09 Jan Two 6% yielders that could make you stinking rich
Leisure leviathan Elegant Hotels Group (LSE: EHG) has not proved to be a popular pick in Tuesday trading after it released a less-than-impressive set of trading numbers., the stock last 7% lower on the day.
The hotel operator announced that, although revenues had risen 5.1% in the 12 months to October 2017, to $59.9m, profit before tax had slumped 6.8% in the period to $11m.
Elegant Hotels — which owns and operates seven upmarket hotels and one restaurant in sun-baked Barbados — was struck by an increase in selling, general and administrative expenses which swelled to $22.9m from $20.1m a year earlier. And corporate costs increased following the appointment of a chief financial officer and group operations director.
Today’s release came as particularly troubling news for dividend investors. Reflecting what the company put down to “current market opportunities and the need to reinvest in our properties in an increasingly competitive market” it elected to slice the final dividend for fiscal 2017 to 1.75p per share, down from 3.5p in the prior year.
And as a consequence, the full-year payout dipped to 5.25p per share from 7p last year.
Now City analysts are currently expecting Elegant Hotels to get building dividends again from this year, supported by expectations that the business will finally see earnings begin to rise again after two successive dips (a 19% rise is currently predicted).
So forecasts are pointing to a 5.7p per share reward for fiscal 2018, resulting in a mammoth 6.4% yield.
Investors need to be aware, however, that of course the factors that saw it slim down the final dividend last year could well endure beyond the current year. And with this year’s projected payment covered just 1.6 times by touted earnings (some way below the widely-accepted safety benchmark of 2 times) the current dividend projection is not as robust as many would like.
Having said that, Elegant Hotels may be worth a visit for many share pickers given the company’s advice that “trading since the start of the new financial year has remained in line with market expectations, and our bookings are currently tracking ahead of the same period last year.” What’s more, in the long-term, the company’s expansion strategy (which saw it snap up the Treasure Beach hotel last year) may lay the groundwork for sustained earnings, and thus dividend, growth.
I reckon an ultra-low forward P/E ratio of 10 times may make Elegant Hotels worthy of serious attention today.
Another bargain income beauty
The insurance business has blasted back into earnings growth over the past couple of years and this is finally expected to culminate in juicy dividends being forked out. In 2017, helped by an anticipated 9% profits improvement Randall & Quilter is predicted to pay an 8.8p per share reward.
And with earnings predicted to rise an additional 9% this year, the dividend is expected to rise to 9p. Consequently shareholders can bask in a sumptuous 6.7% yield.
As I say, Randall & Quilter can be picked up for next to nothing, the company sporting a forward P/E ratio of 9.8 times. In my opinion this is exceptional value given the pace of its profits turnaround, helped in no small part by the impressive pace of its ongoing restructuring drive.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.