My focus is on businesses with sound finances and the potential to grow their operations. And when I’ve found one that interests me, I’ll look for a valuation that makes sense for a long-term investment in the shares. In that approach, I’m aiming to copy successful investors such as Warren Buffett and others.

Small but steady

Right now, NWF (LSE: NWF) has caught my attention. The company has a small market capitalisation of just £111m, or so. But I’m impressed by the firm’s long record of steady trading. It has consistent and growing annual cash inflow. And it has achieved smooth shareholder dividend payments over many years. The compound annual growth rate of the dividend is running at just under 5%.

With the share price near 225p, the forward-looking dividend yield for the trading year to May 2023 is around 3.4%. However, it’s possible for the directors to trim, or cancel, dividends at any time if the business runs into difficulty. But that’s true of all companies.

NWF distributes fuels, food and animal feeds. And the common theme is delivering stuff with lorries. The company sells and distributes domestic heating, industrial and road fuels. It warehouses and distributes clients’ ambient groceries (which can be stored at room temperatures) to supermarkets and other retail distribution centres. And it develops, makes and sells animal feeds and other agricultural products.

Essential everyday services

I like NWF’s business. The company provides essential everyday services that are unlikely to go out of favour. But it does have competitors, as do most businesses. Nevertheless, May’s trading statement was robust with the financial performance ahead of the directors’ previous expectations.

Volatile fuel markets and other commodity inflation have been causing some challenges for the business. But as a distributor, NWF is in a position to adjust selling prices to maintain margins.

However, profit margins are thin in the sector and NWF has quite a large debt load with net gearing running just below 70%. The business could get into trouble in any future economic downturn. However, I see its business sectors as resilient and leaning to the essential end of the market. For example, NWF performed well through the pandemic.

Perhaps I’ll face a bit of a bumpy ride holding the stock for the long term. Indeed, any number of operational challenges could make life difficult for the business. But I’m encouraged by the company’s steady focus on expansion. And I like its ambition to consolidate the markets in which it operates via a programme of acquisitions.

I’m watching closely and will likely consider the stock for my ISA when I next have spare cash.

Jersey Electric

As its name suggests, market minnow Jersey Electric (LSE: JEL) supplies electricity to approximately 50,000 domestic and commercial customers on the island. Importantly, it’s the only company to do so, making it arguably as defensive as small-cap stocks come. 

As a result of this, Jersey has shown itself to be an extremely consistent dividend raiser (+5% every year).  A total payout of 17.3p per share is expected in FY21. That’s a 2.9% yield; not massive but easily covered by profit.

As one might expect from a solid income payer, however, JEL’s share price performance has been adequate rather than explosive. The stock is up 44% in value since 2016. That’s clearly a whole lot less than other UK shares. So, a danger with JEL is that I wouldn’t get much in the way of capital growth. A valuation of 16 times earnings for a predictable utility stock isn’t exactly cheap either. 

Still, that predictability might suit me down to the ground if income were a priority. If/when markets correct, I can be pretty confident that JEL will recover quickly. That’s exactly what happened last year. 

NWF 

Small-cap NWF Group (LSE: NWF) describes itself as a “specialist distributor of fuel, food and feed across the UK“. Like Jersey Electric, it’s also a brilliantly regular dividend hiker. This potentially makes it another one of the best shares to buy at this end of the market spectrum.

The company is down to return 7.34p per share to holders in FY22, at least according to analysts. That’s a yield of 3.43% at last Friday’s closing price. Some might say that’s not enough given that shares in minnows can be pretty volatile due to their illiquid nature. Margins are also wafer-thin.

In NWF’s defence, its annual payouts are usually very well covered by profits, making them pretty secure. That’s more than you can say for some far larger stocks these days. On top of this, NWT’s shares aren’t expensive relative to the wider market. I could pick some up today for 12 times forecast earnings. 

Wynnstay

Agricultural product manufacturer Wynnstay (LSE: WYN) has shown itself to be admirably predictable when it comes to returning cash to its owners. We’re talking about an average hike of +5%, with the total sum always covered by profits.

A potential 15.2p per share in FY21 would give a yield of 2.7%. That’s the lowest of those mentioned here. However, it’s important to consider the impact of many years of compounding that regular dividends enable.

There are drawbacks, of course. Margins, like those at NWF, are seriously low. And, although performing superbly over the last year (+64%), WYN’s shares are now only back to the level they were in 2016. Like most things in life (and investing), I think balance is key. I would never fill an income-focused portfolio solely with small-cap stocks.

So, while Wynnstay might make a nice addition, I’d aim to reduce volatility by also holding some larger dividend hikers as well. 

Why I think Alumasc is a share to buy now

At the beginning of February, building products supplier Alumasc (LSE: ALU) delivered a strong set of half-year results. Revenues and earnings were higher than last year. Net debt and the pension deficit were lower. And the directors declared an interim dividend underlining their confidence in the outlook for trading.

City analysts expect a triple-digit percentage bounce-back in earnings for the full trading year to June 2021, and high single-digit progress the following year. Meanwhile, the forward-looking valuation looks modest. And with the share price near 174p, the dividend yield looks set to be around 5.5%.

However, Alumasc’s fortunes are tied to the building and construction industry. And there’s a lot of cyclicality in the firm’s operations. The share price has already risen a lot since the Covid-crash last year. And the shares now change hands near the top of a price range established for around 20 years. Nevertheless, I’m tempted to put some of the shares in my ISA and hold them for the long term.

A steady business

NWF (LSE: NWF) operates as a specialist distributor of fuel, food, and animal feeds. I’ve admired the business for some time because of its steady nature and consistent financial and trading record. Revenue, earnings, and shareholder dividends have been on a gradual climb upwards for years.

In February, the company released its half-year results report covering the period to 30 November 2020. And the figures show a bit of a dent in revenues and earnings because of the pandemic. However, the directors didn’t miss the interim dividend but held it flat compared to the previous year.

The outlook remains positive. And the directors expect the business to be resilient through whatever other challenges the pandemic may yet throw at it. The company expects to resume its growth strategy based on organic and acquisitive progress.

The valuation looks full

However, there’s no coronavirus bargain for me to pick up here. With the share price near 221p, the stock has already exceeded its pre-Covid level. In fact, the share recovered fast and was already at its pre-crash level by 1 May. I reckon the market was quick to recognise the strengths of the business.

Looking ahead, City analysts expect the full year to May 2021 to deliver a single-digit percentage dip in earnings followed by a single-digit recovery the following year. And against those forward predictions, the earnings multiple is just above 12. The anticipated dividend yield is around 3.3%. Of course, forecasts can change.

Given the slow rate of growth on offer, we could argue that the valuation looks full. And another risk is that the stock is almost at its previous high just before it crashed during the financial crisis. That big down-move started in late 2007.

Nevertheless, I’m focused on the underlying business and its fundamentals. And I’d like to get the shares in my ISA to hold for the long term.

There’s more than one way to skin a cat, it’s true. When it comes to share investing there’s many strategies that you and I can use to make a lot of money. One method that’s staring us all in the face today is the opportunity to buy top UK shares that were oversold during the initial stock market crash and which have suffered from anaemic buying interest since.

The success of Stocks and Shares ISA investors during the last decade illustrates just what a powerful ally stock market crashes can be for brave investors. Hundreds and hundreds of ISA owners made millions during the 2010s. How? They bought cheap UK shares in the aftermath of the banking crisis. And then watched them balloon in value as the economic recovery took hold and confidence returned to the markets.

Low P/E ratios AND big dividends

Here are two UK shares I’m thinking of buying for my own ISA. They carry low price-to-earnings (P/E) multiples which provide plenty of scope for serious price gains from now on. And they boast bulky dividend yields too. As a result I think they’re too good to miss:

• NWF Group has a very bright future. It is a major fuels supplier in a hugely-fragmented market. And through its aggressive acquisition strategy it’s taking steps to boost its geographical footprint and supercharge its share. It also has ample room to expand in the fast-growing animal feeds markets. The company’s forward earnings multiple of around 10 times fails to reflect its bright profits picture, in my book. At current prices, it boasts a 4% dividend yield as well. These figures suggest it’s a steal.
• Broadcasting colossus STV Group looks too cheap to miss today too. This UK share boasts a forward P/E ratio of 8 times as well as a near-4% dividend yield. Now could be an especially good time to buy as hopes of a strong rebound in ad budgets grow (former WPP head honcho Martin Sorrell, for one, recently told Barron’s that he expects a “full-throated” recovery in 2021). The accelerating growth of its digital business offers plenty for share investors to get excited about too.

Make a million with UK shares

These are just a couple of the too-cheap-t0-miss stocks available to buy today. The Motley Fool’s epic library of exclusive reports can help you find even more. So do some research and get investing in UK shares today, I say. You could get seriously rich and, like those ISA investors, possibly even make a million.

With the shares at 182p, the forward-looking yield for the trading year to May 2021 is running just over 3.9%, which strikes me as a decent level of payment. On top of that, City analysts expect annual increases in the dividend ahead in low-to-mid single-digit percentages.

A steady, growing business

Meanwhile, the earnings multiple for next year is just below 11 when we factor in generous single-digit increases in earnings for the next couple of years. The shares look reasonably priced to me. And NWF operates a steady-looking business that’s well-established. Although the market capitalisation is just £88m or so, this isn’t the kind of racy, high-risk enterprise we often find in the small-cap arena.

But NWF does have an agenda for growth and things have been going well. Today’s half-year results report reveals the company made two acquisitions for its Fuels business in the period and a third after the period ended. Altogether, the deals add 115m litres of volume to turnover.

Chief executive Richard Whiting explained in the report that the firm has acquired five fuel businesses over the past 12 months, which have increased the annualised volumes by almost 30%. He said the company had “a very positive” first half, with all divisions trading in line with, or exceeding, expectations.

The directors struck a deal in the period to take on a 240k sq ft warehouse to expand the Food division. The facility will support ongoing organic growth and a new five-year contract with “a major food company.” Overall, revenue grew by 5.6% in the first six months of the trading year and the company experienced “increased activity levels in all divisions.”

Profits up

Meanwhile, adjusted diluted earnings per share shot up by just over 34% compared to the equivalent period the year before. And net debt came in broadly flat at just over £33m, including lease liabilities.

I reckon the firm has borrowings under control and see the directors’ decision to hold the interim dividend flat as a conservative move. They appear to be managing the incoming cash flow well, which I find encouraging. 

I reckon small-cap companies like this one demonstrate we don’t have to stick to investing in large, FTSE 100 outfits to reduce portfolio risk. NWF seems to have established itself in its market niche, and the directors appear to be doing a decent job of running things, just like we see in many larger firms.

I’m tempted to invest in smaller companies like NWF because they have room to grow and could evolve into larger companies, leading to a decent investment outcome for shareholders over time.

I’d always go for a Stocks and Shares ISA, and there’s no rush to choose your shares — as long as you get the cash in, you can then take your time to make your actual investment decision.

The bulk of my investment goes into solid dividend-paying stocks, but I have room for the occasional riskier growth pick. Today, I’m examining two that tempt me.

Cheap growth

It’s not often we see a company with a solid earnings growth record but whose share price has fallen and is looking cheap. But that might just be the case at NWF Group (LSE: NWF).

The specialist fuels, food and animal feeds distributor has enjoyed steadily rising EPS over the past five years. But a 15% dip forecast for the current year hasn’t helped, even though it comes after a 20% hike last year.

The shares have lost 30% of their value since their peak in June 2018. That puts them on forward P/E multiples of 10 and under, with modest EPS growth predicted to resume in 2020, and that looks cheap to me.

My colleague Kevin Godbold’s examination of 2018 results and the company’s long-term prospects paints a convincing picture for me, and an update Thursday strengthens that.

Acquisition

NWF has acquired Consols Oils Limited, in accordance with its strategy to grow and consolidate its fuels distribution business — it bills itself as the third largest in the UK. The earlier acquisition of Midland Fuel Oil Supplies Limited is apparently performing well. Overall trading is in line with expectations, and we should have a year-end update in June.

Net debt at the halfway stage had dropped by 9% to £14.8m, and that’s only 1.0x EBITDA, so I see nothing to worry about there. And NWF is generating cash strongly and pays a well-covered and progressive dividend, forecast to yield 4.6% and rising. I see a bargain here.

No profit

The riskiest kind of potential growth shares is surely those that are not making any profit yet, and that’s the case at Tiziana Life Sciences (LSE: TILS).

When I last looked at the company in 2017, it was very much in a cash-burn phase, and the same is still true today. And it’s fair to say it’s been a disappointment since then, with the share price losing 70% of its value since I wrote. The big problem is that it’s pretty much impossible to work out an actual valuation.

Financial figures for 2018 show a continuous process of raising cash through new equity, with £3.9m raised from issuing ordinary shares, £3.4m from an IPO on the US market, and £1.4m from a debt-equity swap. That raises the additional question of how much dilution current shareholders will face if and when first profit shows up.

Potential?

We have to evaluate Tiziana through the prospects for its oncology and immunology drugs and, according to executive chairman Gabriele Cerrone, “Tiziana is confident that it is well positioned to advance these programs to their next respective value inflection points.”

Right now, Tiziana looks very risky to me, but I can’t help thinking it’s worth a (very) small investment based on the potential upside.

A long history and growth opportunities

The company can trace its origins to 1871, which makes me believe it’s found something to earn its living from with staying power. And it’s been listed on the FTSE AIM market since 1995. I’ve had a scoot around the firm’s website and listened to the chief executive being interviewed. Result is, I’ve come away with the feeling that the three divisions have traction in their markets, and the whole enterprise seems well managed. The common thread linking each division is the firm stores then delivers stuff with lorries, which means it can apply its expertise across each of its three markets.

The directors are focused on building up the business both organically and via selective acquisitions. In the fuel sector, for example, the company sees a fragmented market, which it’s working to consolidate with an acquisition and integration policy. Then in the animal feeds division, NWF does more than just transport the feeds to farms and customers around the country. It also mills and manufactures the product and works with its customers to offer advice. I think a distribution-plus-benefits service like that will make the company an important partner to those purchasing the products, which should work to ensure solid repeat custom, adding to NWF’s defensive credentials.

Encouraging results

I find today’s half-year results report encouraging. Revenue rose 11.7% compared to the equivalent period the previous year and adjusted, diluted earnings per share moved 5.6% higher. The net debt figure fell more than 9.2% to £14.8m, suggesting strong real cash earnings over the period. The interim dividend held firm, which is normal because the company usually increases the final dividend at the time of the full-year results.

The revenue growth came from “increased activity in Food and Feeds and higher commodity prices.” Profits rose in the food division because of pre-planned efficiency improvements, and the firm acquired Midland Fuel Oil Supplies within its fuel division in December.

Meanwhile, the headline operating profit in Fuels slipped a bit because the warm summer reduced demand for heating oil. Operating profit rose a bit in Food because of a strong recovery “as planned,” and due to new business won. In Feeds, operating profit shot up as much as 75% because of strong demand in the summer “when grazing conditions were poor,” and because of the investment the firm made in its Feed operations in prior years.

A pleasing long-term trend

So, it’s up a bit and down a bit for profits in individual accounting periods. But the long-term trend appears to be up, driven by the firm’s efforts to grow the business and to plough money back into developing it.

I see the stock as a tempting long-term ‘hold’ and, at today’s share price close to 175p, the forward-looking earnings multiple for the trading year to May 2020 is just below 12, and the anticipated dividend yield is a shade below 4%.

Why is this popular utility stock underperforming the market? One reason may be that the shares got a little overheated. National Grid’s share price topped out at more than 1,200p in June 2016, and reached 1,150p in 2017. In my view this was a little too high, as it pushed the dividend yield down to around 4%.

As the FTSE 100 average yield was about 4% at that time, it made more sense to buy the index than to buy an individual stock.

Falling earnings forecasts

A bigger concern is that earnings forecasts have been falling steadily. One year ago, broker consensus forecasts suggested that the group would report adjusted earnings of 69.7p per share for the 2018/19 financial year. That forecast has now fallen by 17% to 57.6p.

Interestingly, these earnings downgrades mirror the fall in National Grid’s share price over the last year. This means that the valuation of the stock is pretty much unchanged, based on the price/earnings ratio. One year ago, the 2019 forecast P/E of 14.7. Today, the equivalent figure is 14.4.

What has changed is the stock’s dividend yield. Although dividend forecasts have dropped, the change hasn’t been so great. As a result, the utility giant’s shares now offer a forecast yield of 5.6%, compared to 4.8% one year ago.

Buy, hold or sell?

My main concern here is that earnings could continue to fall. However, that’s not expected to happen. The latest guidance from the firm suggests that we should see profit growth of “at least 7% in the near term” and of 5%-7% annually over the medium term.

A dividend yield of 5%-6% looks about right to me for a long-term income stock like this. I’d rate National Grid as a buy at current levels.

A better alternative?

If you’re looking for a smaller energy-related stock with more growth potential, one company that might be of interest is NWF Group (LSE: NWF).

This £100m firm supplies heating oil, agricultural feed and groceries through a network of specialist businesses. The share price rose by more than 5% on Thursday when the group announced that profits for the year ended 31 May would be “significantly ahead of current market expectations”.

Cold winter warms profits

Management said that “extended cold winter conditions” boosted profits from its fuel division, which supplies heating oil. I know from personal experience that prices rose sharply during the cold spell. Suppliers like NWF were inundated with orders and were often booked up several weeks ahead.

This boost may not be repeated in 2018/19, but improvements in the group’s Feed division are said to result from planned investments as well as improved conditions in the dairy market. I expect some of these gains to be sustained next year.

Strong momentum

NWF shares have risen by nearly 30% so far this year. After today’s news, I estimate that the stock now trades on about 13.5 times 2018/19 earnings, with a prospective yield of about 3.1%.

Further growth is expected during the year ahead. I continue to rate this well-run firm as a buy.

However, it looks as if the firm is finally starting to turn things around. Even though City analysts are forecasting no growth for the group this year, according to a trading update issued by the firm today, earnings are currently “ahead of the prior year,” which indicates that the City’s forecasts are now out of date. 

Pushing ahead

2017 has been somewhat of a turnaround year for NWF. The bulk of the company’s profits are linked to the UK dairy industry, which has been struggling in recent years thanks to low-cost overseas imports. A stronger milk market is helping the group make a comeback. Today management noted that “benefits of previous capital investment being delivered, alongside a recovering dairy market due to higher milk prices” is helping its feeds division that supplies close to 5,000 dairy farms. 

A dairy industry recovery should help NWF return to growth in the years ahead. For the past few years, management has been preparing for this turnaround, investing in the businesses asset base to expand its offering. Over the next few years, this investment should pay off.

Indeed, one group of City analysts believes that NWF’s normalised earnings per share could rise by 61% by 2019 as the combination of an improving market and better customer offering starts to boost the firm. Based on these figures, shares in the company are currently trading at a forward P/E of 10.9, which seems to me to be too cheap compared to the growth on offer here. The shares also support a dividend yield of 3.9%. 

Services in demand 

Another stock that I believe can help you make a million is equity investment manager Impax Asset Management (LSE: IPX). 

Over the past five years, as the demand for private equity products has surged, Impax’s earnings per share have more than doubled and analysts are projecting further growth next year.

For the fiscal year ending 30 September 2018, Impax’s earnings per share are expected to expand by 25% to 8.1p and the dividend is set to rise 20% to 3.5p. Based on these forecasts, the shares are trading with a yield of 2.2% and forward P/E of 19.4. 

So why do I believe that Impax is still a good buy? Well, the company has really proven itself over the past few years. Asset managers only succeed if they can attract investors, and the firm has proven itself to be highly adept at this. Assets under management increased by 61% to a peak of £7.3bn for fiscal 2017, rising to £7.6bn one month after year-end. To help complement growth, management recently negotiated the acquisition of Pax World Management, which is set to complete in the first quarter of 2018. 

If Impax can continue to impress investors, then I believe that there’s no reason why the group cannot continue to grow earnings at a double-digit percentage.

The company is a bit of a classic conglomerate of yesteryear with its focus on so many disparate business lines that all have little overlap. And while many City analysts would rightly find flaws with this business model it has worked wonders for NWF by diversifying and smoothing out the lumpy profits that come from the feed and fuels business, which are highly dependent on commodity prices.  

Indeed, in the year to May the group was able to achieve record earnings despite operating profits from the core feeds business falling from £2.1m to £1.5m year-on-year (y/y) due to rising commodity prices impacting margins. The food business, which provides warehousing for grocers, recorded another year of enviably dependable profitability with operating profits rising from £2.7m to £3m y/y as capacity was maintained at record levels. Finally, the fuels business benefitted from increased volumes shipped from its depots and raised operating profits from £3.9m to £4.5m.

Now, it must be said that these businesses all have very low margins with group underlying operating margins just 1.6% last year. This provides little room for error, but NWF’s management team has proved adept at growing the business even through tough trading conditions by acquiring smaller competitors. And with cash flow safely covering last year’s dividend payouts several times over and net debt just one times EBITDA, income investors who aren’t afraid of a little volatility may find NWF an appealing long-term holding.

Selling Britain abroad 

A second small-cap income stock worth looking at is porcelain maker Portmeirion (LSE: PMP), which offers shareholders a 3.4% dividend yield and is valued at 14 times forward earnings. Since listing in 1988, the group has never had to cut its dividend thanks to a management team that has successfully sought out overseas markets that demand the quintessentially British porcelain it can produce.

Growth in overseas markets and continuous small acquisitions have proven a winning combination for Portmeirion with revenue up 16% y/y in H1. That said, it did run into some problems last year as lapping a tough comparative period in India and falling demand for luxury products in South Korea dented sales growth. Still, despite problems in these two large markets, total revenue increased 11.7% y/y due to an acquisition and growth in more developed markets.

There is still plenty of room for expansion through acquisition to complement organic growth as the company had net debt of just £2.4m at year-end, compared to operations that generated £8.7m in cash. With decent cash flow, high growth potential and very safe dividend payments, I believe Portmeirion could be a hidden gem for income and growth investors alike.