costs. 

Still, the business could prove me wrong. If the economy roars back to health over the next few months and years, demand for borrowing on the group’s platform could explode.

With interest rates at bottom levels, savers may also be happy to deposit their money with the group. The company is also planning to launch new products over the next few months to help businesses acquire funds faster. 

This could help Funding Circle make more loans, which would generate more fees, which may help the business earn a profit. In this scenario, the stock’s outlook would change entirely, in my view. 

The post 2 UK shares I’d avoid at all costs appeared first on The Motley Fool UK.

A worrying update

Provident is a financial services firm that provides credit facilities to individuals who are considered too risky for mainstream lenders. It currently serves more than 2.2 million customers in the UK under multiple brands. These include Vanquis Bank, Moneybarn, and Satsuma Loans.

Last week, the company revealed its latest figures, which looked fine on the surface, considering the disruptions caused by Covid-19. However, a worrying announcement was made regarding its consumer credit division (CCD).

The management team intends to enter its CCD into a Scheme of Arrangement following a significant rise in customer complaints and claims. These rising complaints have led the Financial Conduct Authority (FCA) to launch an enforcement investigation focusing on the affordability and sustainability of lending to sub-prime customers.

The Scheme of Arrangement is a court-approved measure that allows a company to restructure its capital, assets or liabilities. Assuming the FCA approves the scheme, the company will fund £50m of claims and cover up to £15m of related costs. This will ultimately ensure all legitimate claims are satisfied and provide certainty for stakeholders.

However, if the FCA decides to reject the proposal, the management team has stated that it’s CCD (which includes Satsuma Loans) will go into administration. Given this segment represents nearly 30% of revenue generation, I feel the recent drop in this FTSE 250 stock’s share price makes perfect sense. But is there an opportunity for a turnaround here? 

A FTSE 250 opportunity for growth?

Despite its CCD problems, the company is still collecting around 90% of its loans on time. Meanwhile, Provident’s other divisions appear to be recovering from the pandemic’s impact relatively well.

Vanquis Bank saw a 28% year-on-year reduction in receivables. But quarterly performance shows that it has begun returning to pre-pandemic levels at an accelerating pace. What’s more, due to reduced impairment costs, overall profitability for the segment has improved significantly. At the same time, Moneybarn, its car loan service, continued to grow receivables by 13%, in line with expectations.

It’s also worth noting that all of Provident’s segments are independent entities. In other words, if CCD were to shut down, the direct adverse effects on Vanquis Bank and Moneybarn will most likely be negligible.

The bottom line: a stock to buy now?

The investigation and potential closure of Provident’s CCD don’t inspire me with a lot of confidence, even with its other operations performing relatively well.

The surge in claims and complaints has undoubtedly damaged the firm’s reputation. And while there may not be any direct impact on its other segments, if CCD goes into administration, the firm’s relationships with its customers, creditors, and regulators will likely be permanently damaged. At least that’s what I think.

Personally, I believe there are far better investment opportunities out there in the FTSE 250. And so I won’t be adding this stock to my portfolio today.

The post Should I buy this FTSE 250 stock after its 25% price crash? appeared first on The Motley Fool UK.

Jonathan Smith: Coca-Cola HBC

With the UK officially in a recession, I’d turn to a defensive stock to protect my portfolio. Therefore I’m keen on Coca-Cola HBC (LSE: CCH). With the core product being a staple of consumers, demand should be inelastic even if people reduce spending. Half-year results for 2020 showed revenue down by 15.5%, but this was largely down to out-of-home spending. This was down by 70%, mostly due to the lockdown.

Should we see the UK recession continue without another hard lockdown, Coca-Cola HBC ought to perform well. Buying now with a discount of around 25% compared to the start of the year could be a smart move.

Jonathan Smith does not hold any position in Coca-Cola HBC.

Rupert Hargreaves: CRH

I think building materials business CRH (LSE: CRH) is one of the best ways to play the global economic recovery. The company is one of the largest suppliers of building materials, such as concrete and asphalt in Europe.

Following the pandemic, governments are planning to stimulate their economies with infrastructure spending, which should result in increased demand for these products. I think this could provide a big boost for CRH’s bottom line.

In the past, the company has complemented organic growth with bolt-on acquisitions. Increased profits may free up more cash to pursue this strategy, which could help improve CRH’s long-term growth.

Rupert Hargreaves does not own shares in CRH.

G A Chester: Diageo 

I think Diageo (LSE: DGE) is a top British blue-chip share to buy in September and hold for the long term. Its outstanding portfolio of over 200 drinks brands — Johnnie Walker whisky, Gordon’s gin and Guinness stout, to name but three — is unrivalled. Such brands, backed by decades of investment, continue to be enjoyed by generation after generation. 

Diageo’s shares are trading towards 30% below their all-time high, made this time last year — the company hasn’t been immune to the Covid-19 pandemic. But I think this is an opportunity for canny long-term investors to buy into a highly valuable global business at a great discount price. 

G A Chester has no position in Diageo.

Anna Sokolidou: Rio Tinto

The shares of Rio Tinto (LSE:RIO), a mining giant, have rallied since March. That’s due to the rising demand for iron ore in China. In spite of the pandemic, the Chinese government has invested heavily in the country’s infrastructure.

What’s more, the supply is limited in Brazil where a lion’s share of the metal comes from. The country is truly struggling to contain Covid-19, and doesn’t have the opportunity to mine as much iron as it used to.

I consider Rio Tinto (just like many other companies) to be a bit overvalued right now. But I’d buy the stock at every pullback.

Anna Sokolidou does not own shares in Rio Tinto.

David Barnes: BAE Systems

With its c.4.5% dividend now reinstated, I think FTSE 100 defence giant BAE Systems (LSE: BA) looks good value right now.

The dividend is well covered, and its revenues are reliable given it works largely on government backed, long-term contracts. The firm is a trusted partner of many western governments. I also see future growth through moving into cybersecurity.

The share price is still over 20% off its year high following the stock market crash in March, and with a price-to-earnings ratio of just 12, I think the shares are a steal.

David Barnes owns shares in BAE Systems.

Edward Sheldon: Boohoo

My top British share for September is online fashion retailer Boohoo (LSE: BOO).

Boohoo’s share price has taken a hit recently on the back of reports about poor working conditions at clothing factories linked to the company. I expect the shares to recover, however.

Boohoo’s brands, which include Boohoo, PrettyLittleThing, and Nasty Gal, remain very popular with younger fashion-conscious shoppers. Meanwhile, demand for comfy clothing is soaring due to the work-from-home trend. So, I expect Boohoo’s sales to continue rising at a healthy rate.

All things considered, I see Boohoo shares as a ‘buy’ right now.  

Edward Sheldon owns shares in Boohoo.

Kirsteen Mackay: Provident Financial  

Provident Financial (LSE:PFG) has said its business is picking up again after sinking to a £37.6m loss in the first six months of the year. It now plans to repay furlough money received from the government as its Vanquis Bank and Moneybarn subsidiaries remain profitable. It has streamlined its business through job cuts and should be stronger going forward.

As furlough payments come to an end, finances will be tight – and with Christmas on shoppers’ minds, I think Provident will continue to see a rise in doorstep lending. It has a price-to-earnings ratio of 7, though its dividend remains on hold. 

Kirsteen does not own shares in Provident Financial.

Matthew Dumigan: Hargreaves Lansdown

As the UK’s largest investment broker, Hargreaves Lansdown (LSE: HL) has made a tidy profit from the heightened stock market volatility over recent months. The firm recorded a record a whopping £7.7bn in new business in the 12 months ending June 2020 and posted an impressive set of full-year results on top of this. 

Given the company already boasted a solid set of finances prior to this year, the future now looks even brighter. What’s more, the recent announcement that Robinhood won’t be launching in the UK is a further boost for the industry’s market-leader. 

Matthew Dumigan does not own shares in Hargreaves Lansdown.

Paul Summers: Diageo

At the risk of sounding like a stuck record, I think top British share Diageo (LSE: DGE) has fallen too far ahead of September.

News of weaker-than-usual sales of its premium brands in the wake of the coronavirus will matter to traders. As investors, however, we can take advantage of others’ impatience and snap up great stocks in defensive sectors when they’re on sale. With a share price still 25% below where it stood one year ago, the £60bn cap strikes me as a good example. 

Like major shareholder Nick Train, I struggle to believe people won’t pile back into pubs and clubs when the pandemic finally subsides. In the meantime, there’s always the dividends to enjoy. 

Paul Summers has no position in Diageo.

Peter Stephens: Aviva

Aviva’s (LSE: AV) share price has fallen by around a third since the start of the year. However, its recent results showed that it delivered a resilient financial performance in uncertain operating conditions.

The company is in the process of implementing a new overall strategy. It will now focus its capital on the most attractive markets in which it operates. This may lead to a narrower focus, but could have a positive impact on its profitability.

Aviva appears to have the financial means to invest heavily in areas with growth potential. This could lead to an improving share price performance over the long run.

Peter Stephens owns shares in Aviva.

Rachael FitzGerald-Finch: British American Tobacco

British American Tobacco’s (LSE: BATS) recent decision to maintain its 65% dividend pay-out ratio makes it an attractive prospect for income investors. Indeed, with the current share price at pre-lockdown levels, the dividend yield sits at a healthy 8%.

The tobacco producer’s defensive characteristics appear to have resisted the potential for customers to change to cheaper products throughout the economic downturn. Moreover, operating profits climbed over 16%, when compared with 2019, despite flatter revenues. 

With management predicting EPS growth to be in the high-single digit percentage post Covid-19, the potential returns make the tobacco firm an appealing investment for September.  

Rachael does not own shares in British American Tobacco.

Roland Head: Kingfisher

FTSE 100 stocks rarely deliver a 180% gain in five months, but that’s what DIY retailer Kingfisher (LSE: KGF) has done since March. The stock has risen from a low of 101p to trade at around 280p.

Kingfisher owns B&Q and Screwfix, plus DIY chains in France and Eastern Europe. It was an unexpected beneficiary of lockdown, thanks to a surge in DIY demand. Group sales were up by 25% in June, for example.

But what’s really caught my eye is the massive rise in online sales. These have trebled since last year. I think this online success could speed up the group’s turnaround and support further share price gains.

Roland Head does not own shares in Kingfisher.

Royston Wild: ContourGlobal

Weak investor confidence means that demand for classic safe-haven stocks should remain in vogue in September. And I believe buying shares in ContourGlobal (LSE: GLO) is an attractive way to play this trend.

At current prices, the power station erector and operator trades on a forward price-to-earnings (P/E) ratio of around 17 times. That’s not jaw-droppingly attractive, sure. But the FTSE 250 stock’s inflation-mashing 6% dividend yield is, in my book.

ContourGlobal’s share price has soared 20% in the past three months on the back of heightened investor tension. With Covid-19 infection rates rising again in key economies, I’m expecting the power play to keep growing in value throughout September, too, and quite possibly beyond.

Royston Wild does not own shares in ContourGlobal.

Manika Premsingh: Kingfisher

The FTSE 100 home improvement stock Kingfisher (LSE: KGF) is my top British share for September, as it has shown robust performance in the past few months. Not only has its share price consistently risen, its latest trading update shows double-digit sales growth as well. It is likely to have benefited from the country’s lockdown, which gave people a chance to focus on home improvements at a time of relative confinement.

KGF’s results are due in a few days, which will give further insight into the company’s performance. The outlook could also be material in learning whether KGF’s strong sales growth will continue now that we are largely past the lockdown period…

Manika Premsingh has no position in Kingfisher.

The post Top British shares for September 2020 appeared first on The Motley Fool UK.

If you’re looking for potential recovery stocks, I reckon the FTSE 250 is home to many candidates. One of them is Provident Financial (LSE: PFG), whose share price spiked 20% on Wednesday morning. Provident offers loans to sub-prime borrowers, and is behind such brands as Vanquis Bank and Moneybarn.

In recent years, that business has been a horrible one for investors. Provident Financial shares plummeted during the 2020 stock market crash, but that’s been the least of its problems. Look back a bit, and the pandemic fall looks tiny compared to 2017’s share price collapse. Over five years, Provident shareholders have suffered an 89% loss.

But Provident’s 2020 share price performance took a turn for the better on Wednesday. The shares jumped 20%, as mentioned, during morning trading in response to first-half results. That leaves the Provident share price down 49% year-to-date, against a FTSE 250 fall of 20%. Not a blazing success, but it’s been worse.

Not as bad as feared

Things aren’t rosy yet, but they’re not as bad as expected, and I think we’re looking at the start of a FTSE 250 recovery. The company reported an adjusted pre-tax loss of £32.6m, compared to a profit of £80.4m for the same period last year. Prior to these figures, analysts were predicting a full-year loss of around £62m. So it all depends on how the second half goes. On that, chief executive Malcolm Le May said: “I am cautiously optimistic about the outlook for 2020 and beyond.”

The Vanquis Bank and Moneybarn brands both saw a profitable half, which is better than I’d expected. So I can see the full year turning out significantly better than current forecasts. To echo the firm’s improving sentiment, Mr Le May said that “financial and operational performance were better than expected, and therefore we have decided to repay all furlough support to the government.”

Dividends back soon?

Before its fall from grace, Provident Financial was among the FTSE 250’s most attractive dividend providers. Even the 2019 dividend (greatly reduced from earlier years) would yield 3.8% on the current share price. There’s no dividend coming back just yet, as the company is instead pursuing “the continued aim of preserving capital and supporting business stability.”

But we heard that “it remains the group’s intention to resume dividend payments to shareholders as soon as operational and financial conditions normalise.”

FTSE 250 outperformance

Perhaps ironically, the effect of the pandemic on low-income families is offering something positive for Provident. Mr Le May pointed out that “our market will grow due to the pandemic.”

I think Provident Financial could be one of the FTSE 250’s better performers over the next few years. And I’m talking of both share price growth and dividends.

The post This FTSE 250 stock just jumped 20%. I’m seeing a growth plus dividend buy here appeared first on The Motley Fool UK.

Many of these companies offer dividend yields several times higher than the best Cash ISA rate, which could make them a better investment over the long run.

With that in mind, here are two FTSE 250 dividend champions that currently yield more than 8%.

Marstons

Brewer, pubs and hotels group Marston’s (LSE: MARS) has been proving its doubters wrong for the past six years. Despite rising costs and razor-thin margins, the business has gone from strength to strength since 2014. Revenues have increased at a compound annual rate of 8.3% during this period, and operating profit has increased five-fold.

The future looks bright for the business as well. Analysts are expecting net profit and earnings per share to continue growing over the next two years. What’s more, over the longer run, the company’s revenues should continue to expand at least in line with inflation as it increases prices charged to customers.

Today, investors can snap a share in this well-run operation for just 6.7 times earnings. That suggests the stock offers a wide margin of safety and current levels. Indeed, the rest of the hotel industry is trading at mid-teens earnings multiple, implying Marston’s is undervalued by around 100%.

On top of this attractive valuation, the stock also supports a dividend yield of 8.7%. Unfortunately, the dividend hasn’t been increased since 2016. Nevertheless, it’s covered 1.7 times by earnings, which suggests it’s entirely secure for the time being.

Provident Financial

Sub-prime lender Provident Financial (LSE: PFG) has had a rough time of it over the past three years. Still, it now looks as if the business is finally starting to get back on its feet.

Recent trading updates show profits are starting to grow again, and customer receivables — the amount of money the company has lent to borrowers but has not yet reclaimed — declined by nearly 10% in 2019. New customer numbers also increased last year by 1%.

These figures suggest the group is moving in the right direction. Over the next few years, management is planning to reduce costs and improve the group’s return on equity, a key measure of profitability for every £1 invested in the business.

Provident should also be able to capitalise on the collapse of other high-cost lenders in the past few years. It can use its reputation and scale to grab new business from the former customers of these operations.

Despite its growth potential, shares in the company are currently trading at a price-to-earnings ratio of just 8. In addition, the stock offers a dividend yield of 7.6%, more than twice the market average.

Therefore, now could be the time to snap a share of this recovered lender as it moves from the recovery to the growth stage of its comeback.

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