If you’ve got spare cash to invest and would like a reliable income plus some growth, I think the FTSE 250 mid-cap index is a good place to start. Here, I’m going to look at three stocks I’d be happy to buy today.
Mine’s a pint The last decade has been difficult for the pub business, but market conditions seem to be improving at last. For investors looking for a reliable income from this sector, I think the best choices could be Greene King (LON:GNK).
This £1.8bn businesss is the biggest listed pub operator in the UK, so it enjoys significant economies of scale. That’s important in an environment where costs, especially wages, are rising.
Greene King’s latest results suggest its performance has stabilised and may start to improve. Sales rose by 1.8% to £2,216.9m during the year to 28 April, while adjusted pre-tax profit was 1.6% higher at £246.9m. The dividend was left unchanged at 33.2p per share.
One potential risk is the group’s net debt of £1,943.3m. This figure fell by £89m last year but still remains high. However, the company is working to reduce this. Shareholders also have some protection thanks to a £3bn portfolio of freehold properties.
GNK shares trade on about 9.5 times forecast earnings and offer a dividend yield of 5.7%. Although I expect future growth to be slow, I see this as a good starting point for a long-term income investment.
Get the bus home The transportation sector is seeing big changes in technology, but I’m confident that we’ll continue to need public transport which can carry large numbers of people safely and efficiently.
My top choice in this sector is Go-Ahead Group (LSE: GOG), in which I own shares. This company has a strong history of generating attractive returns and paying generous dividends. Go-Ahead’s dividend has not been cut since its stock market listing in 1994. During that time, the payout has risen from 4.8p per share to 102p.
Alongside its UK bus and rail services, the business is now expanding abroad, with services in Germany, Ireland and Singapore. I hope to see further continued, conservative expansion that will support further dividend growth.
GOG shares aren’t quite as cheap as they were a few months ago, but the stock’s forecast price/earnings ratio of 11 and 5.2% dividend yield still look fair to me.
This could be safer than houses Demand for new housing still seems strong in the UK. But, in my view, housebuilders carry a lot of cyclical and political risk at the moment. So I’m more interested in investing in brick makers, who benefit from strong housing demand but also sell into commercial construction markets.
The largest brick producer in the UK is Ibstock (LSE: IBST), which has 19 factories, 23 quarries and also makes certain concrete products. The company has been running flat out in recent years and continues to report demand for bricks in the UK exceeds supply, meaning imports are required.
Although Ibstock would be exposed to a serious slump in demand, I’d expect sales of imports to fall before demand for UK bricks weakened too much. In the meantime, the business is performing well.
Strong cash generation has enabled the group repay debt and maintain generous dividends. IBST stock currently offers a forecast yield of 5.6%. In my view, this could be a decent long-term buy.
Roland Head owns shares of Go-Ahead Group. The Motley Fool UK has recommended Ibstock. 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.
Motley Fool UK 2019