Right now, there’s no shortage of options available to me. However, two from lower down the spectrum particularly appeal — one of which I already own.

10% yield!

The share price of laser-guided equipment manufacturer Somero Enterprises (LSE: SOM) has been on a downward trajectory like nearly everything else. In fact, the value of the company has dropped by almost 30% in 2022, so far.

As frustrating as such falls are, I’m not about to give up on the stock. Far from it. There are a couple of reasons.

First, Somero seems to be trading just fine. Prior to last month’s Annual General Meeting, the company said it expected full-year revenue, profits and cash generation to be “in line” with previous guidance thanks to a “healthy” non-residential construction market.

Second — and the reason I’m highlighting it here — Somero is an awesome income share, in my opinion. Right now, my shares are yielding a forecast 10%!

Cyclical income share

Naturally, there are risks. Somero’s line of work clearly has a cyclical element to it. Put simply, construction tends to slow when economic clouds gather.

However, the payout still looks to be reasonably covered by profit as things stand. As such, I’d be surprised if a cut were necessary. Even so, I’m still making a point of mitigating some of this concern by also investing in very different sectors.

Trading under eight times expected earnings, Somero looks like a high-income steal to me.

Down, but not out

A second share I’d buy for the dividends would be Liontrust Asset Management (LSE: LION). You probably don’t need me to tell you that money managers tend not to do too well when there are financial headwinds. As a general rule of thumb, people are more inclined to save rather than invest at times like these.

Given the above, it’s no surprise that Liontrust’s shares are out of favour. Actually, that’s an understatement. They’ve tumbled by almost 60% in 2022 alone!

So why would I buy now? Well, a valuation of just lower than eight times earnings is tempting, considering the quality hallmarks it boasts. In better times, this is a high-margin business and one that delivers lofty returns on the capital it employs.

There’s also that dividend stream. At nearly 8%, this stock doesn’t (currently) yield as much as Somero, but it’s still an awful lot more than I’d get from a typical cash savings account. The mid-cap business also has a great record of raising its cash returns on an annual basis.

No sure thing

Of course, Liontrust stock can easily sink lower if investors get even more skittish about the near-term economic climate. However, these are just the sort of market conditions that should suit a long-term-focused Fool like myself. And when sentiment does eventually improve — and I can confidently say it will — the company should benefit from an influx of money.

Again, so long as I don’t become too dependent on any one income share, I should be fine. I’d feel comfortable buying Lionstrust stock today.

888 Holdings

Online gambling firm 888 Holdings (LSE: 888) is a stock I once owned and would consider owning again for two reasons.

First, the shares just look too cheap. True, the trading momentum enjoyed by 888 during multiple UK lockdowns is now over (which partly explains the 50%+ fall in the share price in the last year). However, a forward P/E of just nine strikes me as a steal. This is a highly profitable and practically debt-free company. 888 also boasts a strong brand and great growth prospects, especially in the US. If its next update proves even remotely better than expected, we could be in for a nice bounce.

Second, the income stream is worth grabbing. Assuming analysts are right (which, admittedly is a big assumption), the FTSE 250 member will return the equivalent of 11p per share to holders this year. That gives a juicy yield of 5.8% based on the share price as I type. That’s far, far more than I’d get from a Cash ISA or standard savings account. It’s also a lot more than I’d receive from an index fund tracking the UK market.

Naturally, buying individual company stocks carries more risk. This is certainly the case with 888. The annual dividend has actually been increased and cut a number of times in recent years. That could be a red flag for me if I were utterly dependent on shares for covering my living expenses. Further regulation in the industry is another potential headwind. Some investors also seem wary of the recent deal to buy parts of peer William Hill. This would include the latter’s 1,400 UK betting shops (and the not-insignificant costs that come from running them)

Of course, I would never rely on 888 for all my passive income needs. As such, I still reckon there are enough positives here to make this cheap stock a strong contender for a dividend portfolio.

Liontrust Asset Management

Investment manager Liontrust Asset Management (LSE: LION) is a second cheap FTSE dividend share I’d consider buying alongside 888 for the income it offers.

In addition to offering diversification, Liontrust boasts a great track record when it comes to increasing its payouts. For the last few years, the annual payout has been hiked by double-digit percentages.

As things stand, analysts have the FTSE 250 firm returning 64.5p per share for this financial year. That becomes a yield of 5% based on the share price at the close of play yesterday.

Potential negatives to consider here include the cutthroat nature of asset management. The possibility that Liontrust may need to lower its fees to compete with rivals can’t be overlooked. This would lower earnings, potentially causing trouble for the dividend. Through no fault of their own, even the most successful firms in this space can also suffer if geopolitical events conspire to push frightened savers to withdraw their money.

On a more comforting note, Liontrust’s dividend looks set to be easily covered by profits this year. A cheap valuation (11 times earnings) also helps mitigate some risk.

No investment is perfect, but the £800m cap ticks a lot of my boxes.

Now we are past the worst of the pandemic, and the turbulence of Brexit is moving into the rearview mirror, I think the outlook for the UK economy is encouraging. 

The domestic index

The FTSE 250 tends to be a more representative index of the domestic economy. More than two-thirds of FTSE 100 profits are generated outside the country, making this index more of a barometer of global economic health than UK economic performance. 

As most of the FTSE 100’s profits are also generated outside of the UK, the index tends to be heavily influenced by the pound. A weaker pound could help produce higher profits for the index’s constituents. 

Meanwhile, company and economic fundamentals tend to have a more significant impact on the FTSE 250. 

As such, here are my two favourite companies in the UK-focused index. I would buy both of these stocks for my starter portfolio if I had to begin with an investment of just £5,000 today. 

FTSE 250 stocks

The first company on my list is a financial services champion.

Liontrust Asset Management (LSE: LIO) has grown rapidly over the past five years. Revenues have increased from around £50m in 2017 to £175m in 2021. 

The organisation’s formula is simple. It draws investors to its offering by constructing funds that outperform the market. For example, the firm’s oldest fund, the Liontrust UK Smaller Companies Fund, launched in January 1998, has consistently ranked in the best performing 25% of UK funds since its launch 24 years ago.

The company’s second oldest offering, the Liontrust Balanced Fund, has achieved a similar performance. 

These numbers explain why investors are happy to entrust their money to the company. It does not look as if this trend will come to an end anytime soon. Net inflows over the three months to 31 December 2021 were £832m. The net inflows over the nine months to 31 December 2021 were £2.9bn. 

These numbers put the company on a par with the UK’s largest online stockbroker, Hargreaves Lansdown. 

Bumps in the road 

Still, past performance should never be used to guide future potential. Liontrust’s performance has helped attract investors over the past two-and-a-half decades, but a couple of missteps could destroy this track record. In this scenario, the company may find itself having to offer customers expensive incentives to stay on board. 

Another challenge the business could face is competition. The asset management sector is incredibly competitive. Liontrust needs to keep investing in its offering, or the firm could be left behind. 

Even after taking these challenges into account, I would make this FTSE 250 company a cornerstone of my starter portfolio. As assets under management continue to grow, I expect the firm’s profits to follow suit. 

FTSE 250 gold play

I always like to include some exposure to the gold mining industry in my portfolio. I tend to stay away from investing in gold directly because I would rather own shares in a company producing cash flow that can return some of this money to investors with dividends. 

That is why I would also acquire FTSE 250 gold mining company Centamin (LSE: CEY) for my starter portfolio. 

This Egypt-focused gold miner is incredibly well run, in my opinion. Over the past five years, the group has managed its operations efficiently while expanding production, keeping costs low, and maintaining a solid balance sheet. 

On top of these qualities, Centamin has also become a dividend champion. In the past, the stock has consistently supported dividend yields in the high single digits. And of course, these cash distributions are supported by the company’s strong balance sheet, which is stuffed full of cash and gold bullion. 

Growing output

According to the firm’s latest production report, the group is currently profiting from rising gold prices. It sold nearly 100,000 oz of the precious metal in the fourth quarter of 2021, at an average price of $1,828/oz. That is compared to the full-year average of $1,797/oz. 

Costs have also increased modestly, is although rising gold prices are offsetting some of this group. The cash cost of production per ounce was $972 in the fourth quarter compared to the full-year average of $859. 

These figures illustrate the company’s defensive nature. The cost of production is rising due to inflation. However, the price of gold has been an excellent hedge against inflation pressures for much of the past century. This suggests that the enterprise is one of the best FTSE 250 enterprises to own in the current economic environment. 

That being said, Centamin is not wholly immune to economic and political challenges. It has faced challenges in the past operating with the Egyptian government. Further, there is no guarantee the price of gold will continue to reflect inflation. If gold prices stagnate and costs continue to increase, the company’s profit margins will come under pressure. 

Income champion

Still, even after taking these headwinds into account, I am encouraged by the FTSE 250 company’s potential over the next couple of years. It is looking to hike gold output by more than 10% in 2022. Increasing sales and profits will help the business fund its exploration activities as it looks to diversify away from its core projects. 

City analysts believe the corporation can pay out a dividend yield equivalent to 6.2% of its current share price for the current financial year. Even though that is a decline of 43% on 2020 levels, it still makes this company a desirable income prospect.

As such, I believe this enterprise would make the perfect addition alongside Liontrust to my £5k FTSE 250 starter portfolio. 

Many investors will be drawn to the ‘usual suspects’ for their dividend fix, namely FTSE 100 companies. However, I think looking further down the market spectrum can also be a good idea. Here are three less-well-known shares I’d be prepared to buy today.

Liontrust Asset Management

Like many other listed companies, fund manager Liontrust (LSE: LIO) hasn’t had the greatest of starts to 2022. Actually, that’s an understatement. Its share price has now tumbled 24% year-to-date, most likely due to concerns that profits will fall due to people pulling their money out of the market. 

That’s said, it’s still up 34% over the last 12 months. And, of course, the beauty of investing for dividends is that I can take such volatility in my stride so long as the passive income keeps rolling in. 

Importantly, Liontrust has consistently hiked its annual payout by a double-digit percentage for many years. Analysts have the company returning 64.1p per share in the current financial year. At today’s share price, that equates to a yield of 4%. It’s also sufficiently covered by profits, making a cut unlikely.

That said, investors need to be aware that the fund management industry is notoriously competitive and there’s always a risk Liontrust may need to cut fees to help retain clients.

Redde Northgate

Redde Northgate (LSE: REDD) provides “mobility solutions and automotive solutions” to businesses. It also strikes me as a great source of dividends.

The £1bn-cap company looks set to return 19.4p per share to holders in FY22, giving a chunky yield of 4.9%. This should help holders to keep up with rising costs. Like Liontrust, the payouts are safely covered by expected earnings. With the exception of 2020, Redde Northgate is also a regular dividend hiker. 

The shares aren’t exactly expensive either, changing hands for nine times forecast earnings. That’s despite the company’s value rising 45% over the last 12 months!

I suppose one thing to bear in mind here is that Redde Northgate may need to replenish its fleet of vehicles every now and then. That could end up reducing margins significantly, especially at today’s prices.  

Synthomer

Chemicals firm Synthomer (LSE: SYNT) is a final secret stock offering a tempting dividend yield. It’s a leading supplier of aqueous polymers that are used in things such as latex gloves.

Just like the aforementioned asset manager, Synthomer’s share price has been on a downer since the beginning of 2022. In the last 12 months, it’s fallen 22%. On a positive note, this does leave them looking cheap at just seven times expected earnings. 

Unfortunately, the dividend is expected to fall by 22% this year. However, I’m including it here for two simple reasons. First, the yield is still expected to be 5%, which is a far more passive income than I’d get from a cash savings account. Second, this payout looks thoroughly secure based on predicted profits. 

Similar to Redde Northgate, a risk with Synthomer is that supply chain hold-ups may impede growth. This may explain why the shares have been out of form recently.

Notwithstanding this, the vast majority of brokers covering the company remain positive. This suggests now might be as good a time as any for long-term investors like me to load up.

I’ve found a stock that I think has been oversold. It’s a quality company that I’ve had on my watchlist for a while. Luckily for me, the recent market volatility has made the stock 25% cheaper today. Let’s take a closer look at the investment case.

A quality FTSE company

The company I think has been oversold is Liontrust Asset Management (LSE: LIO), a financial services company offering a range of investment solutions. At the start of the year the shares were £22. But today, the share price has fallen to £16.50. That’s a 25% drop!

Liontrust did release a trading update on 17 January. I don’t think this was the reason for the fall, though. Indeed, the update confirmed that net investor inflows and assets under management and advice (AuMA) all grew. This all looks good to me.

One of the reasons I like the company is the experienced investment management teams it has. This has translated into many strongly performing funds for Liontrust over the years. I think this would be very hard for a competitor to replicate. So to me, it’s a strong competitive advantage and a sign of a quality company.

Liontrust has exceptional growth forecasts too. Earnings per share are expected to rise 42% in the period to 31 March 2022, and by 14% in the following 12 months. The dividend yield is expected to rise from 3.9% to 4.5% over this period as well. That’s an attractive income for my portfolio with earnings per share growing at such a good rate.

What are the risks?

I’m pretty sure I know why Liontrust shares have underperformed this year. It’s related to the AuMA, which forms the basis of the income the company is able to generate. If this falls, then the revenue potential for Liontrust falls with it.

On this point, the poor start to the year for stock markets will likely have reduced AuMA for Liontrust. The recent trading update was only up to 31 December, so there’s a fair chance that AuMA has fallen since due to the volatile stocks markets. Therefore, growth expectations may be cut. This is always a key risk for a business such as Liontrust.

Another risk I should consider is if a key investment manager leaves the company for a competitor. This often results in investors withdrawing their funds from a business, and net outflows increase. The result would be a reduction in AuMA, and therefore lower income potential again.

Why I’m buying

As mentioned, I always look for bargains when stock markets are volatile. I think Liontrust is a good example of this today. The valuation based on a forward price-to-earnings ratio is currently only 13. I think this has more than priced in the recent stock market volatility and risks ahead for this FTSE company. So, I think the stock has been oversold and I’ll be adding the shares to my portfolio.

A gold mine of dividend yields

Earlier this year I wrote about how I am bullish on Rio Tinto (LSE: RIO). What I could not have anticipated at the time was that inflation would take off. Why is this relevant? Because high dividend-paying stocks have traditionally helped investors outpace inflation. For Rio Tinto, as of today, that dividend yield sits at an irresistible 10.12%.

As I said in my previous article, I think Rio is an excellent business. It has a great spread across minerals, which means that the cyclical nature of commodities often affects it less than industry rivals. Rio’s main risk right now is the volatility of iron ore prices. The industry is disproportionately tied to Chinese markets, which have seen several government-imposed restrictions this year and shifted prices. Rio is down 12% this year but I believe it can make a comeback in 2022. Its price-to-earnings is a dirt-cheap 5.65, which makes it a total win in my opinion.

A high-growth dividend stock

Over the past five years, Liontrust Asset Management (LSE: LIO) has simply been the gift that has kept on giving. Rarely do FTSE dividend stocks do so well over a long period of time. My concern here would be that Liontrust’s funds consist mainly of equities. The world’s equities markets have performed exceptionally well in recent years, fuelled in part by central bank interventions. However, what goes up must come down and if the crash that many are predicting materialises, that exposure to equities may come back to bite them. Fortunately for Liontrust, it is very well diversified across industries and markets, with exposure to bonds and other assets. I like that investors are pouring more and more cash into its funds and this could mean continued growth into 2022 and beyond.

The world’s largest bug slayer

With its acquisition of American rival Terminix this month, Rentokil (LSE: RTO) has become the world’s big cat (since, you know, cats catch mice) in the pest-control game. Globally, the industry is worth $22bn and is growing rapidly. This is especially the case in light of the pandemic, which seems to have made all of us a little more germ-conscious. A few weeks ago when the news broke that Rentokil was buying Terminix, the stock nose-dived 12% in a single day. I predicted that it would make a strong return and it is up 9% over the past week. Caution must be had as it remains to be seen whether competition authorities in the US will challenge the union of Rentokil and Terminix, but on the whole, I remain bullish on the long-term prospects here.

Christopher Ruane: Lookers

Second-hand car sales dealerships aren’t always the best place to look for a bargain. But I think things could be different at Lookers (LSE: LOOK), which sells used and new vehicles.

Several directors have added to their holdings in December. The chief executive spent £29,000 doubling his own position. I think such confidence may be merited. The Lookers share price has been treading water even though third-quarter results beat expectations. Supply issues could hurt new car sales, though, threatening revenues.

Christopher Ruane does not own shares in Lookers.

Rupert Hargreaves: Next

My top share for January is the retailer Next (LSE: NXT). I would buy this stock for my portfolio as it is a retail champion. It has consistently outperformed the rest of the UK retail industry and its own expectations in the past, and the firm is not slowing down.

Management is investing heavily to maintain the group’s growth rate. As the UK economy continues to recover, I think Next could prosper. Risks that could hold back growth include wage inflation and the supply chain crisis.

Rupert Hargreaves does not own shares in Next.

Niki Jerath: Reckitt

My stock pick for January 2022 is Reckitt (LSE: RKT). The share price is up over 2% in the past month. I could be wrong, but it might go higher.  

I expect demand for its consumer goods brands will rise over Christmas and into the New Year, no matter what happens over the festive period.  

Sales of cleaning brands such as Dettol are sure to rise in reaction to the unfortunate outbreak of the Omicron Covid variant.  

I’m also confident that its other brands such as Strepsils and Nurofen will be useful in January as we nurse our New Year’s hangovers!  

Niki Jerath does not own shares in Reckitt.

Dylan Hood: Lloyds

My best share for January is Lloyds (LSE: LLOY). At the time of writing, Lloyds shares are trading at 46p. The stock has performed well for investors throughout 2021, delivering 33% year-to-date returns.

The main reason I like the look of Lloyds is because of its high growth plans under new chief, Charlie Nunn. The new strategy aims to vastly speed up growth in areas of the business such as property, wealth management, and commercial banking.

If this plan pays off, I think we could see some great growth in the Lloyds share price throughout January 2022 and beyond.

Dylan Hood does not own shares in Lloyds.

Stephen Bhasera: Liontrust Asset Management

Liontrust Asset Management (LSE:LIO) is arguably the best asset management company listed on the London Stock Exchange right now. The results speak for themselves as its share price has appreciated by 58% over the past year.

This company employs several strategies across multiple funds to produce superior returns for investors. With over £30bn in assets under management, its latest half-yearly results revealed revenues of £109m. Forecasts indicate that Liontrust’s growth will be slightly slower in 2022 than the past five years but it is still expected to drastically outperform competitors and so remains a solid pick.

Stephen Bhasera has no position in Liontrust.

Edward Sheldon: Hargreaves Lansdown

My top stock for January is Hargreaves Lansdown (LSE: HL), which operates the UK’s largest investment platform. It underperformed in 2021 and I think the share price weakness has created an attractive buying opportunity.  

There are several reasons I like HL. In the short term, the company looks set to benefit from higher interest rates. That’s because it earns income on its clients’ cash savings. Meanwhile, in the long run, it should benefit as equity markets continue to rise and more Britons save and invest for retirement. It’s worth noting that portfolio manager Nick Train believes that Hargreaves Lansdown represents “one of the greatest UK growth stock bargains over the next decade.”

There are risks to consider here, of course. One is competition from rivals such as AJ Bell (which just launched a new commission-free app) and Freetrade.

Overall, however, I think this FTSE 100 stock looks attractive right now.

Edward Sheldon owns shares in Hargreaves Lansdown.

Andy Ross: Staffline 

Shares in blue collar recruiter Staffline (LSE: STAF) have struggled for much of the last quarter of 2021, after hitting a high point in mid-September. On the flipside, that has made the valuation pretty compelling with a forward P/E ratio of 14. The EV to EBITDA ratio – another measure of valuation – is 7.77, which is low and indicates the shares are potentially undervalued.  

Staffline is a recovery share. It has new executives in place who are looking to build back better after a share price collapse in recent years, following poor leadership under previous management.  

Andy Ross owns shares in Staffline.

Zaven Boyrazian: Focusrite

Focusrite (LSE:TUNE) provides the music industry with bleeding-edge audio equipment and software. Under its numerous brands, the firm can cater to professionals and hobbyists alike.

The group definitely operates in a niche market with plenty of competitors targeting the same audience. However, thanks to some smart bolt-on acquisitions, and an impressive Net Promoter Score of 74, the company seems to be staying on top.

With double-digit revenue and earnings growth even with live events being delayed, Focusrite looks primed to deliver impressive returns, in my opinion.

Zaven Boyrazian does not own shares in Focusrite.

Paul Summers: Computacenter

I think there could be further upside to the Computacenter (LSE: CCC) share price in 2022. The company has thrived in recent years as corporate and public sector organisations have rushed to update their IT infrastructure. With no end to Covid-19 in sight, I can’t see this momentum slowing just yet.

Clearly, much depends on whether product supply shortages highlighted in October have worsened. We’ll find out in January’s trading update. At 18 times forecast earnings, however, Computacenter’s valuation doesn’t seem excessive given its consistently great returns on capital. There’s a secure 2.2% dividend yield too.

Paul Summers has no position in Computacenter

Roland Head: Morgan Advanced Materials

My top stock for January is Morgan Advanced Materials (LSE: MGAM). This British industrial firm has been making equipment for metal foundries and parts for electric motors (among other things) since the late 19th century.

Growing demand from electric transport and renewable energy is helping to drive new growth. Although there’s always the risk that an economic slump will hit demand, I believe Morgan’s long pedigree and market share should provide some protection for shareholders.

Recent management guidance is positive. I think the shares look good value on 12 times forecast earnings and would consider buying them for my portfolio.

Roland Head does not own shares in Morgan Advanced Materials.

G A Chester: British American Tobacco 

British American Tobacco (LSE: BATS) is a highly cash-generative business, and unhealthy products and regulatory risk aren’t deal-breakers for me. 

It’s my choice for  for January after its recent trading update. It’s making excellent progress on its £5bn revenue target for new category products. It’s also delivered £1bn cost savings one year ahead of plan. Lower debt gives it greater capital allocation flexibility going into 2022, and management said: “We recognise the clear value of a share buyback at the current valuation.” 

In addition to a running dividend yield of around 8%, I’m expecting the company to announce a buyback programme with its annual results on 11 February. 

G A Chester has no position in British American Tobacco.

Royston Wild: National Grid 

I think grabbing some defensive stodge could be a good idea for January. As I type, Covid-19 restrictions are being tightened Omicron infection rates balloon. It’s been suggested that full lockdowns could return after Christmas too. 

The economic implications of these measures for many UK shares could prove catastrophic. But the public health emergency isn’t something FTSE 100 stock National Grid doesn’t have to worry much about. It’ll be needed to keep Britain’s electricity network running regardless of how the pandemic is panning out. This is why I think it could be a top stock for today.

Oh, and at recent prices National Grid offers jumbo dividend yields just shy of 5% for the short-to-medium term. 

Royston Wild does not own shares in National Grid.

Beating its peers

As Liontrust is an asset management firm, I can compare it to other brokerage service companies. Intermediate Capital Group and 3i Group returned 218% and 105%, respectively, over the same five-year period. Liontrust has far outstripped its peers in this regard. But for the sake of certainty, say I wanted exposure to the financial services sector generally back in 2017 and chose banking stocks. Lloyds, Barclays and HSBC would have lost me 18%, 14% and 31% of my investment, respectively. I think there’s simply no comparison in the sector to what Liontrust has achieved and it seems like the market is starting to realise the underlying value of this stock.

The business

Liontrust is structured very similarly to a hedge fund. It employs several different strategies to make a profit for its investors. In 2021 it almost doubled its assets under management (AUM) from £16bn to £30.9bn. This huge influx of extra cash meant that net income also doubled. Free cash flows, which represent the actual cash flowing through the business after deducting operational costs, have almost tripled in the past two years. They went from £15.6m in 2019 to £43.4m in 2021. Positive trending free cash flows are always a plus, as they indicate a growing ability for the company to generate money that can then be returned to me as an investor.

Among the positives is the lack of long-term debt on the balance sheet. Interest payments on long-term debt cripple the ability of a business to reinvest revenues and grow the business. Therefore, Liontrust carrying almost none is very encouraging to see. Also worth noting is the recent move into the ESG area with its Sustainable Future fund managing £13.2bn in assets, making it by far the largest in the UK.

So back to the question of whether I’d buy. From a growth perspective, I think there’s still a lot of upside to this stock, but from a value perspective, it’s not something I’d look to hold for life based on what I’m currently seeing. Liontrust doesn’t sell a unique product or unique service and with a market cap of just £1.46bn, it doesn’t benefit from from competitors facing a high cost of entry. Warren Buffett might say it has no durable competitive advantage or moat.

That being said, even though I’m a value investor at heart, I would buy this stock today as part of the smaller growth part of my portfolio. The potential upside in the short term is simply too tempting to pass up, I feel.

Let’s take a look to see if these stocks are buys for my portfolio.

A UK share to profit from the booming housing market

The first company I’m looking at is Belvoir (LSE: BLV). It’s a property franchise group specialising in residential lettings and property sales. The share price has had an unbelievable run since the pandemic low at around 90p in March 2020. As I write, the share price is 260p which marks a near 200% return since then. There’s been some weakness lately though as the shares have dropped around 20%.

On Thursday, Belvoir released a trading statement for the 10 months to October saying that the company has performed ahead of the board’s expectations. Income grew across the group, with notable strength in property sales that the company said was “mainly a result of the strongest market for property transactions seen since 2007”.

I normally look out for franchise groups as an investor as they can achieve fantastic business economics. It’s up to the franchisee to invest any upfront costs, leaving the franchisor to collect an income from the potential profit. Indeed, Belvoir’s cash generation is excellent, and the business requires little cash investment itself. Last year’s operating margin was a stellar 31% too.

I have to keep in mind that Belvoir’s business is dependent on the housing market staying strong. Any slowdown in property sales or lettings and profits will fall. But I see this as a quality stock to keep in my portfolio as we head into next year.

A quality investment management company

I’ve also been looking at Liontrust Asset Management (LSE: LIO). It’s an investment management company offering a range of funds across various asset classes.

Liontrust released its half-year report to 30 September on Wednesday and it was very impressive, in my view. Adjusted profit before tax was £43.1m, which increased from £22.3m in the same period during 2020.

A key metric for an investment management company is assets under management and advice (AuMA) as this figure determines its income generation. Liontrust’s AuMA increased by 73% over the 12 months to £35.7bn.

One of the reasons I think Liontrust is a quality business is its operating margin. It’s able to generate double-digit operating margins consistently, and last year it was an impressive 37%. Not only this, but its return on capital is also consistently in double-digits.

A risk to consider before I buy the shares is that stock markets may crash next year. This would lower Liontrust’s AuMA, and therefore income would fall. But on balance, I still think this is a quality UK share for me to own for the long term.

Investments for a Stocks and Shares ISA

The first on my list is Liontrust Asset Management (LSE: LIO). The asset management industry is currently under fire from all angles.

This is because low-cost passive funds are attracting investors in large numbers, while many investors are rebelling against high fees from financial advisors. Low- or no-cost platforms have been taking the sector by storm. 

Against this backdrop, Liontrust’s performance stands out. By focusing on sustainable investments, it’s been able to stand out in a competitive market. During the three months to the end of June, investors allocated £1bn to the group’s funds. Assets under administration at the end of the quarter were £33.6bn, an increase of 8.5%. 

Liontrust’s funds have won a string of awards over the past 12 months. What’s more, the asset manager was voted ‘Group of the Year’ at Incisive Media’s prestigious Fund Manager of the Year Awards.

With so many other options available, asset managers need something to stand out, and Liontrust’s awards help the business do just that. Which is why I’d buy it for my Stocks and Shares ISA today.

As long as it keeps doing what it’s doing, I reckon the firm can continue to attract assets. This should produce higher management fees, although it will need to stay on its toes. With so many challengers out there, I can’t take Liontrust’s growth for granted. 

Critical components 

Trifast (LSE: TRI) literally supplies the nuts and bolts for the engineering and construction industries. As such, I think the stock could be a great addition to my Stocks and Shares ISA as an economic recovery play. 

Last year, the group reported a 6% decline in revenues year-on-year, which is impressive considering the environment. 

Going forward, management has its sights firmly set on growth. It’s focusing on “value-enhancing acquisitions” as it aspires to become a “much bigger company.” Even after the challenges of the past two years, Trifast’s management believes this is the “most dynamic time for Trifast in more than a decade.“

I’m conscious that just because management has ambitions to grow, it doesn’t necessarily mean the company will be able to execute on these targets. However, I think the combination of the economic recovery and Trifast’s cash balance of £13.m will help support the firm’s ambitions. 

Some challenges that may slow growth include higher costs and competition, both of which could hurt profit margins and growth. 

Despite these risks, I think the company has multiple attractive qualities as a Stocks and Shares ISA buy.