I’m wary of banks on the London stock market such as Lloyds and Barclays, and we can’t describe them as companies paying top dividend yields.
Indeed, the London-listed banks have patchy records when it comes to earnings and shareholder dividends. Their businesses look depressed right now along with their share prices, but I’m not keen to buy their shares.
Why I’d buy this stock for its top dividend yield
The banks are cyclical through and through. And trading tends to suffer or prosper according to the ups and downs of the general economy. We could buy bank stocks to try to ride the next up-leg of a cyclical recovery. But I reckon that strategy is risky. Instead, I’d much rather invest in a firm operating in the wider financial sector such as Randall & Quilter (LSE: RQIH).
The great thing about RQIH is the business is trading strongly right now. And the directors see opportunities for growth in the current market environment. In today’s half-year results report, they underlined their confidence in the outlook by maintaining the interim dividend. And City analysts following the firm expect a modest single-digit percentage advance in the shareholder payment next year.
With the share price near 153p, the forward-looking dividend yield for 2021 is almost 6.7%. I reckon that’s useful income to collect while the business realises its growth ambitions. Indeed, the prospect of capital growth from a rising share price in the coming years is a real possibility.
RQIH describes itself as “a profitable and progressive dividend-paying non-life insurance group.” Operations involve investing in and managing insurance assets. The company also acts as “a conduit” for capital providers, such as reinsurers, niche underwriting businesses, and managing general agents (MGAs).
A dip in earnings set to recover
Today’s report reveals to us that in the six-month period to 30 June, the company held almost 57% of its gross assets in North America, around 22% in the UK and 21% in Europe. And those assets delivered a pre-tax operating profit in the period up 30% year on year. Although the profit-before-tax figure declined substantially.
The directors explained in the report the results were affected by Covid-19 due to a reduction in total investment returns, delays in on-boarding new programme management business and by a change in the mix of Legacy transactions. However, the underlying business and financial trends were good in the period and the directors expect the full-year trading outcome to be “in line with market expectations.”
According to City analysts, that means we’ll likely see a surge in profits putting the earnings multiple just below 11 for 2020. Looking ahead, the directors think RQIH is “well-positioned to capitalise on favourable market conditions.”
I reckon the firm will continue its record of organic and acquisitive growth in the years ahead. Meanwhile, the share price has dipped a bit today, perhaps because of the fall in the net profit figure.
But the dip in earnings looks temporary, and we could be seeing a decent opportunity to buy better value with the shares today.