Today I’m looking at three companies with updates in September, all of which I think offer attractive progressive income.

Specialist recruitment

My first pick is SThree (LSE: STEM), due to bring us a third-quarter trading update on 20 September. The recruitment company, which specialises in the IT sector, saw its share price collapse again after a sharp spike in 2021.

Figures for the first half looked impressive, with net fees up 25% and operating profit up 62%.

There was net cash on the books, and SThree lifted its interim dividend by 67% to 5p per share. Forecasts suggest a 4% yield for the full year, and a price-to-earnings ratio of below 10.

That dividend payment appears cautious to me, with cover likely to be strong.

There is cyclical risk here, though. In the two pandemic years, the dividend was drastically cut. And there’s a recession on the horizon. But on balance, I see desirable long-term income.

Dividend recovery

My next choice is one that’s on something of a tentative recovery. I’m looking at construction firm Galliford Try (LSE: GFRD).

The company suffered two years of tough losses during the pandemic, and suspended its dividend in 2020. In 2021, it came back at a much lower level. The 4.7p dividend that year was but a shadow of the 77p paid in 2018. It yielded 3.3% on the share price at the time.

Forecasts show the dividends growing slowly but steadily. They predict a yield of 4.5% this year, growing to nearly 6% by 2024. Again, they should be well covered.

Like all broker forecasts, these are to be treated with caution. And at this stage in its recovery, Galliford Try is still a risk.

But the company’s July trading update spoke of “strong performance across operations resulting in increased revenue, pre-exceptional profit and operating margin.” Full-year results are due on 21 September.

Soft drinks

My final selection is AG Barr (LSE: BAG), which I think might hold up well in a recession. The soft drinks producer will deliver first-half figures on 27 September.

Barr did suspend its dividend during the pandemic, even though it still recorded healthy profits. But it’s a company that likes to trade with net cash, and I find that refreshing these days.

August’s trading update revealed a 19% increase in like-for-like revenue.

Inflation could hit trading, though. And the company pointed out that it’s suffering rising costs just like everyone else. It’s in a very competitive business too, so that’s something to watch out for. Part of Barr’s business comes from the hospitality sector. So there may be pressure there through the looming recession.

The dividend is modest, with forecast yields of around 3%. But I think we could be looking at a long-term defensive income investment here.

Recession-proof UK stocks don’t exist

There’s no such thing as a recession-proof stock, but some stocks are more sensitive than others to the peaks and troughs — or booms and busts — of the business cycle. Cyclical stocks tend to follow the ups and downs in an economy. When a recession hits, cyclical shares tend to perform poorly and fall in price. On the other hand, defensive stocks are less affected by the economy. There are also sensitive stocks that fall somewhere in between. 

Defensive stocks can be found in the following sectors:

• Consumer defensive
• Healthcare
• Utilities

There are hundreds, if not thousands, of UK stocks in the consumer defensive, healthcare, and utility sectors. I can’t buy them all but I could look for a fund that invests in these sectors. Yet I would prefer to pick my own stocks. So I need something to help me select companies with a recession in mind. That something is quality.

Quality UK stocks

Quality stocks tend to have higher margins, profitability, and cash flow than their peers. Strong balance sheets and stable or improved business operations are also hallmarks of quality stocks. These features are sought after by investors when a recession is looming and during one. In my opinion, quality is never out of fashion.

Key quality measures

Two stocks have caught my eye for quality and defensive sector membership: healthcare stock Bioventix and AG Barr from consumer defensives. One quality non-defensive sector name also struck me as worthwhile. Given that I was looking for stocks to add to my stocks and shares ISA for a recession, this company’s business model had immediate appeal. That stock was FTSE 100 member Experian. The company owns a database of millions of consumers’ and businesses’ credit activity and repayment histories. It sounds like the sort of outfit that might see demand for its services holding up when the economy sours.

Taking stock of recession risks

I’m intrigued by these three stocks. They look good on measures of quality. Two are from defensive sectors, and one has a business model that seems like it should hold up well in a recession. So, do I buy these three UK stocks for my Stocks and Shares ISA? Not without further research.

Although consumers will likely cut spending on food and beverages less severely than on, say, eating out and cinema visits during a recession, will they switch from AG Barr’s brands to cheaper alternatives?

Bioventrix makes antibodies for diagnostic procedures and drug and compound detection. I want to know what proportion of its sales goes to organisations less likely to cut spending dramatically in a recession (like, for example, the NHS).

For Experian, although checking credit seems to make sense when times are tough, in a prolonged and severe recession, would reduced spending render its services redundant? These are some questions I must mull over before pulling the trigger on any of these three UK stocks. 

A stellar set of results

I think A.G. Barr (LSE: BAG) possesses the kind of qualities that Warren Buffett would be immediately attracted to. It owns the iconic Irn-Bru brand together with the likes of Rubicon, Funkin, and Strathmore Water.

In its full-year results for 2021, it reported a significant rise across a number of key financial metrics. Indeed, many of these metrics surpassed those attained pre-Covid. This included revenue, profit, earnings per share, and net cash. Given these impressive results, the business felt confident enough to reinstate its dividend. A payout of 12p per share equates to a yield of 2.2%.

Growing market

As Covid pressures have eased, the business has begun to see a gradual reversing in consumer behaviour. As the hospitality sector reopened, its cocktails division was its stand-out performer. Like-for-like growth in the 10 weeks post-reopening was 61% higher than for the same period in 2019. Although some of these sales were undoubtedly related to pent-up demand, cocktail revenues continued to rise throughout the summer of 2021.

A.G. Barr also reported strong take-home sales. This was driven by multipack formats. Indeed, its diversified business model and exposure to significant growth opportunities is its real attraction.

In 2021, it bought a 61% share in MOMA Foods, with an option to buy the remaining shareholding over the next three years. This provides the business with exposure to the fast-growing plant-based milk market.

It is also investing heavily in a number of emerging trends. This includes the energy drink sector. It has already leveraged its leading IRN-BRU brand in this respect. More recently, it launched the Rubicon RAW energy range. This will enable it to cater for the emerging market trend of consumers looking for more natural, juice-based energy products.

Cost pressures

A.G. Barr is facing “significant inflationary pressures”. Operating expenses increased 25%, driven by a combination of increased marketing and logistics costs. For example, its largest commodity spend, aluminium, has recently seen prices jump by 42%. Labour availability is also a factor that is likely to affect margins in the near term.

However, despite these significant headwinds, I am buoyed by the fact that trading continued to strengthen throughout the year. Combined with gains from operational efficiency programmes, together with commodities hedging, gross margins improved by 239 basis points.

The introduction of the sugar tax in 2018 does not seem to have dented consumer appetite for soft drinks, either. The latest data from the leading CGA drinks recovery tracker saw sales nationwide increase 10% in the week 19-25 February compared to 2020.

For me, A.G. Barr is the classic buy-and-hold stock. Its fortunes will, to a certain extent, always be tied to that of the wider economy. The power of its brands has undoubtedly enabled it to successfully navigate the last two years. It has a resilient balance sheet with net cash of £68m and huge growth potential from emerging consumer trends. For me, it’s an undoubted buy for my portfolio.

Rolls-Royce

Aircraft engine maker Rolls-Royce (LSE: RR) is no stranger to turbulence – and neither are its shareholders. The Rolls-Royce share price has been hovering around penny stock territory since it announced yesterday that its chief executive is leaving. Over the past year, this FTSE All Share company has fallen 8%.

But despite the ‘key person risk’, I see reasons to be cheerful here. The company also announced yesterday a return both to profitability and free cash flow. That reduces concerns that a liquidity crunch could lead to a rights issue that dilutes shareholders, as we saw in 2020. A large installed base of engines should help support revenues and profits for many years to come. The company’s strong reputation in the aircraft engine market is an ongoing competitive advantage. I would consider adding Rolls-Royce to my portfolio at its current share price.

AG Barr

Famed US investor Warren Buffett is a long-term investor in soft drinks giant Coca-Cola. Such a business has the hallmarks of a classic Buffett investment. Its iconic brand has helped create a loyal customer base. That means the company is able to charge a premium price for its brand. That keeps profits flowing along with the drinks.

A smaller UK fizzy drinks maker nestling in the FTSE All Share index is AG Barr (LSE: BAG). The firm is best known for the legendary Scottish brand Irn Bru. The company said this month that it expects revenue for the year to be 18% higher than in the prior 12 months.

The company did warn that it is battling higher costs especially in packaging and energy. Such inflationary pressures could dent profits in coming years. But the power of a premium brand can help offset cost increases by enabling higher prices.

JD Sports

Although investors may have been looking to US tech stocks for growth in the past few years, I think a great growth story has been building in the UK retail sector. Sports and leisurewear seller JD Sports (LSE: JD) posted record revenues and profits in its interim results. Since then it has upgraded profit expectations – and last month it even upgraded the upgrade.

I would buy this FTSE All Share company

JD Sports is a well-oiled machine, now rolling out its proven retail formula in a variety of markets worldwide. Its expansion could help grow revenues and profits in the long term. I see risks with the strategy too. For example, its growing presence in the highly competitive US market could hurt JD’s profit margins if local retailers choose to fight it on price.

But JD Sports’ share price has fallen a third since November and 8% over the past year while the growth story looks stronger than ever to me. I would consider buying the shares today.

Get bowled over

The popularity of tenpin bowling in the UK was rocketing before the Covid-19 outbreak. Judging by recent trading levels at Ten Entertainment Group, it seems like the appeal of skittling pins remains pretty mighty too. Like-for-like sales at the company soared 30% year-on-year during September and October, with Ten Entertainment enjoying record demand over the recent half-term holiday.

Ten Entertainment is expecting sales growth to remain at double-digit levels in 2022 too, compared with pre-pandemic levels. And it plans to keep expanding to exploit this buoyant market, with four new centres earmarked for next year alone. I think the leisure giant’s a great buy for me, despite the ongoing threat of fresh Covid-19 lockdowns. Right now, it trades around 260p per share.

The IRN giant

I’m sure AG Barr’s (LSE: BAG) marketing team must have been on cloud nine during the COP26 convention in Glasgow. Delegates from across the globe have been rushing onto social media to give their verdict on its IRN-BRU beverage. The orange fizzy drink is one of Britain’s favourite brands and recent publicity has helped broaden its global audience.

Barr isn’t all about IRN-BRU though. Its other beloved labels include Rubicon, Snapple and Tizer, products that carry exceptional brand power that keeps volumes ticking over during good times and bad. They also allow the business to raise prices at all points of the economic cycle. I’d buy Barr despite the fact it faces immense competition from industry giants like The Coca-Cola Company. Today the business trades at 495p per share.

Take control

Strix Group’s operations might not be the most exciting out there. This cheap UK share manufactures safety control mechanisms that stop kettles become a hazard. However, the rate at which revenues are growing at this market leader are anything but boring. Reported sales between January and June rocketed almost 25% higher versus the same 2019 period.

A catastrophic failure of its products could hit demand hard, of course. But although past form is no guarantee of future performance, I’m encouraged by Strix’s great track record on this front. The business trades at 290p per share today.

Pipe dreams

I’m also considering using recent share price weakness at Victorian Plumbing Group (LSE: VIC) as a chance to grab a bargain. At 160p per share, the bathroom products manufacturer is trading at a near-40% discount to June’s IPO price. While trading here has cooled recently compared with that during Covid-19 lockdowns, I think the market has overreacted to this slowdown.

Spending on home improvements remains strong in the UK. And, pleasingly for Victorian Plumbing, expenditure on bathroom products in particular is tipped to remain solid. A July report by Volkswagen suggested Britons will spend £135bn on home improvements over the next 12 months, with bathroom renovations third on the list of most-desired upgrades.

I think Victorian Plumbing’s a great stock to own, despite the threat posed by other major industry players like B&Q and Wickes.

Strong trading

Revenue jumped 19.5% to £135.3m over the 27 weeks to the beginning of August following “strong trading.” As might be expected, a recovery in on-the-go consumption was seen as the UK emerged from its multiple lockdowns. New product launches also appear to have hit the spot. Barr’s Funkin brand of ready-to-drink cocktails logged growth of 150% as well. 

On a statutory basis, pre-tax profit rocketed 378.4% to a record £24.4m. Although this needs to be put in context, I take this as a sign the worst is most definitely over.  

Can this momentum continue?

The £600m-cap thinks it can. According to CEO Roger White, BAG is “on track to deliver strong full-year profit performance, slightly ahead of our 2019/20 pre-COVID level.” That last bit’s important. Beating last year’s numbers shouldn’t be a stretch, considering what was happening at the time. The real test is whether Barr is selling more drinks than it did the year before we were all told to stay behind our doors.

However, it’s the resumption of dividend payments that really makes me optimistic. This morning, it was announced that investors would receive an interim payout of 2p per share. That’s good in itself. However, BAG has also elected to pay holders a one-off special dividend of 10p per share. Such a move suggests real confidence on the part of management.

So why isn’t this growth stock rocketing?

Despite all this good news, shares in AG Barr were barely in positive territory early this morning. One explanation for this is that the company, like many others, is seeing “increased challenges” in its supply chain. Another could be BAG’s reflection that “a number of benefits” that supported profit growth in the first half would not be repeated.

There could be other reasons. Investors may be worried that sales at BAG may soften as the winter months arrive. Even if this isn’t the case, a resurgence in Covid infection levels could impact all stocks. 

For me however, these are short-term headwinds. Moreover, AG Barr’s reassuringly sound finances should allow it to weather any further storms. The £65.5m in net cash now on the balance sheet is just over 115% more than it had in its coffers this time last year.

Top-up opportunity

Having held the shares for a while now, I’m pleased to see that my patience in AG Barr is slowly being rewarded. If anything, today’s muted reaction gives me an opportunity to add more of this growth stock to my portfolio. A valuation of 20 times earnings still doesn’t seem excessive for a robust, quality company selling low-ticket items that people don’t think twice about buying.

I’m not the only one prepared to play the long game. Star fund manager Nick Train is the second-largest holder of the stock via his funds. If that’s not good company, I don’t know what is.

Who doesn’t love Irn Bru?

The origins of AG Barr date back to 1875. Even though there are lots of soft drinks options available to consumers today, AG has maintained its popularity through its flagship product Irn Bru. I must admit it is my favourite soft drink but that’s not why I rate AG as one of my best stocks to buy now.

Irn Bru is a top selling fizzy drink in Scotland and throughout the UK. In addition to Irn Bru, AG Barr also has other drinks in the market and has exposure to the alcohol market with its Funkin brand of pre-mixed cocktails.

AG Barr has been in business for more than 100 years. The stability and growth it has shown is part of what makes me pick it as one of my best stocks to buy now. I believe it can continue to grow for the foreseeable future too.

As I write, shares are trading for 568p per share. This time last year, shares were trading for 434p. This means in 12 months it has experienced a 30% share price increase. With a price-to-earnings ratio of just over 30, some may view it as a tad expensive. I do not share that view due to its track record. 

H1 trading update

The pandemic slowed sales and affected financials. Reopening has boosted AG, and its share price has benefited. FY results for the year ended 24 January 2021 showed declines in profit, revenue, and sales. Profits fell to £26m from £37.4m a year earlier. Sales dropped by 11.2% and revenue fell to £227m from £255.7m reported for the full year prior. I expected the pandemic to affect the bottom line which is why I kept AG on my best stocks to buy now list and kept faith.

When AG released its H1 trading update two days ago, results saw a bounce back from the drop off reported in FY results. AG reported first-half revenue of £134m, which is a 18% hike on the previous year. It said all its business units showed strong trading. Furthermore, it is anticipating full-year results to be significantly ahead of last year’s results and ahead of investor expectations.

Even the best stocks to buy now have risks

AG could be affected if further restrictions come into place due to new variants of the virus.

Next, there has been significant issues with haulage and logistics in the UK reported recently. A huge drop in driver numbers has led to some firms reporting deliveries may be missed affecting the supply chain. AG relies on haulage and logistics for its operation and this could negatively affect its performance too.

Overall I think AG Barr would make a good addition to my portfolio and is still one of my best stocks to buy now. It has shown long-term stability and growth and has capitalised on reopening recently. Despite the tough period over the pandemic, it will also resume its dividend this fiscal year so could also make me a passive income.

“Positive start”

Today’s interim results from Vimto-owner Nichols should provide some comfort to investors. Revenue increased 13.8% to £67.4m over the first six months of 2021, with adjusted pre-tax profit moving almost 32% higher to £8.9m.

Sure, some improvement was expected due to the loosening of restrictions. Even so, news that the company’s Vimto Dilutes range significantly outperformed the UK market between January and June bodes well.

Sales of Vimto have been rebounding overseas too. International growth of 42.3% was recorded compared to the prior year. Sales in regions such as the Middle East (the drink is incredibly popular over Ramadan) appear to have held up well.

And the outlook? Well, Nichols believes that its “positive start” to 2021 should allow it to meet management expectations for the full year. However, I now wonder if the recent weather might lead to a slight increase in guidance next time around.

All told, I’m satisfied with today’s update and would be happy to add to my position today. A good recovery in sales, not to mention a strong balance sheet and solid portfolio of brands (which now includes SLUSH PUPPiE), makes me think this is one of the best stocks to buy now in this space.  

“Better than anticipated” trading

Today’s results from Nichols followed hot on the heels of fellow drinks maker AG Barr. Like the former, Barr has had to contend with the shutdown of the hospitality industry over the pandemic. Like Nichols, the company’s now showing signs of recovery.

Yesterday, Barr announced that full-year profit would now likely be ahead of expectations due to “better than anticipated” trading. This helped its previously-sluggish share price to recapture some of its lost mojo.

Again, I think Barr will do well in time and there’s more upside ahead. It’s another quality operator that’s conservatively run. It also has a good number of ‘sticky brands’ such as IRN-BRU, Rubicon and Funkin. So I’m tempted to continue accumulating the shares.

Sales tailwind

As a holder of both stocks, it’s hard for me to sit on the fence when looking at NICL and BAG. Notwithstanding this, I’m encouraged by recent trading. I also suspect the blazingly-hot summer in their home market will prove a tailwind for sales.

This isn’t to say I shouldn’t be careful. Owning multiple companies in the same sector isn’t without risk. Although no lasting damage appears to have been done, the introduction of the sugar tax on soft drinks a few years ago was proof that even the most defensive companies can face challenges.

Going forward, it goes without saying that Delta infection levels may get so bad that some restrictions may need to be re-introduced. This may hamper demand for both product stocks. 

So long as I keep my exposure in check by investing elsewhere, I think the reward will be worth it if I bought more now. 

In this piece I’m going to look at two UK shares from one sector I view as a long-term growth opportunity.

The first business I’m looking at today created a whole new segment of the market when it first launched. With clever marketing and a good product, Fevertree Drinks (LSE: FEVR) made us all believe that standard tonic water wasn’t good enough for expensive gin.

Despite growing competition, this 18-year-old business continues to dominate the premium mixers segment. Its share of the UK retail market for mixers is now around 40%. The company is also expanding rapidly in the US and elsewhere.

The best UK stock to buy now?

Fevertree’s share price has doubled from the lows seen last year. I don’t think the shares are cheap, but I think that its rare combination of strong growth and high profit margins may justify the share price.

Annual sales have risen by an average of 34% per year since 2015. Although UK sales fell last year due to pub and restaurant closures, US sales rose by 23% to £58.5m.

Growth has already picked up pace in 2021. During the first six months of this year, group sales rose by 34%, on a like-for-like basis.

I reckon Fevertree has further to go

The main risk I can see is that Fevertree’s expansion will slow unexpectedly. With the shares trading on around 50 times forecast earnings, a lot of growth is already priced into this UK stock. Slowing sales or pressure on pricing could see the shares struggle.

In recent months, higher transport costs have also hit the firm’s profits. This has caused management to cut profit guidance for the year.

These risks are real, but I believe the Fever-Tree brand has the potential to become a much bigger global name. If I’m right, then any short-term problems like transport costs are unlikely to matter much.

For this reason, I’d be happy to buy some of the shares today, as a long-term holding.

More popular than Coke!

In most countries around the world, Coca-Cola is the most popular soft drink. But not in Scotland. The top-selling fizzy drink north of the border is Irn Bru, which is made by Cumbernauld-based AG Barr (LSE: BAG).

Barr’s has been in business for more than 100 years and today makes a whole range of drinks. Other brands in the group’s portfolio include Snapple, Tizer, and Strathmore. AG Barr also produces the Funkin brand of pre-mixed cocktails, giving it some exposure to the alcohol market.

The obvious risk I can see with Irn Bru is that some of its brands are a little dated. It’s not clear to me how much growth potential they have. However, the company has managed to trade successfully for more than a century and — until last year — hadn’t cut its dividend for 30 years.

Trading so far this year has been better than expected. Management now says that profits are likely to be ahead of pre-Covid levels. I wouldn’t bet against Barr’s long-term growth. I see this business as a good UK stock I could buy for the next decade.

AG Barr

In contrast to other consumer goods stocks, the share price of drinks firm AG Barr (LSE: BAG) is still to see some serious positive momentum. Nevertheless, today’s trading statement does hint that the recovery is getting closer.

This morning, Barr said that trading has been in line with management expectations. That’s comforting considering the UK was in lockdown for the early part of 2021.

As investors might expect, the easing of restrictions and re-opening of hospitality and leisure venues have provided a much-needed boost to sales. This is particularly the case for its Funkin ready-to-drink cocktails business (although people still seem to be consuming these at home). Elsewhere, the launch of new products, such as Rubicon RAW Energy, have been well-received by consumers. 

There were also encouraging noises on dividends. Now, income isn’t a priority for growth investors like me (I simply re-invest what I receive). However, I do use it as a gauge for just how confident management is on future trading. Today, Barr announced it remained committed to restoring cash returns in the current financial year. More news is expected in August.

A forecast price-to-earnings ratio of 22 isn’t initially appealing, especially given the risk of coronavirus infections climbing again. Naturally, any change to Boris Johnson’s roadmap back to normality would not go down well with the market.

Nevertheless, it’s worth highlighting that BAG is still 45% off the valuation it hit almost exactly two years ago. It’ll take a while, but I firmly believe the Irn-Bru owner will fizz in time.

Avon Rubber

A second growth stock that’s still far off previous highs is life-critical personal protection firm Avon Rubber (LSE: AVON). Thanks to the strangely muted reaction to this week’s encouraging interim results, I think there’s still time for investors like me to get involved in this quality company.

According to CEO Paul McDonald, the firm has made a “strong start” to the year. The numbers bear this out. Revenue and adjusted pre-tax profit climbed 41% (to $122m) and 23% (to $16m) respectively over the six months to the end of March. In other news, net debt pretty much halved to just over $44m. The interim dividend was also hiked by 30%.

Perhaps most importantly for would-be investors, Avon said that it was making “good progress” with regard to sorting out the delays in gaining product approval for its body armour programmes. This is partly what caused the shares to dive late last year. 

Thanks to a 46.5% jump in orders, the mid-cap — which will shortly change its name to Avon Protection — thinks it will deliver full-year numbers as expected. Revenue visibility going forward has also been described as “excellent“. That’s more than you can say for other growth stocks. 

Avon is still 35% below the share price high it hit back in December. Again, like AG Barr, I’m not expecting this gap to close overnight. However, I do think those with time on their hands will be rewarded eventually.