Shares in Saga (LSE: SAGA), the company that provides travel, insurance, and other services aimed at the over 50s, have had a bad time. The price slumped after a profit warning last December, hit by the collapse of Monarch Airlines and by a difficult market for Saga’s insurance business. There’s been scant sign of any recovery in 2018 — over 12 months, Saga shares are still down close to 35%.
On fundamentals, I can see why Saga might look tempting. Current forecasts suggest a fairly benign 5% dip in EPS this year, which would put the shares on a forward P/E of under 10. And the predicted dividend of 8.9p would provide a yield of 7%.Â
As my colleague Rupert Hargreaves points out, it does look as if Saga is successfully getting over its problems. And its future, partly thanks to its two planned new cruise ships, is looking brighter.
On track
In a trading update in June, chief executive Lance Batchelor spoke of “good momentum this year across our travel and insurance businesses, particularly in new motor and home insurance policies, underwriting performance and bookings for our new cruise ship.“
But one thing that always leaves me wary is a high level of debt. At 31 January, Saga was sitting on net debt of £432m. That was 1.7 times trading EBITDA, though down from 1.9 times a year previously, that’s still  perhaps uncomfortably high — especially for a company handing out generous dividends. And then there’s a lot of capital expenditure needed for those new ships. I’m not going to predict a dividend cut, but I can’t help thinking it would make sense. Â
As for the shares, I see reasonable value, but I also think there are better buys out there.
Even bigger
If you want an even bigger FTSE 250 dividend, how does the 9% forecast from Bovis Homes Group (LSE: BVS) sound? Admittedly that does include a 45p-per-share special dividend to be paid in November, but the ordinary dividend yield is still expected to come in around 5%.
And the special payment, announced with the housebuilder’s first-half results, is just the first over three years, expected to deliver a total of approximately 134p.
Bovis has suffered a couple of bad years, with earnings per share declining quite sharply in 2017. But the firm looks like it’s turning things around with analysts forecasting an impressive EPS gain this year of better than 40%. A further 15% boost on the cards for 2019 would drop the P/E to 10, which looks attractive compared to the market average.
Too high?
That’s actually a bit higher than industry giants like Persimmon and Taylor Wimpey, both on P/E ratios of about eight. And those predicted EPS gains from Bovis are significantly above the sector average. We’re looking partly at a continuing recovery, but long-term we shouldn’t expect double-digit growth to continue.
But I do think the sector is suffering from weak sentiment after its post-crunch recovery. After years of rapid earnings rises, and a lot of growth, investors will have moved on. I reckon that’s left us with a strongly cash-generative sector with great long-term dividend prospects, at knock-down prices.
I think Bovis Homes is good value now. But then I think the same of our other major housebuilders too.