Although Provident shares have risen by 40% over the last 12 months, the stock is down by 30% since the start of this year. I’m wondering whether this could be an opportunity for me to buy in to this well-established business at a bargain price.

Doorstep lending is over

Provident Financial’s consumer credit division (CCD) has been operating for more than 100 years. This business provides high-cost loans that are collected by door-to-door agents. This business will now be run-off or sold. This decision is being made against the backdrop of a wave of claims from current and former customers alleging “irresponsible lending”.

The numbers involved are quite large — Provident set aside £23.4m to address claims last year and is trying to win approval to cap future claims at £50m, plus costs. I think the company is right to exit this business, which lost £75m last year.

The exit process has already started. Customers numbers in CCD fell from 522,000 to 311,000 last year. This was due to a reduction in new lending and higher write-offs due to Covid-19.

However, getting out of this business completely won’t be cheap. Provident’s management expects to spend around £100m exiting the CCD business, even if it’s sold.

For me to buy PFG shares at the current price, the group’s remaining operations will need to look much healthier than CCD. Fortunately, I think they do.

Modern products have profit potential

Provident Financial plans to focus on three main products in the future. These are credit cards, unsecured loans, and motor finance. Provident is already active in these areas, through its Vanquis Bank and Moneybarn operations.

Although the company will continue to focus on the bad credit segment of the market, management says it will target “sub- and near-prime segments”. Borrowing costs will be much lower than they were for doorstep loans, but my understanding is that lending criteria are tougher.

Covid-19 caused an increase in bad debts and a drop in new lending last year. Vanquis and Moneybarn both remained profitable despite these pressures, generating a combined pre-tax profit of £49m, down from £195m in 2019.

Provident Financial share price: my decision

I reckon that Provident’s remaining businesses will probably be successful on their own. What worries me is the uncertain cost of exiting the CCD operation. I can’t see anyone queuing up to buy this, except at a knock-down price.

I tend to avoid investing in situations where there are legal complications and large, uncertain future costs. As an outside investor, I can’t measure the risks accurately. This makes it hard to value the business.

At a share price of 235p, I reckon Provident Financial might turn out to be cheap. Or it might not. I don’t know.

On balance, I don’t think the shares are cheap enough to reflect the risk of further problems. I’ll be steering clear until it resolves some of its current issues.

UK shares to avoid 

The first company on my list is doorstep lender Provident Financial (LSE: PFG). Ethical considerations aside, this lender has some severe problems. It’s currently dealing with a “flood” of complaints from borrowers who claim the business has misled them.

There were 10,000 complaints to the Financial Ombudsman Service in the second half of 2020. These claims cost the business £25m. 

While PFG is trying to work out a plan to deal with these issues, it’s also facing an investigation from the Financial Conduct Authority. These are two severe headaches for the firm, and they’re unlikely to go away anytime soon. Shareholders may have to foot the bill if claims exceed Provident’s resources. 

That said, the group may turn things around. Its profitable Vanquis credit card and Moneybarn car finance operations are still performing well. If it can dispose of the doorstep lending issues and concentrate on these divisions, Provident’s fortunes could improve. 

Despite this, I’m not planning to include the stock in my portfolio of UK shares any time soon.

Coronavirus lending 

Funding Circle‘s (LSE: FCH) IPO in 2018 caused a stir in the City. The company aimed to revolutionise the lending market, connect borrowers and lenders directly, and remove the need for a bank in the middle. 

Unfortunately, the firm hasn’t lived up to the hype. It’s consistently lost money since 2015. 

However, unlike many UK shares, the group performed well in 2020. The firm’s involvement in the Covid support scheme helped it expand loans under management to a record £4.2bn. Despite this, the business made an operating loss of £106m for the year. Fee income rose 25% to £220m. 

While management believes Funding Circle’s outlook is bright, I’m not convinced. If the firm hasn’t been able to make money in the past five years, when will it make money? If the group keeps losing money, sooner or later it’ll run out of cash. That’s why I plan to avoid the stock at all costs. 

Still, the business could prove me wrong. If the economy roars back to health over the next few months and years, demand for borrowing on the group’s platform could explode.

With interest rates at bottom levels, savers may also be happy to deposit their money with the group. The company is also planning to launch new products over the next few months to help businesses acquire funds faster. 

This could help Funding Circle make more loans, which would generate more fees, which may help the business earn a profit. In this scenario, the stock’s outlook would change entirely, in my view. 

A worrying update

Provident is a financial services firm that provides credit facilities to individuals who are considered too risky for mainstream lenders. It currently serves more than 2.2 million customers in the UK under multiple brands. These include Vanquis Bank, Moneybarn, and Satsuma Loans.

Last week, the company revealed its latest figures, which looked fine on the surface, considering the disruptions caused by Covid-19. However, a worrying announcement was made regarding its consumer credit division (CCD).

The management team intends to enter its CCD into a Scheme of Arrangement following a significant rise in customer complaints and claims. These rising complaints have led the Financial Conduct Authority (FCA) to launch an enforcement investigation focusing on the affordability and sustainability of lending to sub-prime customers.

The Scheme of Arrangement is a court-approved measure that allows a company to restructure its capital, assets or liabilities. Assuming the FCA approves the scheme, the company will fund £50m of claims and cover up to £15m of related costs. This will ultimately ensure all legitimate claims are satisfied and provide certainty for stakeholders.

However, if the FCA decides to reject the proposal, the management team has stated that it’s CCD (which includes Satsuma Loans) will go into administration. Given this segment represents nearly 30% of revenue generation, I feel the recent drop in this FTSE 250 stock’s share price makes perfect sense. But is there an opportunity for a turnaround here? 

A FTSE 250 opportunity for growth?

Despite its CCD problems, the company is still collecting around 90% of its loans on time. Meanwhile, Provident’s other divisions appear to be recovering from the pandemic’s impact relatively well.

Vanquis Bank saw a 28% year-on-year reduction in receivables. But quarterly performance shows that it has begun returning to pre-pandemic levels at an accelerating pace. What’s more, due to reduced impairment costs, overall profitability for the segment has improved significantly. At the same time, Moneybarn, its car loan service, continued to grow receivables by 13%, in line with expectations.

It’s also worth noting that all of Provident’s segments are independent entities. In other words, if CCD were to shut down, the direct adverse effects on Vanquis Bank and Moneybarn will most likely be negligible.

The bottom line: a stock to buy now?

The investigation and potential closure of Provident’s CCD don’t inspire me with a lot of confidence, even with its other operations performing relatively well.

The surge in claims and complaints has undoubtedly damaged the firm’s reputation. And while there may not be any direct impact on its other segments, if CCD goes into administration, the firm’s relationships with its customers, creditors, and regulators will likely be permanently damaged. At least that’s what I think.

Personally, I believe there are far better investment opportunities out there in the FTSE 250. And so I won’t be adding this stock to my portfolio today.

Jonathan Smith: Coca-Cola HBC

With the UK officially in a recession, I’d turn to a defensive stock to protect my portfolio. Therefore I’m keen on Coca-Cola HBC (LSE: CCH). With the core product being a staple of consumers, demand should be inelastic even if people reduce spending. Half-year results for 2020 showed revenue down by 15.5%, but this was largely down to out-of-home spending. This was down by 70%, mostly due to the lockdown.

Should we see the UK recession continue without another hard lockdown, Coca-Cola HBC ought to perform well. Buying now with a discount of around 25% compared to the start of the year could be a smart move.

Jonathan Smith does not hold any position in Coca-Cola HBC.

Rupert Hargreaves: CRH

I think building materials business CRH (LSE: CRH) is one of the best ways to play the global economic recovery. The company is one of the largest suppliers of building materials, such as concrete and asphalt in Europe.

Following the pandemic, governments are planning to stimulate their economies with infrastructure spending, which should result in increased demand for these products. I think this could provide a big boost for CRH’s bottom line.

In the past, the company has complemented organic growth with bolt-on acquisitions. Increased profits may free up more cash to pursue this strategy, which could help improve CRH’s long-term growth.

Rupert Hargreaves does not own shares in CRH.

G A Chester: Diageo 

I think Diageo (LSE: DGE) is a top British blue-chip share to buy in September and hold for the long term. Its outstanding portfolio of over 200 drinks brands — Johnnie Walker whisky, Gordon’s gin and Guinness stout, to name but three — is unrivalled. Such brands, backed by decades of investment, continue to be enjoyed by generation after generation. 

Diageo’s shares are trading towards 30% below their all-time high, made this time last year — the company hasn’t been immune to the Covid-19 pandemic. But I think this is an opportunity for canny long-term investors to buy into a highly valuable global business at a great discount price. 

G A Chester has no position in Diageo.

Anna Sokolidou: Rio Tinto

The shares of Rio Tinto (LSE:RIO), a mining giant, have rallied since March. That’s due to the rising demand for iron ore in China. In spite of the pandemic, the Chinese government has invested heavily in the country’s infrastructure.

What’s more, the supply is limited in Brazil where a lion’s share of the metal comes from. The country is truly struggling to contain Covid-19, and doesn’t have the opportunity to mine as much iron as it used to.

I consider Rio Tinto (just like many other companies) to be a bit overvalued right now. But I’d buy the stock at every pullback.

Anna Sokolidou does not own shares in Rio Tinto.

David Barnes: BAE Systems

With its c.4.5% dividend now reinstated, I think FTSE 100 defence giant BAE Systems (LSE: BA) looks good value right now.

The dividend is well covered, and its revenues are reliable given it works largely on government backed, long-term contracts. The firm is a trusted partner of many western governments. I also see future growth through moving into cybersecurity.

The share price is still over 20% off its year high following the stock market crash in March, and with a price-to-earnings ratio of just 12, I think the shares are a steal.

David Barnes owns shares in BAE Systems.

Edward Sheldon: Boohoo

My top British share for September is online fashion retailer Boohoo (LSE: BOO).

Boohoo’s share price has taken a hit recently on the back of reports about poor working conditions at clothing factories linked to the company. I expect the shares to recover, however.

Boohoo’s brands, which include Boohoo, PrettyLittleThing, and Nasty Gal, remain very popular with younger fashion-conscious shoppers. Meanwhile, demand for comfy clothing is soaring due to the work-from-home trend. So, I expect Boohoo’s sales to continue rising at a healthy rate.

All things considered, I see Boohoo shares as a ‘buy’ right now.  

Edward Sheldon owns shares in Boohoo.

Kirsteen Mackay: Provident Financial  

Provident Financial (LSE:PFG) has said its business is picking up again after sinking to a £37.6m loss in the first six months of the year. It now plans to repay furlough money received from the government as its Vanquis Bank and Moneybarn subsidiaries remain profitable. It has streamlined its business through job cuts and should be stronger going forward.

As furlough payments come to an end, finances will be tight – and with Christmas on shoppers’ minds, I think Provident will continue to see a rise in doorstep lending. It has a price-to-earnings ratio of 7, though its dividend remains on hold. 

Kirsteen does not own shares in Provident Financial.

Matthew Dumigan: Hargreaves Lansdown

As the UK’s largest investment broker, Hargreaves Lansdown (LSE: HL) has made a tidy profit from the heightened stock market volatility over recent months. The firm recorded a record a whopping £7.7bn in new business in the 12 months ending June 2020 and posted an impressive set of full-year results on top of this. 

Given the company already boasted a solid set of finances prior to this year, the future now looks even brighter. What’s more, the recent announcement that Robinhood won’t be launching in the UK is a further boost for the industry’s market-leader. 

Matthew Dumigan does not own shares in Hargreaves Lansdown.

Paul Summers: Diageo

At the risk of sounding like a stuck record, I think top British share Diageo (LSE: DGE) has fallen too far ahead of September.

News of weaker-than-usual sales of its premium brands in the wake of the coronavirus will matter to traders. As investors, however, we can take advantage of others’ impatience and snap up great stocks in defensive sectors when they’re on sale. With a share price still 25% below where it stood one year ago, the £60bn cap strikes me as a good example. 

Like major shareholder Nick Train, I struggle to believe people won’t pile back into pubs and clubs when the pandemic finally subsides. In the meantime, there’s always the dividends to enjoy. 

Paul Summers has no position in Diageo.

Peter Stephens: Aviva

Aviva’s (LSE: AV) share price has fallen by around a third since the start of the year. However, its recent results showed that it delivered a resilient financial performance in uncertain operating conditions.

The company is in the process of implementing a new overall strategy. It will now focus its capital on the most attractive markets in which it operates. This may lead to a narrower focus, but could have a positive impact on its profitability.

Aviva appears to have the financial means to invest heavily in areas with growth potential. This could lead to an improving share price performance over the long run.

Peter Stephens owns shares in Aviva.

Rachael FitzGerald-Finch: British American Tobacco

British American Tobacco’s (LSE: BATS) recent decision to maintain its 65% dividend pay-out ratio makes it an attractive prospect for income investors. Indeed, with the current share price at pre-lockdown levels, the dividend yield sits at a healthy 8%.

The tobacco producer’s defensive characteristics appear to have resisted the potential for customers to change to cheaper products throughout the economic downturn. Moreover, operating profits climbed over 16%, when compared with 2019, despite flatter revenues. 

With management predicting EPS growth to be in the high-single digit percentage post Covid-19, the potential returns make the tobacco firm an appealing investment for September.  

Rachael does not own shares in British American Tobacco.

Roland Head: Kingfisher

FTSE 100 stocks rarely deliver a 180% gain in five months, but that’s what DIY retailer Kingfisher (LSE: KGF) has done since March. The stock has risen from a low of 101p to trade at around 280p.

Kingfisher owns B&Q and Screwfix, plus DIY chains in France and Eastern Europe. It was an unexpected beneficiary of lockdown, thanks to a surge in DIY demand. Group sales were up by 25% in June, for example.

But what’s really caught my eye is the massive rise in online sales. These have trebled since last year. I think this online success could speed up the group’s turnaround and support further share price gains.

Roland Head does not own shares in Kingfisher.

Royston Wild: ContourGlobal

Weak investor confidence means that demand for classic safe-haven stocks should remain in vogue in September. And I believe buying shares in ContourGlobal (LSE: GLO) is an attractive way to play this trend.

At current prices, the power station erector and operator trades on a forward price-to-earnings (P/E) ratio of around 17 times. That’s not jaw-droppingly attractive, sure. But the FTSE 250 stock’s inflation-mashing 6% dividend yield is, in my book.

ContourGlobal’s share price has soared 20% in the past three months on the back of heightened investor tension. With Covid-19 infection rates rising again in key economies, I’m expecting the power play to keep growing in value throughout September, too, and quite possibly beyond.

Royston Wild does not own shares in ContourGlobal.

Manika Premsingh: Kingfisher

The FTSE 100 home improvement stock Kingfisher (LSE: KGF) is my top British share for September, as it has shown robust performance in the past few months. Not only has its share price consistently risen, its latest trading update shows double-digit sales growth as well. It is likely to have benefited from the country’s lockdown, which gave people a chance to focus on home improvements at a time of relative confinement.

KGF’s results are due in a few days, which will give further insight into the company’s performance. The outlook could also be material in learning whether KGF’s strong sales growth will continue now that we are largely past the lockdown period…

Manika Premsingh has no position in Kingfisher.

If you’re looking for potential recovery stocks, I reckon the FTSE 250 is home to many candidates. One of them is Provident Financial (LSE: PFG), whose share price spiked 20% on Wednesday morning. Provident offers loans to sub-prime borrowers, and is behind such brands as Vanquis Bank and Moneybarn.

In recent years, that business has been a horrible one for investors. Provident Financial shares plummeted during the 2020 stock market crash, but that’s been the least of its problems. Look back a bit, and the pandemic fall looks tiny compared to 2017’s share price collapse. Over five years, Provident shareholders have suffered an 89% loss.

But Provident’s 2020 share price performance took a turn for the better on Wednesday. The shares jumped 20%, as mentioned, during morning trading in response to first-half results. That leaves the Provident share price down 49% year-to-date, against a FTSE 250 fall of 20%. Not a blazing success, but it’s been worse.

Not as bad as feared

Things aren’t rosy yet, but they’re not as bad as expected, and I think we’re looking at the start of a FTSE 250 recovery. The company reported an adjusted pre-tax loss of £32.6m, compared to a profit of £80.4m for the same period last year. Prior to these figures, analysts were predicting a full-year loss of around £62m. So it all depends on how the second half goes. On that, chief executive Malcolm Le May said: “I am cautiously optimistic about the outlook for 2020 and beyond.”

The Vanquis Bank and Moneybarn brands both saw a profitable half, which is better than I’d expected. So I can see the full year turning out significantly better than current forecasts. To echo the firm’s improving sentiment, Mr Le May said that “financial and operational performance were better than expected, and therefore we have decided to repay all furlough support to the government.”

Dividends back soon?

Before its fall from grace, Provident Financial was among the FTSE 250’s most attractive dividend providers. Even the 2019 dividend (greatly reduced from earlier years) would yield 3.8% on the current share price. There’s no dividend coming back just yet, as the company is instead pursuing “the continued aim of preserving capital and supporting business stability.”

But we heard that “it remains the group’s intention to resume dividend payments to shareholders as soon as operational and financial conditions normalise.”

FTSE 250 outperformance

Perhaps ironically, the effect of the pandemic on low-income families is offering something positive for Provident. Mr Le May pointed out that “our market will grow due to the pandemic.”

I think Provident Financial could be one of the FTSE 250’s better performers over the next few years. And I’m talking of both share price growth and dividends.

Many of these companies offer dividend yields several times higher than the best Cash ISA rate, which could make them a better investment over the long run.

With that in mind, here are two FTSE 250 dividend champions that currently yield more than 8%.

Marstons

Brewer, pubs and hotels group Marston’s (LSE: MARS) has been proving its doubters wrong for the past six years. Despite rising costs and razor-thin margins, the business has gone from strength to strength since 2014. Revenues have increased at a compound annual rate of 8.3% during this period, and operating profit has increased five-fold.

The future looks bright for the business as well. Analysts are expecting net profit and earnings per share to continue growing over the next two years. What’s more, over the longer run, the company’s revenues should continue to expand at least in line with inflation as it increases prices charged to customers.

Today, investors can snap a share in this well-run operation for just 6.7 times earnings. That suggests the stock offers a wide margin of safety and current levels. Indeed, the rest of the hotel industry is trading at mid-teens earnings multiple, implying Marston’s is undervalued by around 100%.

On top of this attractive valuation, the stock also supports a dividend yield of 8.7%. Unfortunately, the dividend hasn’t been increased since 2016. Nevertheless, it’s covered 1.7 times by earnings, which suggests it’s entirely secure for the time being.

Provident Financial

Sub-prime lender Provident Financial (LSE: PFG) has had a rough time of it over the past three years. Still, it now looks as if the business is finally starting to get back on its feet.

Recent trading updates show profits are starting to grow again, and customer receivables — the amount of money the company has lent to borrowers but has not yet reclaimed — declined by nearly 10% in 2019. New customer numbers also increased last year by 1%.

These figures suggest the group is moving in the right direction. Over the next few years, management is planning to reduce costs and improve the group’s return on equity, a key measure of profitability for every £1 invested in the business.

Provident should also be able to capitalise on the collapse of other high-cost lenders in the past few years. It can use its reputation and scale to grab new business from the former customers of these operations.

Despite its growth potential, shares in the company are currently trading at a price-to-earnings ratio of just 8. In addition, the stock offers a dividend yield of 7.6%, more than twice the market average.

Therefore, now could be the time to snap a share of this recovered lender as it moves from the recovery to the growth stage of its comeback.

Amigo had pioneered the guarantor loan business, which lent money to high-risk individuals provided they could find someone to cover it should they fail to repay. But the model hadn’t been attractive, and the company’s biggest shareholder, Richmond Group, decided to sell its 60.66% stake.

With a number of options open, the company has plumped for the option of putting itself up for sale, and Tuesday brought us a strategic review update.

Offers?

Amigo says it “has received indications of interest from several parties,” though it stresses that “there can be no certainty that an offer will be made, nor as to the terms on which any offer will be made.” Still, the presence of apparently interested parties has buoyed its prospects, and the shares gained 13% on Tuesday morning in response.

On forecasts for the year to March 2020, we’re looking at a P/E of just 3.5. I think there could be significantly more upside than downside.

Richmond Group will want to get the best price it can, and it has a lot of clout. And at least two parties appear interested, so we might see a bidding war.

I wouldn’t have bought Amigo shares myself because I don’t really like the business. And I wouldn’t invest for a possible buyout profit as that’s really just a gamble. But I do see potential for those who want to take the risk.

Back to growth?

It’s hard to think about loan companies without Provident Financial (LSE: PFG) coming to mind. Provident also caters to individuals with low credit scores, and charges high levels of interest. But questions about its practices, coupled with investigation by the Financial Conduct Authority (FCA), helped precipitate a share price crash.

Despite previously flying high, Provident shares slumped during the spring and summer of 2017, and then carried on drifting lower. From late April that year, the shares lost 85% of their value. But since August 2019, things have been looking better, and shareholders have enjoyed a 30% rise.

Solid quarter

Results for 2019 aren’t due until 27 February, but a Q4 update released in January looked reasonably positive. The firm says things are going as planned, and that its Vanquis Bank has “delivered results modestly above expectations.” The firm’s funding facilities have been improved too, via a facility with NatWest Markets to fund its Moneybarn business.

Speaking of Moneybarn, the FCA has hit the business with a £2.8m fine after deciding it hadn’t treated customers fairly. The firm itself has provided over £30m in redress too.

CEO Malcolm Le May said Provident expects to “report full-year results in line with market expectations,” suggesting the City’s P/E valuation of 10 is about right.

Provident could be out of the woods and set for a return to the earnings and dividend growth that analysts expect. And if that’s true, we could be looking at an attractive growth and income prospect here. It’s not for me, though, for ethical reasons.

You can get a higher return from FTSE 250 stocks, some of which currently offer dividend yields approaching 10%. Today, I’m going to take a look at three such companies, all of which support dividend yields of around 7%. 

Global champion

Despite regulators’ crackdown on some of the company’s most profitable trading products, shares in financial services group IG (LSE: IGG) have remained a solid investment.

Following the crackdown on CFD and Binary options trading, the group’s earnings declined 30% in fiscal 2019. City analysts expect the pain to continue into the current financial year as well.

However, analysts are also forecasting a return to growth in fiscal 2021, as the company re-focuses its efforts on growth in emerging markets and high-margin clients. 

According to analysts projections, this growth should safeguard IG’s dividend, which is not currently covered by earnings per share. Still, a robust net cash balance of £309m at the end of fiscal 2019, tells me the company has the resources to maintain its 6.6% dividend yield for around two years before it runs out of cash. 

At the time of writing, the stock is trading at a forward P/E of 16.7, falling to 14.9 for 2021 as growth returns. 

Undervalued opportunity

Another FTSE 250 dividend champion I think is worth considering is insurance group Hastings (LSE: HSTG). Shares in this business have come under pressure recently following a warning about claims inflation.

It’s costing more to repair cars after accidents, and this is having an impact on the group’s bottom line. As a result, management believes the company’s loss ratio — the amount an insurer spends on claims compared to how much it earns on premiums — may move above a target range of 75-79%.

This warning’s disappointing, but I’m optimistic about the company’s long term prospects. Insurance is a cyclical business, so if claims costs are rising, it shouldn’t be long before premiums do as well. That should help Hastings return to growth. 

It looks as if it could be an excellent time to take advantage of the company’s recent problems. Shares in the group are trading at a 2020 P/E of 10.3 and yield 7.3%. I reckon that’s a price worth paying for this up-and-coming insurance firm.

Turnaround incoming 

The third FTSE 250 income champion I’m going to profile is Provident Financial (LSE: PFG). Like the other businesses in this article, Provident has fallen on hard times. Still, I believe that this could be an excellent opportunity to snap up the undervalued stock as the company makes a recovery.

Since 2017, the doorstep lender has struggled to attract customers. But in the third quarter of this year, the group reported a 6% rise in new and returning customers. According to management, this momentum will continue throughout the rest of 2019, which should stabilise the business. 

If management’s forecasts come to fruition, City analysts expect earnings to return to growth in fiscal 2020 too. Based on these targets, the stock is dealing at a forward P/E of just 8.2 and analysts have also pencilled in a prospective dividend yield of 7.4% for 2020. These numbers show if Provident’s recovery gathers steam, investors could be well rewarded.

Woodford may have been squeezed out, but most of those companies are still trading, and two have seen their share prices rise around 4% today, after their latest results. Is their future now brighter than his?

PurpleBricks Group

Woodford held onto online estate agency PurpleBricks Group (LSE: PURP) well after the cracks began to show, following its ill-fated foray into the US.

The PurpleBricks share price is now down 70% measured over two years, helped by the fire sale of one of Woodford’s more liquid stocks. However, it’s up today following a reasonably positive first-half trading update reported it had “modestly outperformed expectations over the period.”

The £346m group has maintained its 4% overall market share, and expects to report an improvement in marketing-to-revenue ratio as planned efficiencies are now being realised. That’s despite “a weakening in the overall UK property market as political and economic uncertainty impacted confidence, reducing home sale volumes,” particularly in the South East.

PurpleBricks expects revenues to be broadly flat in next month’s interims, but at least recent significant losses have been reversed, with the group enjoying profitable trading in the first half.

However, I remain wary. PurpleBricks was supposed to be a game changer, sweeping away the traditional high street estate agency model, rather than a company where flat revenues are seen as good news.

You have to strip away all the early aura before deciding whether to invest, as well as examine underlying issues, such as how its flat fee system of payment works in practice. The group has stabilised, but it’s real attraction was rapid growth, and I don’t see that coming.

Provident Financial

I never saw why the phrase ‘doorstep lender’ got Woodford’s juices flowing. He went massive on Provident Financial (LSE: PFG), a company launched by Bradford Methodists in the 1880s that ended up as a short-term lender run by a man called Peter Crook charging up to 1,550% on short-term loans to people who struggled to borrow elsewhere. It also sells high-interest Vanquis credit cards, payday loans and car finance through its Moneybarn brand.

The short-term credit market has come under pressure from City watchdog the Financial Conduct Authority, whose tough compensation rules have driven out payday lenders Wonga and QuickQuid. Last year, the FCA ordered Provident’s Vanquis unit to repay £169m to mis-sold customers, and also fined it £2m.

Today, the £1.15bn group reported “good momentum in new customer volumes and stable delinquency,” with “all three divisions producing good business volumes and a stable impairment performance.” Moneybarn did particularly well, with new business volumes beating internal forecasts to rise 36%, and client numbers up 24% to 73,000.

This will reassure some investors that management has put the bulk of its problems to bed, and the forecast yield of 5.7%, covered 1.9 times, and a valuation of 9.1 times earnings, may tempt some. Just remember, the FCA is watching.

The £250m market cap financial services business has an excellent dividend track record. The payout has increased by an average of 6% per annum since 2013, rising from 62p to 83p per share today.

And City analysts don’t expect this trend to come to an end any time soon. They believe the payout will grow by an inflation-busting 4% to 86.2p this year and a further 4.3% in 2020 to just under 90p per share. If the company meets these targets, then the stock will yield an estimated 6.7% by 2020, with the payout covered an estimated 2.3 times by earnings per share. 

Cheap stock

In my opinion, this dividend track record deserves a premium valuation. However, the market seems to be overlooking the opportunity here. At the time of writing, shares in Secure trade at a forward P/E of just 7.6, despite the fact analysts believe the group’s earnings per share will jump 17% this year and a further 19% in 2020. 

However, according to the financial group’s first-half results to the end of June, adjusted earnings per share increased ‘only’ 10.2% year-on-year. Adjusted operating profit (profit before the impact of one-off gains or losses) before tax jumped 13.9%. Statutory profit before tax, which includes one-time gains and losses achieved by the company during the half, increased 19.9% to £18.1m

These results indicate that the company’s growth for the full year might come in below City expectations, but it doesn’t look as if analysts are that far off the mark.

As well as the firm’s double-digit earnings growth, it also has a healthy balance sheet with a common equity tier 1 ratio of 12.8% and a capital ratio of 15.2%.

So, if you are looking to invest in a well-capitalised, undervalued and fast-growing business with a dividend yield of 6%, I highly recommend taking a closer look at Secure. 

Mission complete?

Another financial group with a market-leading dividend yield that I would consider adding to my stocks and shares ISA today is Provident Financial (LSE: PFG).

Provident has had a series of problems over the past few years, both self-inflicted and regulatory. However, it looks as if management has finally managed to put the bulk of these issues to bed.

Earlier this year, Provident reported full-year profits slightly ahead of analysts’ expectations and restored its dividend. The sub-prime lender also said it had resolved most of its regulatory problems. 

Analysts are not forecasting a complete earnings recovery for the firm just yet, but they are forecasting explosive dividend growth for the next two years.

From a token payout of 10p in 2018 (down from nearly 100p per share in 2016) the City has pencilled in a dividend payout of 26p for 2019, rising to 35p for 2020. Only time will tell if the company has what it takes to hit these forecasts, but I think the risk is worth taking.

Based on current earnings projections, the stock is trading at a P/E of just 7.8, falling to 6.5 for 2020. What’s more, analysts’ current dividend outlook suggests investors are in line for a yield of 6.9% for 2019. In my view, this potential reward more than outweighs the risk of investing.