What happened? Is there valid cause for concern, or are investors overreacting? Let’s take a closer look.

Another round of disappointment

Trouble at XP Power started to emerge after losing a legal battle with a competitor over trade secrets. The resulting financial aftermath pushed the group’s balance sheet to severe limits. So much so that management had to negotiate with its creditors as it was on the verge of breaching its debt covenants.

While this was going on, the electronics industry as a whole had seen a significant slowdown in demand. Consumer spending on electronic devices has slowed thanks to higher inflation. And with supply chain disruptions improving drastically versus a few years ago, industrial and healthcare technology firms have been destocking their inventory, creating new headwinds for XP Power.

It seems these pressures have reached boiling point as the group has notified investors that full-year revenue will be significantly below expectations. Investors were already holding this business on a short leash. And with yet another profit warning today despite indicating that demand would improve around a month ago, it seems patience has run out.

Is this secretly a buying opportunity?

Despite the massive blow to XP Power’s share price, there were some positive takeaways from today’s announcement. For starters, cash flow generation came in higher than expected last year. As such, the firm is currently on track to lower its net debt-to-EBITDA ratio to 2.5 times by the end of 2024. That’s notably lower than its debt covenant limit of 3.5 times, resulting in more financial flexibility.

Meanwhile, the group’s cost-saving initiatives seem to be moving ahead on schedule. Once fully realised, management expects a significant reduction in overhead costs, paving the way to higher operating margins in the future.

That’s quite encouraging to hear, given the current state of affairs. And at a new price-to-earnings ratio of 8.2, shares have reached their cheapest level in years. So, should I consider capitalising on today’s volatility?

Personally, I’m staying cautious. XP Power was a member of my income portfolio until a few months ago. Poor communication from management ultimately led to a similar sharp drop in share price last year. And today’s fiasco seems to be a repeat performance.

There’s no denying that the firm is having to tackle problems that all its competitors are currently facing. But given the group’s recent track record, I’m not willing to give it the benefit of the doubt right now. Therefore, I’m steering clear and looking elsewhere for bargain buying opportunities among FTSE shares in 2024.

The post The XP Power share price just collapsed by 40%! Time to buy? appeared first on The Motley Fool UK.

So, what was behind the electronics company’s enormous share price fall? And has the crash here provided me with a buying opportunity?

Why the share price tanked

The share price fall yesterday was down to a trading update that was a little bit concerning.

For starters, the company – which specialises in critical power control products for the electronics industry – advised that trading in Q3 had been below its expectations, with revenue down 2% year on year (versus +24% for H1).

XP said that the poor performance was due to weakness in China and customers deferring shipments into 2024. Worryingly, it expects these conditions to continue for the rest of the year. As a result, it’s not expecting any growth in operating profit in 2023.

Secondly, the group said that its banking covenants could be breached in the near term due to the fact that its net debt/adjusted EBITDA ratio is close to the limits. Here, it noted that it is initiating dialogue with its lenders to seek covenant and liquidity flexibility for the remainder of 2023 and into 2024. It also said that it is exploring other options to strengthen its balance sheet, and bring leverage back to within its target range of one to two times net debt/adjusted EBITDA.

Finally, the company said that after its Q2 dividend is paid on 12 October, no further dividends will be paid for the 2023 financial year.

It’s worth noting that management was optimistic in relation to the company’s long-term outlook.

“Notwithstanding these short-term challenges, the Board believes XP’s clear strategy leaves the Group well positioned to grow ahead of its end markets, drive further market share gains, improve profitability and deliver strong cash generation,” it wrote in the trading update.

Overall, however, the update was pretty ugly.

Should I buy?

XP Power is a stock I’ve had on my watchlist for a few years now.

I’ve always thought it could be a good way to play the digitalisation theme. In theory, as the world becomes more digital, demand for the company’s products should rise.

After yesterday’s trading update, however, there’s a bit too much uncertainty for me to invest here.

My main concern is the balance sheet. At the end of Q3, net debt stood at £163m. That’s a high amount of debt relative to profits. And we don’t know what the company’s lenders are going to say about this leverage.

Given the large debt pile, XP may need to raise capital to strengthen its balance sheet. If it did raise capital, shareholders would most likely see their holdings diluted significantly.

It’s worth noting that this is not the first time the company has run into some challenges with its debt. Back in January, it advised that it had requested greater flexibility from its lenders. At the time, its lenders said that XP’s net debt/adjusted EBITDA ratio would need to be under three by the end of the year. The company is clearly struggling to achieve this, however.

Given these balance sheet issues, I think there are better small-cap shares to buy for my portfolio today.

The post XP Power shares just fell 51%. Should I buy? appeared first on The Motley Fool UK.

And thanks to ongoing economic uncertainty, the few that match this description are trading at tasty discounts.

Apart from securing a bargain price, buying into depressed valuations also enables investors to lock in much higher yields. And that’s why I’ve been incrementally increasing my position in XP Power (LSE:XPP).

Shares of the electronic components expert have been hammered from all sides lately, from legal battles to supply chain disruptions.

But while this series of developments has been frustrating, the underlying business remains fundamentally sound. And with a solid track record of raising shareholder payouts, a buying opportunity seems to have once again emerged for my income portfolio.

A thriving electronics enterprise

While it hasn’t been a straight line, courtesy of the pandemic, XP Power has grown its shareholder dividends by an average of 6.5% each year. While today’s yield of 4.5% is far from the largest on the London Stock Exchange, this payout level could grow substantially in the long run. Even more so considering the trend in demand for the group’s products.

As a quick reminder, XP Power designs electronic components that power industrial machinery, medical equipment, and even semiconductor manufacturing machines. With the electrification of the world accelerating, the group isn’t having much difficulty attracting new customers.

Looking at its latest interim results, sales climbed 30% and gross margins expanded by 160 basis points to 41.8%. Meanwhile, operating profits bounced back from last year’s legal fees, jumping from a loss of £45.2m to a gain of £17.3m.

Building that dividend income

With the dividend per share at 94p, investors would need to buy roughly 1,277 shares to generate a £1,200 annual passive income. But with the current share price around 2,250p, that’s not a cheap transaction. In fact, investors would need to inject approximately £28,730 of capital into this business.

However, it’s possible to build up to this amount over time and take advantage compounding to accelerate the process. If I instead invest £100 each month into this company and reinvest all the dividends received, I could hit the £28,000 threshold within 16 years.

Providing the group continues to maintain its average dividend expansion rate, this process could be significantly faster. Not to mention the boost from potential share price appreciation. In other words, it may take considerably less time to hit this goal, at which point I can cash out the dividends instead of reinvesting them.

However, as easy as this sounds, there are some caveats to consider. While XP Power looks like a solid enterprise today, it still has its weak spots.

The firm’s balance sheet debt is already incurring significantly higher interest costs following the recent rate hikes. And while operating cash flow can still cover these expenses today, net profit margins are still being squeezed.

As such, future dividend growth is far from guaranteed. And in the worst-case scenario, shareholder payouts may end up getting cut, sending the stock price firmly in the wrong direction.

All of this is to say investing carries risk. But in the case of XP Power, I believe this risk is worth taking, given the potential reward.

The post I’d buy 1,300 shares of this stock for a £100 monthly passive income appeared first on The Motley Fool UK.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Barclays

What it does: Barclays is a UK high-street bank, with an international investment banking arm and US interests.

By Alan Oscroft. I see so many British stocks that look good value, I’m spoiled for choice.

But at the moment, I really can’t see past Barclays (LSE: BARC). The US banking failures have rattled the UK bank sector. And Barclays, with its US arm, has suffered the most.

Even as I write, I see European economists talking of a real chance of global banking instability this year. And I really do think there’s a significant chance of that happening.

Oh, and inflation is worse than expected, which will also pressure the world’s financial institutions.

So why do I see Barclays as a buy for April? Well, it’s all about valuation, and I think the latest sell-off has simply pushed the Barclays share price down too low.

Forecasts put the stock on a price-to-earnings (P/E) of under five. And unless Barclays goes bust, I think that looks like a steal.

Alan Oscroft does not own Barclays shares.

Barclays

What it does: Barclays serves 48m customers worldwide and has operations in a variety of sectors that include retail and investment banking.

By John Choong: The recent sell-off in bank stocks have caused a lot of fear. Consequently, the Barclays (LSE:BARC) share price has fallen 20% since the start of the turmoil, as I write. Nonetheless, there are plenty of reasons for me to believe that the stock is trading at remarkable value.

For one, its financials remain one of the strongest among its FTSE 100 peers. This is in part due to the stricter regulations imposed by the regulatory bodies in the UK. As such, its CET1, liquidity coverage and countercyclical (CCLC) ratios are extremely robust.

Aside from that, it also holds one of the strongest deposit bases in the sector. This is because the percentage of risk-weighted assets it holds to total assets are much lower than its counterparts. Additionally, the bulk of its deposits are from retail customers, which means the likelihood of those funds being insured are higher — lowering the likelihood of a bank run.

Pair the above with valuation multiples that are at an industry low, and it’s easy to see why Barclays shares are my value play for April.

John Choong has no position in any of the shares mentioned.

Greencoat UK Wind 

What it does: Greencoat UK Wind operates 45 onshore and offshore wind farms with a total power capacity of 1.6GW.

By Royston Wild. April could be a big month for safe-haven UK shares if worries over the banking sector explode. Renewable energy stock Greencoat UK Wind (LSE:UKW) is one such stock that could experience solid share-price gains. 

As the name implies, this company invests in wind farms across Britain. So, barring any production problems, it can expect to continue growing earnings regardless of the economic landscape. Electricity is an essential commodity, after all. 

Greencoat UK Wind has attractive investment potential beyond the immediate term, too. Due to the government’s carbon-cutting legislation demand for clean energy is on course to soar. 

Today this FTSE 250 firm trades on a forward price-to-earnings (P/E) ratio of just 6.5 times. It also carries a tasty 5.5% dividend yield. This all-round value makes it a great buy for investors seeking bargain stocks in my opinion. 

Royston Wild does not own shares in Greencoat UK Wind. 

GSK

What it does: GSK is a global healthcare company that operates in the areas of medicines and vaccines.

By Edward Sheldon, CFA. GSK (LSE: GSK) shares have fallen over the last year and I think they offer decent value at present. Currently, the shares trade on a forward-looking price-to-earnings (P/E) ratio of less than 10 – well below the UK market average.

GSK’s recent full-year 2022 results showed that the company is performing pretty well right now. For the year, sales were up 13% at constant currency to £29.3bn. Meanwhile, adjusted earnings per share were up 15% to 139.7p.

Looking ahead, the healthcare company said that it expects revenue growth of 6-8% this year along with earnings growth of 12-15%. It expects to pay a dividend of 56.5p per share, which equates to a yield of around 4% currently.

One key risk here is Zantac litigation. This adds some uncertainty. Another is debt on the balance sheet. I think these risks are probably priced into the stock already though.

Edward Sheldon has no position in GSK.

Legal & General 

What it does: Legal & General is one of the UK’s largest financial services and insurance companies.  

By Charlie Keough. My top British value stock for April is Legal & General (LSE: LGEN).  

As I write, the FTSE 100 giant trades at a price-to-earnings ratio of just six. With this, I think its shares present great value. 

What also draws me to Legal & General is the plans it has to increase dividends via an initiative it has been working on in recent years. By 2024, the business aims for a cumulative dividend ambition of £5.6bn-£5.9bn. And since announcing this in 2020, Legal & General has made great strides. 

On top of this, the stock offers a meaty dividend yield of around 12%, significantly trumping the Footsie average of around 3-4%.  

Its share price has suffered in the last year. And this may be due to consumers shying away from making investments as they keep some much-needed cash to hand.  

However, with its low valuation and high dividend, I like the look of Legal & General shares.  

Charlie Keough owns shares of Legal & General.  

Persimmon

What it does: Persimmon is a housebuilder that buys land and develops housing estates across the UK

By Christopher Ruane. I had been eying homebuilder Persimmon (LSE: PSN) for a long time before recently buying its shares for my portfolio.

Why now? After all, the property market might get worse in coming months and years. That could hurt both revenues and profits at Persimmon. But I think that risk is already reflected in the share price.

The current price-to-earnings ratio of 7 looks like good value to me, although of course if earnings fall sharply the ratio will be less attractive. Persimmon has set out plans to reduce its dividend this year. Its revised payout policy could mean that coming years see smaller dividends than has been the case.

I see that as prudent management given the uncertain housing market. Even after the cut, I expect Persimmon to offer an attractive dividend yield. Persimmon has a business model that can generate strong profit margins in good years. As a long-term investor, I am prepared to wait.

Christopher Ruane owns shares in Persimmon.

Persimmon

What it does: FTSE 100 member Persimmon is one of the UK’s largest housebuilders

By Paul Summers: My decision to take a position in housebuilder Persimmon (LSE: PSN) a couple of months ago hasn’t exactly got off to a flying start. The ongoing jitters surrounding the cost of living and rising interest rates coupled with the recent banking crisis were never likely to improve sentiment.

Still, I’m not about the throw the towel (or should that be trowel?) in. This still looks like a great value stock to me. As I type, Persimmon shares trade on a little less than 11 times forecast earnings. But this is after analysts have factored in a severe hit to numbers in this year.  

We also now have clarity as far as the dividend is concerned. While a cut is never nice to see, a likely yield of 6.4% for FY23 remains more than satisfactory in my opinion. 

If/when interest rates reverse, the reaction in Persimmon’s share price could be explosive.

Paul Summers owns shares in Persimmon

Target Healthcare 

What it does: Target Healthcare is a UK-based real estate investment trust (REIT) that invests in modern, purpose-built care homes. 

By Mark Tovey. Target Healthcare (LSE:THRL), like most REITs, has seen its share price collapse in recent months as interest-rate rises continue weighing on the value of its property portfolio. It is now trading at a price-to-book ratio of 0.64, with a forward dividend yield of 9%. 

I like Target’s business model because it is positioned to benefit from unstoppable demographic trends. The number of over-85s in the UK is expected to nearly double to 3.3m over the next 25 years. Ready to accommodate that grey tidal wave is Target, with 101 care homes across the UK.  

Importantly, Target has a diversified tenant base, with 34 different companies renting out its properties. Target’s average lease period spans close to three decades, and annual rental growth is baked into the contracts.  

The biggest risk of buying shares, which I plan to do, is that no one knows how far property prices could fall. 

Mark Tovey does not own shares in Target Healthcare. 

Unilever

What it does: Unilever is a British consumer goods conglomerate whose products include Dove, Magnum and Hellmann’s. 

By John Fieldsend. Unilever (LSE: ULVR) has a fantastic track record of strong dividend payouts combined with share price growth. A lucrative history for shareholders indicates good management and culture, and is the first thing I look for in a stock that I want to hold for many years.

Not only that, but the company is well positioned to weather the storm of a recession or cost-of-living crisis thanks to its brand power. 

When people shop, they tend to go for the cheapest option, especially in a recession. But when someone wants a brand item like a Magnum ice cream, there are no other options. This is one reason why rising costs can be passed on to consumers with little difference in sales. And it’s key to why I think Unilever and its focus on strong brand power is an attractive value stock for the long term. 

John Fieldsend does not own shares in Unilever.

XP Power

What it does: XP Power is a world-leading supplier of critical power solutions for the industrials, medical, and semi-conductor manufacturing sectors.

By Zaven Boyrazian. 2022 was a rough year for the once-loved electronics specialist XP Power (LSE:XPP). The firm designs and manufactures electronic components used throughout medical, industrial, and semi-conductor manufacturing machines. But its share price took quite the blow following a legal spat with a rival firm.

XP Power was ordered to pay $40m in damages. And when combined with its own legal expenses, operating profits fell from a gain of £29.7m to a loss of £24.1m in 2022. What’s more, with a higher inventory spend to satisfy its order backlog paired with a recent acquisition, the net debt balance ballooned from £24.6m to £151m over the same period.

While frustrating, neither of these factors haven’t compromised the firm’s long-term strategy. Revenue is still growing by double-digits. And management expects to return to full profitability next year, with the net debt balance falling rapidly as its order backlog is cleared.

Trading at a forward P/E ratio of just 13, XP Power looks like a value opportunity to me.

Zaven Boyrazian owns shares in XP Power.

The post Best British value stocks to buy in April appeared first on The Motley Fool UK.

But the underlying businesses remain fundamentally sound. And while the short term is still filled with uncertainty and volatility, in the long run, I remain confident.

However, while many of my positions have already begun recoveries, there are still several trading below their estimated intrinsic value. And providing the recent upward momentum seen in the FTSE 100 and FTSE 250 continues, the window of opportunity to capitalise on these potential bargains may be closing.

So let’s explore two companies in my portfolio I’m considering buying more of.

A beaten-down stock

In my experience, some of the best investing bargains are businesses overly punished by investors. That’s a category I’d place XP Power (LSE:XPP) in.

As a quick reminder, the firm designs and manufactures electronic components for machines in the industrials, healthcare, and semiconductor manufacturing industries. Investors were understandably on edge, due to supply chain disruptions that started in 2020.

However, this stock fell from grace after the company was slapped with a $40m legal penalty for stealing trade secrets. Needless to say, that isn’t good. And, unsurprisingly, the share price fell off a cliff.

From a financial perspective, the group has enough capital to pay the fine without crippling its balance sheet. But what about reputational damage? Well, looking at the latest results, it seems customers aren’t too bothered.

The order book continues to grow, and with supply chain disruptions being resolved, XP Power is clearing its backlog. As such, revenues are once again increasing at double-digit rates.

Despite the impressive performance comeback, the shares continue to trade more than 40% lower than 12 months ago. That’s why I believe XP Power is an opportunity to buy while there’s blood on the street. And why I think it could be one of the best stocks to buy and hold in 2023.

Potential tailwind

With inflation hurting household budgets, Howden Joinery Group (LSE:HWDN) may seem like an odd choice in 2023. As a quick recap, the firm designs and sells of fitted kitchens working directly with builders across the UK, Ireland, and France.

It’s hardly the most exciting enterprise. But it’s proven to be immensely lucrative over the years, rewarding patient investors with a steadily rising dividend and buybacks.

Most of the firm’s cash flow originates from households seeking to renovate their kitchens. With consumers looking to cut unnecessary spending, due to the cost-of-living crisis, it would make sense home renovations are likely to be postponed. And yet, that doesn’t seem to be happening.

The latest earnings report announced double-digit revenue growth, with pre-tax profits expected to exceed analyst forecasts. What’s more, performance may be set to accelerate.

With housing becoming more expensive, a new tailwind may start blowing. As families are more likely to stay put for longer, renovation demand will likely increase in the long run.

And while supply chain disruptions continue to pose a threat, the discounted valuation makes it a risk worth taking, in my opinion. That’s why Howden Joinery is number two on my buy list.

The post These 2 picks are on my 2023 stocks to buy list! appeared first on The Motley Fool UK.

After searching for lucrative opportunities, I’ve identified two businesses in particular that I believe have compelling investment cases. So much so, I’ve recently added both to my income portfolio.

Powering critical electronics

As technology evolves, the demand for increasingly complicated electronic systems is rising. And this trend is something that XP Power (LSE:XPP) is having little difficulty capitalising on. The firm is a designer and manufacturer of electronic components, primarily catering to the healthcare, industrial, and semiconductor manufacturing industries.

However, it recently found itself in some legal hot water, resulting in a $40m penalty. And this judgement, unsurprisingly, sent the share price crashing 70% between January and October 2022. Obviously, that’s not a good look. But it seems investors may have overreacted, potentially turning it into a superb stock to buy now.

While frustrating, the legal fine doesn’t compromise XP Power’s balance sheet. And while there is the risk of reputational damage, it seems most customers remain loyal to the business as a supplier. Its latest trading update announced record revenues of £290.6m, up by 21% versus a year ago. Meanwhile, supply chain disruptions are finally resolving, accelerating order fulfilment.

With an order book of £362.7m, the firm seems to be in a prime position to thrive in 2023. Needless to say, these financials are impressive. And when paired with a significant decline in share price over an unfortunate but short-term issue, I can’t help but feel a buying opportunity has emerged. And given that the share price has surged by 56% in the last four months, others seem to agree.

The best UK stock to buy now?

Another company whose financials don’t seem to match the share price direction is Londonmetric Property (LSE:LMP). The business is a real estate investment trust specialising in commercial properties such as warehouses and retail outlets.

With interest rates on the rise, the value of its property portfolio has been steadily diminishing. And consequently, its valuation has been dragged down to reflect this. But as an income investor, my main concern is the state of cash flows. After all, the core business model of Londonmetric is to generate profits through rent, not asset flipping.

As it turns out, even though online spending has tapered due to the cost-of-living crisis, demand for well-positioned warehousing remains high. So it shouldn’t be surprising that net rental income is actually up by 14%, reaching £72.1m.

With bolstered cash flow, management has subsequently increased shareholder dividends from 4.4p to 4.6 per share, resulting in a yield of roughly 5% today. Obviously, the rising cost of debt does pose a threat. And it will undoubtedly impact the firm’s ability to expand as rapidly as in the last decade.

However, given the continued rise in e-commerce and management’s proven track record of delivering reliable income, it’s a risk I feel is worth taking. That’s why I believe it could be one of the best UK stocks to buy now and why I recently became a shareholder.

The post £3k to invest? I think these are the best UK stocks to buy right now appeared first on The Motley Fool UK.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

British American Tobacco

What it does: British American Tobacco manufactures and sells cigarettes, tobacco and other nicotine products.

By Harshil Patel: British American Tobacco (LSE:BATS) currently offers a 6.5% dividend yield. Having consistently paid dividends every year for over 25 years, I’m comfortable that this cash-generative business will be able to continue to do so over the coming years.

It’s a cheap and profitable business that achieved almost £10bn of free cash flow last year. Much of that has benefited shareholders through dividends and share buybacks.

I’d note that this industry is affected by tight regulation and high levels of taxations. Also, cigarette sales are slowly falling. That said, much of this is more than offset by higher prices. The end result for British American Tobacco is higher profit.

Looking forward, BAT is well placed to benefit from trends towards e-cigarettes. It expects this part of the business to reach £5bn in sales in the next three years.

Overall, these income shares still look attractive to me, and warrant an increase in my current position.

Harshil Patel owns shares in British American Tobacco.

Tritax Big Box REIT

What it does: Tritax Big Box REIT is a real estate company that invests in large-scale logistics warehouses and lets these out to retailers. 

By Edward Sheldon, CFA. I have chosen Tritax Big Box REIT (LSE: BBOX) as my top income stock to buy this month. It currently offers a prospective dividend yield of around 4.5%.

One reason I like BBOX is that the company is well placed to benefit from the long-term growth of online shopping. Looking ahead, retailers are likely to need more access to strategically-located distribution warehouses as online sales increase. 

Another reason is that the company’s warehouses are let out to blue-chip tenants such as Tesco, M&S, and Amazon. These kinds of tenants are quite defensive in nature. It’s unlikely that they would be unable to pay their rent. 

It’s worth noting that Tritax sometimes needs to raise additional money from investors through share placings to expand its real estate portfolio. These can push its share price down temporarily. 

I’m comfortable with this risk, though. That’s because these share placings ultimately fuel long-term growth. 

Edward Sheldon owns shares in Tritax Big Box REIT and Amazon.

Airtel Africa 

What it does: Airtel Africa provides telecoms and mobile money services primarily across East and West Africa. 

By Royston Wild. The Airtel Africa (LSE:AAF) share price remains in the doldrums following half-year financials in late October. 

As a value investor, I think this stock represents a top dip buying opportunity for me. Firstly, the telecoms firm’s current forward dividend yield of 4% beats the FTSE 100 average of 3.7%. 

The yield gets markedly better over the next two years, too, as City analysts tip healthy dividend growth. Yields sit at 4.9% and 5.3% for the financial years to March 2024 and 2025 respectively. 

Secondly, Airtel Africa trades on a rock-bottom prospective P/E ratio following recent share price weakness. It trades on a multiple of just 7.7 times. 

I think the business is a great way to profit from soaring wealth levels in its 14 African markets. Revenues at constant currencies shot 16.9% higher in the six months to September, driven by strong growth across both its data and mobile money businesses. 

I’d buy Airtel even though a strong US dollar is a threat to future profits.

Royston Wild does not own shares in Airtel Africa. 

GSK

What it does: GSK is a healthcare business that offers medicines and vaccines that are used by patients worldwide.  

By Charlie Keough. GSK (LSE: GSK) shares have, like many, been a victim of falling investor confidence. This year has seen the stock fall by over 14%. However, I think December could be the time to buy.  

Despite the drop in share price, the business has posted some strong results in 2022. It raised its guidance in its half-year results. And when it updated investors with its Q3 results in early November, a continuation of this strong performance meant it raised it once again. It now expects growth in sales to come in between 8%-10%. With sales rising 9% in Q3, GSK looks like it’s fully on its way to achieving this. 

On top of this, the stock also offers a substantial dividend yield of around 7%. With inflation continuing to surge in the UK, the passive income created from this offers me, to some degree, a hedge against inflation.  

In the months ahead, the business may see its cost rise as inflation continues to spike. However, I’m still looking to potentially buy GSK stock in December. 

Charlie Keough does not own shares in GSK.  

Smurfit Kappa Group

What it does: Smurfit Kappa Group is a manufacturer of paper-based packing products operating in the UK, Europe, and America.

By Gabriel McKeown. In my opinion, Smurfit Kappa Group (LSE: SKG) is a prime example of an unlikely income stock, and this has led to the market neglecting the opportunity. This year has been challenging for Smurfit, with the stock price falling almost 25%. However, the underlying fundamentals remain attractive, with solid forecast earnings growth and reasonable profit margins.

Yet it is the dividend potential that drew my attention to the company, offering a current yield of 3.6%, which has been paid consistently for the last 11 years and has grown for the previous 10. Furthermore, this yield is forecast to grow by 14.5% next year, hitting 4%.

The recent sell-off in stock price has meant that the company has a P/E ratio of just 13. So when combining the strong fundamentals, with the dividend potential, I believe this could be a prime income opportunity.

Gabriel McKeown does not own shares in Smurfit Kappa Group.

XP Power

What it does: XP Power is a leading designer and manufacturer of specialist electronic components for numerous industries.

By Zaven Boyrazian. XP Power (LSE:XPP) is a specialist designer and manufacturer of electronic components critical to many devices. The group primarily focuses on supplying the healthcare, industrial, and semiconductor manufacturing industries.

In recent years, global supply chain disruptions have wreaked havoc on the group’s manufacturing lead times. Meanwhile, XP Power recently lost a legal battle over a competitor’s trade secrets which sent the share price down the drain.

However, according to its latest quarterly results, the underlying business remains financially robust, with order intake and revenue growing at an impressive pace.

Furthermore, the collapse in valuation has pushed the dividend yield to reach an attractive 4.6%. With order fulfilment slowly accelerating again, and the damage of the legal dispute already priced into the market capitalisation, XP Power stock looks like a lucrative long-term income buying opportunity for my portfolio.

Zaven Boyrazian owns shares in XP Power.

Polar Capital Holdings

What it does: Polar Capital Holdings plc is a specialist fund management company listed on the Alternative Investment Market (AIM).

By Paul Summers: My dividend pick for December is Polar Capital Management (LSE:POLR). Like other asset managers, Polar’s shares have plummeted in value in 2022 as investors have become fearful over rising prices, the Russia/Ukraine conflict, and just about everything else. This leaves the shares trading at 13 times earnings and yielding over 9% in the current financial year.

There’s clearly risk here. If things go from bad to worse, Polar could be forced to cut its payouts. As such, it goes without saying that I’d need to ensure that the rest of my portfolio is sufficiently diversified away from this industry before taking the plunge. 

Then again, it’s worth noting that the interim dividend was maintained in November’s half-year numbers. That’s despite the company seeing a significant but arguably expected reduction in pre-tax profit. This gives me confidence that Polar’s income stream will emerge from the storm unscathed.

Paul Summers has no position in Polar Capital Management.

Dunelm

What it does: Dunelm is a homewares retailer serving the British market through a network of stores and online

By Christopher Ruane. In the past few months I have been buying Dunelm (LSE: DNLM) stock. Even after rising lately, the shares are 27% cheaper than they were a year ago.

I do see a risk that people having less spare cash could lead to falling sales at the chain. But I see long-term potential in the well-run business, which is highly cash generative. Last year Dunelm generated £153m of free cash flow, helping fund around £75m in ordinary dividends.

The company also paid a generous special dividend. If business is tougher this year, there may be no special dividend. But the ordinary dividend yield is already 4%, which I see as attractive. It was covered twice over by earnings last year.

In the long term I am also optimistic there may be more special dividends to come. Dunelm is an income-generating machine. I’d buy more of its shares this December if I had spare cash to invest.

Christopher Ruane owns shares in Dunelm.

Primary Health Properties 

What it does: Primary Health Properties is a leading investor in modern primary healthcare facilities in the UK and Ireland, with the majority of rental income underpinned by government bodies. 

By G A Chester. Primary Health Properties (LSE: PHP) has attractive qualities for dividend investors. Long leases, with rental income backed by the NHS (and the HSE in Ireland), make for predictable cash flows to support growing dividends. In fact, PHP has just delivered a 26th consecutive annual increase. 

Historically, investors have been willing to pay a premium to the company’s net asset value (NAV) and accept a sub-5% — and at times sub-4% — dividend yield. 

However, at a recent share price of 116p, the stock is at a 4% discount to last reported NAV of 120.8p. And with quarterly dividends totalling 6.5p, the running yield is 5.6%. Furthermore, for buyers of the shares today, the prospective yield is 5.9% on expectations (if met) of an increased payout to 6.8p in 2023. 

A radical change in government policy curtailing private sector involvement in the NHS would hurt PHP, but I think this is a low risk. 

G A Chester does not own shares in Primary Health Properties. 

Taylor Wimpey

What it does: Taylor Wimpey is one of the UK’s biggest housebuilders and has a rather big exposure to most regions of the country.

By John Choong. Taylor Wimpey (LSE: TW) shares have lost almost half their value this year due to fears of a house market crash with sky-high mortgage rates. As such, the housebuilder has seen its order book shrink and cancellations tick up.

Despite that, its position as an income stock for my portfolio remains lucrative as management is yet to rebase its dividend. The strength of its balance sheet allows it to cover its current dividend yield of 8.8%, twice. Therefore, I’m only expecting a small cut to its dividend in the near term.

Most importantly, however, I think its share price may have bottomed. With the Bank of England set to pause its rate hikes soon, mortgage rates may have hit a peak. This could ease the downward pressure on house prices and allow me to capitalise on a rebound in the medium term. Not to mention, Deutsche rates the stock a ‘buy’ with a price target of £1.15.

John Choong has no position in Taylor Wimpey.

National Grid 

What it does: National Grid owns and operates energy transmission and distribution networks in the UK and US and is the electricity system operator across the UK. 

By James J. McCombie: National Grid (LSE: NG) shares offer a dividend yield of 5.1%. The company has consistently increased its payments to shareholders every year since at least 2000, making it a true dividend aristocrat.

As a utility company, National Grid is unavoidably asset-heavy. Building and maintaining those assets is expensive and has resulted in relatively high debt levels. For example, connecting new renewable sources to the grid might cost £35bn over the next three years. The business is also highly regulated. There are profit caps and potential windfall taxes, and the scrutiny makes deals and growth challenging. 

However, it is heavily regulated precisely because of its privileged position. At the heart of the UK’s energy industry, it enjoys pretty steady and predictable cash flows and revenues that should closely track inflation, making increasing dividend payments a more straightforward task than most other companies.

James J. McCombie does own shares in National Grid.

BP plc 8% Cum 1^st Prf

What it does: BP is one of the major oil companies that finds, extracts, refines, and supplies oil products.

By Stephen Wright. My dividend stock of choice for December is BP plc 8% Cum 1^st Prf shares. I think that the stock offers a steady return that is attractive at today’s prices.

I’ve opted for the preferred shares over the common equity for two reasons. First, I think that the price of oil is uncertain at the moment. Second, I think that the preferred stock trades at an attractive price.

Unlike the common equity, the preferred shares pay a fixed dividend. That means that even if BP’s profits drop, an owner of the preferred stock will still receive the same dividend (unless the company suspends its dividend entirely).

At today’s prices, that return amounts to an annual return of over 5%. To me, that looks attractive compared to the returns on offer elsewhere on the UK stock market. That’s why I’d look to buy it as my dividend stock for December.

Stephen Wright owns shares in BP plc 8% Cum 1^st Prf

The post Best British dividend stocks to buy for December appeared first on The Motley Fool UK.

That doesn’t mean to go forth and start buying every beaten-down enterprise on the London Stock Exchange. After all, some companies have been sold off for a good reason. But in many cases, share prices of terrific businesses have been slammed on fears of ultimately short-term problems despite the long-term picture remaining intact.

With that in mind, I’ve spotted one promising firm that falls into this category. And investors with £1,000 may want to snatch up some shares while they’re still cheap.

Trouble in the courts

XP Power (LSE:XPP) is a leading designer and manufacturer of electronic components used throughout machines in the medical, industrial, and semiconductor manufacturing industries.

For years the group traded at a significant premium, matching its impressive growth and shareholder value creation. Yet XP Power quickly started losing favour as supply chain disruptions caused its production lead times to extend.

To make matters worse, in March, a jury found the company guilty of stealing trade secrets from its competitor Comet after hiring some of its employees in 2017. It remains unclear whether the firm intends to appeal the decision. But what is clear is it now has to pay the $40m fine.

Needless to say, this isn’t good news. And it certainly doesn’t make XP Power sound like “best shares to buy now” material.

Taking a step back

With the damage of the lawsuit and supply chain disruptions being baked into the valuation, the share price has plummeted by 60% in the last 12 months. However, it’s worth remembering the legal bill is only a one-time expense. As for the supply chain disruptions, these will naturally start to alleviate themselves. There’s even evidence this is already happening.

The book-to-bill ratio tracks the proportion of orders received versus orders shipped. And looking at XP Power’s latest third-quarter results, this metric has dropped from 1.58 in September 2021 to 1.27 today. In other words, order fulfilment is accelerating. And with more products being delivered, revenue has followed suit, growing by 29% over the same period.

What about reputational damage? Being sued for stealing trade secrets doesn’t exactly look good. And while the firm has undeniably tarnished its image, this doesn’t appear to have deterred customers. In fact, since the start of 2022, the group has received £294.2m in orders. That’s 15% higher than a year ago.

All things considered, XP Power seems to be back on track. And while mistakes have definitely been made, they haven’t compromised the long-term strategy. That’s why I believe these could be some of the best shares to buy now. So much so, I’ve even added them to my personal portfolio as well.

The post Got £1,000? These might be the best shares to buy right now appeared first on The Motley Fool UK.

With that in mind, I’ve spotted two stocks that seem like no-brainer buying opportunities, even if I only had as little as £100 to invest. Let’s take a look.

One of the best UK shares to buy now?

XP Power (LSE:XPP) has had a tough run of late, with the share price tumbling by over 60% in the last 12 months.

As a quick reminder, the business is an electronics components manufacturer that works directly within the engineering, medical, and semiconductor manufacturing industries. So it shouldn’t be surprising that the disruptions to global supply chains have created many headwinds for this business.

Revenue growth has stalled while the order book and lead times continue to build. Sourcing raw materials is proving to be challenging. Even more so, given its manufacturing facilities are located in China, where strict Covid-19 policies are still in effect. To add more fuel to the fire, its competitor Comet Technologies accused XP Power of stealing trade secrets which a US jury awarded $40m in damages against the firm.

With all that in mind, watching these UK shares get sold off isn’t all that shocking. But while these developments are frustrating, the long-term strategy of this business ultimately remains uncompromised. At least, that’s what I think.

Management is still proceeding with its facility expansions to bolster manufacturing capacity once supply chain disruptions have ended. It has £189.2m in liquidity to work with versus only £105.8m in short-term liabilities. And while the $40m legal bill isn’t a pretty sight, it’s ultimately a one-time expense.

In the short-term, further volatility in the XP Power share price may continue. But as a long-term investment, this looks like a no-brainer buy for my portfolio, despite the risks.

Stock Pick #2

Another British business hit hard recently is Howden Joinery (LSE:HWDN). Shares of the UK kitchen materials supplier have tumbled nearly 40% over the last 12 months. And it’s not difficult to understand why.

With consumer spending for discretionary items like home renovation steadily declining and the house building industry beginning to slow, many investors expect Howden Joinery to follow suit.

But looking at the latest results, it seems someone forgot to tell the company. Because revenue continues to grow by double-digits, profit margins are climbing despite inflationary pressures, and the firm is capturing greater market share through expanding its depot network.

Management has admitted that if the housing market or consumer sentiment continues to suffer, maintaining its current momentum could prove challenging. This is obviously a significant risk to consider before making an investment decision.

Yet, with a P/E ratio of just 10 and a tasty 3.4% dividend yield, these UK shares look like a bargain, in my eyes. That’s why I added them to my income portfolio last week.

The post 2 no-brainer UK shares to buy now with just £100 appeared first on The Motley Fool UK.

Today, I’m revealing three examples occupying spots on my buy list.

Games Workshop

I already own stock in fantasy figure maker Games Workshop (LSE: GAW) and I’m looking to add more.

Like most listed companies, the owner of the Warhammer 40,000 brand is having a nasty 2022. Shares are down almost 30% year-to-date as stock markets fret over, well, pretty much everything.

I don’t see this situation changing immediately. Like other retailers, Games could suffer as its legion of fanatical followers understandably prioritise paying their bills. For this reason, the next update we receive from the FTSE 250 member could make for tough reading.

For someone with a longer timeline however, I think a price-to-earnings (P/E) ratio of a little under 19 is already great value, relative to the quality of the underlying business. Attractions here include big margins, a seriously-strong balance sheet, a dominant position in a niche market and plenty of scope to push its valuable IP in new directions.

XP Power

Next on my buy list is power solutions provider XP Power (LSE: XPP). It’s another firm that’s been heavily rejected in 2022 with shares tumbling nearly 65%. Again, I wonder if the market has become overly pessimistic here.

Now don’t get me wrong, things are pretty grim at XP Power. Revenue growth has been held back by component shortages and a resurgence of Covid-19 in China. A rapidly rising debt pile is not something I like to see either.

Once again however, I suspect this is already reflected in the price. A P/E of 10 could prove wonderful value when the good times return. And given just how important the company’s products are, I think the chances of this happening are pretty high. It already had a record order book of £285m going into the second half of 2022.

In the meantime, there’s a 5.2% dividend yield for me to re-invest back into the market (and, potentially, the very company this cash originated from).

Fevertree Drinks

A third growth stock I’m looking to invest in is premium tonic water purveyor Fevertree Drinks (LSE: FEVR). Shares have crashed almost 70% in 2022 through a toxic mix of increasing costs, labour shortages across the pond and less glass being available.

Are any of these headwinds permanent? I don’t think so. And that’s where my Foolish instincts kick in. Ignoring the share price movement, I reckon this remains a great company with a strong premium brand that’s quickly developing a following in the US.

But there’s a problem. Fevertree shares change hands at a P/E of 40. At face value, that’s (very) punchy considering margins have been squeezed hard in recent years. And as purse strings tighten, a bad 2022 could easily turn into an equally tricky 2023.

On the flip side, Fevertree boasts strong finances to weather the storm. And when energy prices do calm down and discretionary income bounces back, I can see drinkers pushing the boat out once again.

Will I buy before then? I just might!

The post 3 growth stocks on my buy list appeared first on The Motley Fool UK.