LONDON -- A yield of more than 4% is available from around one-third of companies in the FTSE 250 mid-cap index. Mid-cap shares often demonstrate a combination of the characteristics associated with both FTSE 100 blue chips and small caps. Mid caps are often well-established companies. They are also less researched by the fund managers. This can create the bargain opportunities we frequently see with small caps.
I've trawled the FTSE 250 index to find the 12 companies with the largest expected dividend payout. Remember, the forecast dividend yield for a share is sometimes high because investors are expecting a cut.
|
Company |
Forecast Yield |
Price (pence) |
Market Cap (millions of pounds) |
|---|---|---|---|
| FirstGroup (LSE: FGP.L) | 11.2% | 209 | 1,007 |
| Cable & Wireless Communications | 10.2% | 29 | 732 |
| Phoenix Holdings | 9.15% | 464 | 809 |
| Halfords (LSE: HFD.L) | 8.94% | 240 | 479 |
| Intermediate Capital (LSE: ICP.L) | 7.6% | 256 | 1,024 |
| Henderson (LSE: HGG.L) | 7.51% | 101 | 1,110 |
| Amlin (LSE: AML.L) | 7.44% | 334 | 1,657 |
| HomeServe | 7.41% | 154 | 507 |
| Kesa Electricals | 7.32% | 51 | 267 |
| TUI Travel | 7.3% | 168 | 1,877 |
| Catlin | 7.08% | 422 | 1,524 |
| SEGRO | 7.01% | 214 | 1,587 |
I've picked out five companies that look interesting.
1. Halfords
Disappointment with Halfords' recent final results saw the shares fall 10% on the day of announcement. Investors were spooked by margin declines in the company's retail and car repairs operations. The company also reported a 35% rise in net debt. Over the last 12 months, the shares are down almost 35%.
Consensus points to an 11% drop in Halfords' earnings for 2013. Investors know that if earnings are falling, then a company cannot maintain its dividend forever. With a forward price-to-earnings ratio of 7.9 times the 2013 forecast, the market appears unsure of Halfords' future.
Large retail chains are disappearing with alarming frequency. Normally, investors speculate on likely future earnings. In retail, they now speculate on the likelihood of a future at all. Investors need to decide whether Halfords' current difficulties are temporary. Game Group, Woolworths, and Clinton Cards all suffered terribly from the rise of Internet shopping. Is Halfords immune to this trend?
2. Intermediate Capital Group
Shares in Intermediate Capital Group trade on a forward dividend yield of 7.5% and a forward P/E of 7.8. Value investors love statistics like this. As the yield and P/E are similar, they would call the company a "square share."
The company specializes in providing finance to unquoted firms. Intermediate Capital Group also runs some funds made from underlying business loans and bonds.
Unfortunately, a significant decline in earnings per share is forecast for 2013. The dividend is expected to be held. Just as some investors might call Intermediate Capital Group a square share, others may be calling it a "value trap." If the decline in profitability is worse than forecast, then the dividend could be at risk. No value investor wants to be left holding shares in a company with declining EPS and a falling dividend.
3. Amlin
Non-life insurer Amlin long enjoyed the highest rating in its sector. Unfortunately, large losses in Amlin's corporate insurance division in 2011 forced the company to issue a profit warning. That led to Amlin shares losing 25% of their value in two months.
Amlin reported a loss for 2011. This put the insurer into the red for the first time since the World Trade Center atrocities.
Despite that loss, Amlin has maintained its dividend payout. At the end of 2011 the company reported net tangible assets of 243 pence per share. At today's price of 334 pence, it appears the premium rating is still priced in. Value seekers might prefer Novae, a smaller rival. Novae trades at 379 pence, versus net tangible asset value of 412 pence. At today's price, Novae is expected to yield 5%.
4. Henderson
Many Fools make their own investment decisions because they do not like the cost of managed funds. That doesn't mean the shares of fund management groups should be out of bounds, though.
Equity markets have been difficult for some time. For around 10 years, people have considered property a superior asset class to shares. Trading on a forward P/E of 8.9, it would appear that many investors are currently avoiding shares in Henderson.
However, property prices are now stalling. If politicians can deal with the problems in the eurozone, then shares could be set for a strong run. This could see attitudes toward share and property ownership reverse. Henderson would be a massive beneficiary in such a scenario.
With a high yield and modest rating, you don't need to believe in a new bull market to see value in Henderson today.
5. FirstGroup
FirstGroup has a 20% share of the U.K. local bus market. The company also runs train franchises such as First Capital Connect and First Great Western.
A trading statement from the company at the end of March revealed difficult trading in some of FirstGroup's U.K. bus operations. This led to a 30% decline in the following weeks. Despite this, FirstGroup reported growth in earnings and dividend with its full-year results in May. That growth is expected to come to a halt this year, while earnings go into reverse. Consensus forecasts are for FirstGroup to deliver 30.4 pence EPS. Nevertheless, this puts the company on an undemanding forward P/E of just 6.9.
FirstGroup is committed to another 7% increase in dividend for the coming year.
Let me finish by adding that more share ideas can be found within "Top Sectors for 2012" -- a Motley Fool study of three favorable sectors that could offer potential opportunities for long-term investors. The report is free.
Further investment opportunities:
