Due to the longer duration of ISA-focused investments, I like to look for companies that pay a good dividend yield. I want companies that have paid an above-average dividend consistently for several years, along with growing it annually. The aim of this approach is that the beauty of compounding can occur within the ISA, allowing me to build up a significant return over the years.

Inchcape

The first share on my list is Inchcape (LSE: INCH), a distributor of vehicles in the UK, Europe, and Asia. After a strong 2021 with price growth of over 41%, the company struggled in 2022, falling 16.8%. Despite this, the underlying fundamentals are very appealing, with strong cash generation. The company also has low levels of debt, and significant forecast earnings growth.

The main reason for my interest in the company is the yield of 3%. It is also forecast to hit 3.7% next year. The dividend has been paid consistently for 12 years and is covered by earnings per share (EPS) 2.5 times. This is a good sign and indicates the dividend is relatively safe.

It is, of course, essential to note that profit margins are fairly low, which could cause issues if turnover growth begins to slow. Additionally, the dividend was reduced considerably in 2020 and has only grown over the last year, so this will be important to watch in case it is reduced again.

Nonetheless, the company still represents a good long-term investment opportunity. I would therefore consider adding this share to my Stocks and Shares ISA in 2023.

Glencore

The second share on my list is Glencore (LSE: GLEN), one of the world’s largest commodity traders and producers. The company has had an extremely rapid share price rise over the last two years, gaining 60.9% in 2021 and 40% in 2022. Furthermore, underlying fundamentals are impressive, with solid cash flow, reasonable profit margins, and significant growth forecasts. Turnover is expected to increase by over 30% next year, and earnings per share (EPS) is forecast to grow by a massive 187%.

I find the yield of 4.4% very appealing, more so as it is expected to hit 9.6% next year. This forecast growth is impressive, especially given that the dividend has been paid consistently for the last 11 years. It is also forecast that dividend cover will reach 2.7, indicating that EPS can sustain this new dividend level.

It is important to note that earning margins are pretty low, even after doubling from the three-year average level. Also, debt levels were very high over the last three years and are still significant at almost 47% of market capitalisation.

However, I believe that the company’s forecast dividend growth represents a good opportunity for my Stocks and Shares ISA. Therefore I would be keen to add the company to my portfolio in 2023.

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Here are three equities I would buy for income today. 

Stocks and Shares ISA buy

A great example is the financial services company IG Group. At the time of writing, the stock supports a dividend yield of 5.1%. The corporation has a cash-rich balance sheet with no debt and is looking to increase its profits in the years ahead by expanding into different markets.

That said, the financial services industry is a highly regulated market. If there is a sudden change in the regulatory environment, the company’s profit margins could come under pressure, forcing it to cut the dividend.

Specialist financing provider

That is why I would also buy the specialist financing provider S&U (LSE: SUS) for my portfolio of UK shares. The company provides financial services, including car loans and property bridging finance, for customers around the country. 

At the time of writing, the stock supports a dividend yield of 5.1%.

Once again, the business has a robust balance sheet and is pursuing several growth initiatives that could lead to increased earnings in the years ahead.

Rising interest rates will also enable the corporation to charge more to borrowers. That could increase the income from its existing portfolio of loans. Despite these tailwinds, shares in the financial services company are trading at a forward price-to-earnings multiple of just 8.3. I think that looks cheap compared to its potential. One challenge the group could face as we advance is increased loan defaults.

The rising cost of living could cause some borrowers to fall behind on their payments.

This would have an impact on the company’s balance sheet, and it may have to reduce shareholder returns as a result.

UK shares for growth 

Inchcape (LSE: INCH) sells new and used vehicle parts and financial services for the automotive industry in 36 markets around the world.

This is a somewhat niche business, but that is no bad thing.

Sales and profits have increased gradually over the past couple of years as the company has expanded its footprint in the automotive industry around the world.

It suffered a small setback during the pandemic, but management expects growth to return over the next two years.

At the time of writing, the stock supports a dividend yield of 3.3%, and the distribution is covered 2.5 times by earnings per share. The company also has a cash-rich balance sheet.

Still, despite its strengths, I should acknowledge that the automotive industry is highly competitive. Just because Inchcape is growing today does not mean that it will be able to maintain its market share in this volatile market.

Riding a wave – for now

Second-hand retailers are riding a bit of a wave at the moment caused by the shortage of new cars. It’s unclear how long this will go on for. Further signs from Inchcape or its competitors that pricing remains strong, and the supply of new cars low, could see the shares perform similarly to last year. All the more so if there is a rotation out of growth shares because of inflation concerns. A value share like Inchcape could benefit from investors looking for profitable lowly-rated companies.

The investment case isn’t only about the market though. Management is also ambitious. The car retailer has a new strategy. The FTSE 250 company said the new strategy, dubbed ‘Accelerate’, features two growth pillars — ‘Distribution Excellence’ and ‘Vehicle Lifecycle Services’.

Looking at its medium-term financial outlook, in ‘Distribution Excellence’ it said it is expecting a compound annual growth rate for profits in the mid-to-high single-digits. In ‘Vehicle Lifecycle Services’, meanwhile, Inchcape said it is pencilling in at least £50m of incremental profit.

While that’s positive, car retailing is typically a low-margin industry. Inchcape is no exception. Operating margins are currently around 2%. That makes car retailing a volume-based game, so the company needs to sell a lot of cars to make a lot of profit.

Overall when it comes to car retailers I prefer Vertu Motors, which I suspect could be a takeover target. I’d be more likely to add it to my portfolio than Inchcape, as I don’t think the latter will do as well again this year. 

One of the top FTSE 250 shares? 

Meanwhile, as a Scot, perhaps I have an unconscious bias towards Caledonia Investments. But the analytical part of me thinks it’s an investment trust that could do well this year – even after last year’s strong performance.

The shares still trade at a discount to the net asset value of 17.5%. That doesn’t necessarily make them good value, but it does provide some margin of safety.

The trust is well established and has been going for 140 years. It invests in both public and private companies with top holdings on the publicly-listed side of things being Oracle, Microsoft and Texas Instruments. UK companies also feature including Polar Capital, Croda International and Unilever. Quoted companies account for 31% of the trust. Some 28% is in private companies and 30% is in funds, these are indirect investments through Asian and US-based private equity funds. The rest is cash.

The ongoing charge versus peers is quite reasonable at 0.98%. Similar trusts will often by charging double. 

The downside could be that the discount widens further and the share price falls. Caledonia’s multi-asset strategy could put investors off investing because it’s less clear what they’re getting. 

However, with access to private companies, I think Caledonia Investments adds a lot of diversification and so I’m really thinking about adding it to my portfolio. This is a share with a path to increase substantially again this year if the discount narrows and the net asset value, so the value of its investments rises. 

Global powerhouse

Inchcape is a global automotive firm involved in the sale, distribution, and importation of motor vehicles. It also offers financial services. Some of the world’s leading brands work with Inchcape and these include Mercedes Benz, BMW, and Audi to name a few. Inchcape employs over 5,000 people, and in the UK alone has approximately 100 dealerships.

As I write, Inchcape shares are trading for 832p. A year ago they were trading for 614p, which is a 35% return across 12 months. The FTSE 250 index it resides in has only returned 13% in the same period.

For and against

FOR: Despite a turbulent 18 months for the world and the automotive sector as a whole, Inchcape has been performing well. This is demonstrated by its latest Q3 update reported at the end of October. Group revenue increased by 27% compared to the same period last year. It is only 2% behind 2019 levels. Double-digit revenue growth in both retail and distribution arms boosted overall revenue. Profit for the full year is expected to be close to £300m, which is ahead of guidance.

AGAINST: There has been a well-documented shortage of semiconductors, which are essential parts of many tech products as well as newer vehicles. This has resulted in manufacturing shortages and a shortage of newer cars for sale. If this continues, I believe Inchcape and the sector as whole could be affected negatively until it is resolved. 

FOR: Inchcape has grown organically into the powerhouse it currently is. Despite the pandemic and tough market conditions it continues to strive to enhance its offering and continue its growth. An example of this is its recent deal signed with Chinese firm Geely. This will provide it a route into a new market and territory. This type of activity excites me as it shows growth ambitions that could result in boosted performance and further returns for potential investors.

AGAINST: Current macroeconomic pressures as well as the threat of new Covid-19 variants are risks for Inchcape as well as other FTSE 250 stocks. Firstly, rising costs and inflation could eat away at margins and affect profitability. The supply chain crisis and shortage of HGV drivers in the UK could affect UK operations which are of a substantial size to the group as a whole. Finally, if new restrictions linked to new variants come into force, sales could drop and operations could cease temporarily as well.

FTSE 250 opportunity

After reviewing all the pros and cons I am leaning towards investing in Inchcape shares for my portfolio. Over the longer term I would expect an established growing company with a history of success to continue its upward trajectory and provide returns for my portfolio. I also believe macroeconomic pressures will not last forever. 

With this in mind, one high-risk and potentially high-reward stock that I’m keeping an eye on is global automotive distributor Inchcape (LSE:INCH).

Market crash opportunity or too risky?

INCH operates a handful of UK dealerships by partnering with manufacturers. Its primary business is as a global automotive distributor. INCH takes ownership for marketing, distribution, dealer management, and after sales for manufacturers. 

When the market crash struck, INCH lost approximately 40% of its share price value. From nearly 700p per share, Inchcape’s price tumbled to a low of 420p. At the time of writing, shares can be purchased at just over 500p per share which is still cheap in my opinion. 

The global automotive industry is in decline and the market crash has not helped. Covid-19 first hit in China, a centre for many car manufacturers, and factories were shut down. Global sales of passenger cars are forecast to fall to 59.6m units in 2020. This is down from a peak of 79.6 in 2017. In regards to INCH specifically, it is not reliant on just the UK market as it is a global company. This means it doesn’t need to rely on one region in respect of performance.

Performance and outlook

City analysts today upgraded Inchcape’s outlook. The company’s earnings are under severe pressure in the short run amid the market crash. This is noted by the last month’s interim results which showed revenue down by 36% and underlying profits down 84%. Despite these figures, analysts feel the tide is about to turn.

Inchcape possesses a robust balance sheet which would put my mind at ease as a potential investor during the current downturn. At the end of June, INCH reported total liquidity in excess of £1bn, consisting of available cash of £480m and £530m headroom in its revolving credit facility.

Inchcape’s trading update in July also confirmed the appointment of new chief executive officer Duncan Tait. Despite a history of technology service focused roles, Tait has lots of experience of working with the automotive industry in these roles on many key projects.

My verdict

Overall it would be easy for me to sit on the fence with Inchcape. One on hand, it has a strong balance sheet and a history of strong performance. Analysts are predicting an upturn in its future. On the other hand, the automotive sector has been badly affected by the pandemic. No one can predict when the tide will turn, which is worrying for me as a potential investor.

Ultimately, I would class Inchcape as a high-risk, high-reward stock and personally would not invest right now. I would definitely keep an eye on developments with the new CEO in place to see what steps are taken to stimulate performance. I just feel there are alternative stocks out there that are in less risky industries, which can be picked up cheaper due to the market crash. 

This dividend hasn’t been cut for 32 years

In a year filled with brutal dividend cuts, FTSE 100 investment manager Schroders (LSE: SDR) stands out as a reliable payer. This family-controlled firm hasn’t cut its dividend since at least 1988 — the earliest I could find records.

As an asset manager, Schroders profits this year have been hit by the stock market crash. But the impact so far has been fairly modest. Pre-tax profits for the first half of the year fell 12% to £280.1m. Earnings for the period were 15% lower, at 78.7p per share.

In a six-month period when we’ve seen a major stock market crash and the real economy struggle, I don’t think this is a bad result. Indeed, it suggests to me Schroders’ fund managers take a long-term focus and enjoy a high level of client support during difficult times.

A stock market crash buy

This long-term, conservative approach is reflected in Schroders dividend. Analysts expect the firm’s annual payout of 114p per share to remain unchanged this year. Based on the latest earnings forecasts, this payout should be covered around 1.5 times by earnings. Cover is normally higher than this but, in a difficult year, I think this gives a comfortable margin of safety.

Schroders stock doesn’t look expensive to me either. Buyers of the non-voting Schroders (LSE: SDRC) shares can collect a 5.5% dividend yield at current levels. In my view this is one of the safest payouts in the FTSE 100. This is one UK share I’d be happy to buy today and hold forever.

Buy when everyone is selling?

The automotive sector has been hit hard by lockdowns and factory closures this year. But early indications are that car sales are bouncing back quite well, helped by reluctance to use public transport and necessary social distancing measures.

One company I think could be a genuine stock market crash bargain today is Inchcape (LSE: INCH). Although this group operates some UK dealerships, its main business is as a global automotive distributor. This means Inchcape partners with car manufacturers in a given market to take responsibility for local marketing, distribution, dealer management, and aftersales support. All the manufacturer does is supply the cars.

Inchcape’s share price has crashed this year, falling 35% to around 460p. Broker forecasts suggest revenue will drop by around 25% in 2020, while profits will fall by around 60%. However, Inchcape is expected to remain profitable and a solid recovery is pencilled in for 2021.

This business has a long track record of reliable performance. Historically, it’s generated a return on capital employed of about 15% per year — a respectable figure. The group’s global footprint means it should be able to benefit from regional recoveries, rather than being dependent on just the UK market.

Broker forecasts put the stock on a 2021 forecast price/earnings ratio of just 9.5, with an expected dividend yield for next year of almost 5%. I see Inchcape as a good UK share to buy today for a long-term portfolio.

But sometimes the rate of failure is so bad that everyone starts to feel the tension. This is illustrated by the share price decline of The Restaurant Group (LSE: RTN) in the past five years. The mid-level eateries operator has seen its share price plummet more than 80% in that time, a decline that comes despite a high number of competitor failures and a larger number of rival chains cutting their estates left, right and centre.

Too much risk!

A combination of rising business rates, increasing labour costs, and a hugely-competitive marketplace is smashing margins. And there’s evidence of this everywhere, the latest chain to go to the wall this week being Handmade Burger Company with the closure of 19 restaurants.

The Restaurant Group certainly hasn’t been able to reap the rewards of this thinner market. Annual earnings have dropped for the past three years on the spin for which it has already reported. And City analysts expect another bottom-line drop to be disclosed for 2019.

The FTSE 250 firm is cheap as chips. It can be bought on a low forward P/E ratio of 10 times, though I’m not impressed. I’m also unmoved by a robust corresponding dividend yield of 5%. With sales beginning to worsen markedly again — growth slumped to just 0.2% on a like-for-like basis in the six weeks to June 30, most recent financials showed — I think The Restaurant Group’s in danger of extending its share price downtrend. And this could be set off by the release of fresh trading numbers in the coming days.

Drive on by

Inchcape (LSE: INCH) is another company from Britain’s second-tier share index that appears attractively valued. It currently rocks a P/E ratio of just 12.8 times for 2020 and a chunky 3.9% dividend yield.

However, I also believe that this FTSE 250 share also carries too much risk. Financials for 2019 are scheduled for February 27 and I fear that a shocking set of trading numbers could be around the corner here too.

It’s not just that sinking auto demand in the UK is hammering the car retailer right now. Inchcape’s web is spun far and wide. It operates across Europe, Asia, Africa and even Australasia, but this is providing little comfort as car sales fall across all major regions.

LMC Automotive data shows that car sales worldwide slumped to 90.3m units in 2019 from 94.4m units the previous year. And the auto analysts expect sales to drop again in 2020 to 90m units, according to CNN. No wonder City analysts are forecasting another profits drop for Inchcape in 2020. This is another stock I’d also avoid like the plague.

Investing in a different direction to the herd often involves a high tolerance of risk and this is no different for Inchcape. City forecasts of a return to earnings growth in 2020 may encourage many to take the plunge though. I’m not sorry to say that I don’t count myself in that number, and a fresh profit warning from fellow car retailer Lookers late last week intensified my worries.

With Inchcape’s own third-quarter trading details, scheduled for 7 November, I fear more heavy share price weakness across the sector could be just around the corner. I’d sell out today before it’s too late.

What about this monster yielder?

Okay, Inchcape’s earnings multiples and dividend yields are on the side of decent rather than spectacular, and so probably aren’t worth the hassle, given those worsening troubles for the UK car market.

But can the same be said for Halfords Group (LSE: HFD)? The troubles engulfing the retail sector isn’t confined to sellers of big ticket items like automobiles. Though could this particular FTSE 250 share be too good to miss, given its forward P/E ratio of 7.5 times — sitting below the accepted bargain benchmark of 10 times and below — not to mention its jaw-dropping 10.5% corresponding dividend yield?

Not in my book, I’m afraid. Halfords has seen its share price slump more than 50% over the past 12 months alone as Brexit uncertainty has hammered consumer spending levels and sapped demand for its bikes and car accessories. And with fears over the UK’s economic and political destiny set to drag well into 2020 at least, it’s quite probable shareholders will continue to frantically sell up.

10.5% yields!

Halfords certainly put the pre-Halloween chills into this Fool when it updated the market in early September. It wasn’t a surprise to see like-for-like revenues at its Autocentres rise 1.1% in the 20 weeks to August 16 — the need for MOTs and car repairs provide some earnings visibility — but the scale of sales erosion at its Retail division was shocking, down 3.9% year-on-year.

Sinking like-for-like sales of motoring products (down 5.9%) and cycles and related gear (down 1.1%) caused the trouble and brought underlying sales at group level down 3.2%. And the business expects conditions will remain difficult, with chief executive Graham Stapleton advising: “We believe the economic and political uncertainty impacting big-ticket discretionary spend will continue in the second half.”

Sales at Halfords are deteriorating at a rapid pace and this gives me cause for worry ahead of interims also slated for 7 November. The retailer issued a profit warning back in September and, given that the company has form in underestimating the challenges on the high street, it’s quite likely another one could be just around the corner. I’d sell it today before the share price sinks again.

Losing horsepower

Inchcape (LSE: INCH) is a global car seller and distributor, operating in 32 markets. The business model talks about it having a strong global position, which includes developed and emerging markets, how it has longstanding relationships with the car manufacturers (OEMs in the industry jargon), its distinct routes to market and diversified revenue streams.

The most recent results showed the business is struggling profitability-wise, although revenues did nudge up by 2.4% and basic earnings per share (EPS) rose 5.3%. Investors will have been pleased to see the dividend held flat rather than slashed, indicating the business is confident that conditions will improve. I’m inclined to agree that once Brexit uncertainty passes, the share price can recover from its current position and car buying will pick up. 

The upside of investors generally disliking the car industry is that the shares in the companies become cheap. This has the possible additional attraction of making the companies more appealing as takeovers to overseas buyers, which is often good for shareholders – just ask those that own Greene King. The pub giant and brewer is being bought by Hong Kong’s CKA and the offer price was a 51% premium to the share price on the day the deal was announced. Even without a takeover though, good companies trading at a cheap valuation present an opportunity for long-term investors. Inchcape certainly looks cheap to me with a P/E of under nine.

Looking undervalued

Besides having a great name, packaging company Smurfit Kappa (LSE: SKG) has a lot to offer investors – especially those prepared to wait patiently and invest for retirement. Despite a succession of positive trading updates, the share price has been falling, which makes it look undervalued in my opinion. The share price over the last 12 months fell by 26% whereas the FTSE 100 over the same timeframe has declined by around 7%.

In the first half ending 30 June, the packaging maker said EBITDA rose by 17% and operating profit before exceptional items rose 5%. Return on capital employed also rose 0.6% to 18.7%. This followed a Q1 result where revenue rose 7% to €2.3bn as the company said it was confident of another year of progress. It also reported an earnings before interest, tax, depreciation and amortisation margin of 18.3% during the period.

A move to more sustainable packaging, expanding in markets such as Bulgaria, Colombia and Serbia, and the resolution of a competition investigation in Italy all, I think, play into the hands of Smurfit and in time will boost the share price.

Packaging is going to continue to be an important industry for many years to come because of e-commerce and I think companies in the industry (and especially Smurfit Kappa) are looking cheap right now and so make for good long-term investments.

The first thing I want from an investment is for its returns to at least beat inflation, and a Cash ISA simply doesn’t. The best easy access Cash ISAs right now are offering interest rates of around 1.5%, which guarantees you’ll lose money in real terms. No, the Cash ISA is off the table.

Instead, here are two FTSE 250 stocks that have been growing their earnings for years, and rewarding their shareholders with rising dividends.

Strong growth

Howden Joinery Group (LSE: HDWN) might not sound like an exciting prospect, but I’m not looking for excitement. The UK’s leading manufacturer and supplier of fitted kitchens, appliances and joinery products has been paying dividend yields of around 2.5%. Those aren’t the biggest in the market, but they’re around 2.7 times covered by earnings (which makes them look safe) and they’re growing every year ahead of inflation.

What’s more, the share price is up 63% over the past five years, so if you’d had some in a Stocks & Shares ISA you’d be doing a lot better than with a Cash ISA.

That share price success includes an 8% boost on Thursday, after the firm reported a 5.4% rise in revenue for the first half of the year, leading to a 13.5% rise in pre-tax profit and a 15.7% jump in basic earnings per share.

Chief executive Andrew Livingston said: “With our peak trading period still ahead of us, we are on track with our plans for the year as a whole.”

Howden ended the period with net cash of £217.1m, which makes its forward P/E multiples of around 14-15 look attractive to me, and I see the shares as still good value even after their impressive performance to date.

Motor trade

Car distribution and sales is another business that doesn’t really get the adrenaline going. But in the hands of Inchcape (LSE: INCH), it has had the dividends flowing nicely.

Alongside several years of steady earnings growth, Inchcape’s dividend reached a yield of 4.9% last year, and though it’s expected to be held flat this year, the yield of 4.5% is still very attractive (and would be approximately 2.2 times covered by earnings). The yield will have dipped a little only because the share price has picked up a bit over the year.

The company has just reported a 12.8% fall in pre-tax profit (at constant currency) for the first half of the current year, though that was expected and was hit by a number of one-offs. Once exceptional items are adjusted for, we see a much smaller 3.3% fall, which is closely in line with full-year forecasts. The firm has secured important new business for the second half, so I’m happy with things at this stage.

Cash-wise, the firm is in no trouble, and is in the process of returning £100m to shareholders by way of a share buyback, which should be completed by the end of December.

Inchcape makes the bulk of its profit through worldwide distribution, so any downturn in UK car sales shouldn’t be a big problem. On a forward P/E of under 10, I see Inchcape shares as a buy.