Flooring

James Halstead (LSE: JHD) makes flooring, for commercial and consumer markets. And over the past few years, earnings have been holding up pretty well and dividends have been climbing steadily.

But the share price has been suffering, falling 20% in the past 12 months. Over five years, though, we’re looking at only a 5% fall, so I suspect there’s been a needed correction along the line there.

Full-year results are due on 3 October, and August’s trading update suggests they should be good. The company described turnover as robust, saying it should be 9%-10% ahead of the previous year.

At the interim stage, James Halstead raised its dividend by 5.9%. The full-year forecast dividend yield stands at 3.8%, which is modest. But it’s been strongly progressive. I’ll be doing my research in October for sure.

Investment management

The investment management business has been under pressure. But Rathbone Brothers (LSE: RAT) hasn’t been suffering too badly, with its share price down 12% over the past 12 months.

We have a Q3 update coming on 19 October, which could be crucial in the current environment. The company has previously described the first half as turbulent, but still achieved net positive inflows.

The forecast dividend would yield around 4.5%, rising to 5% by 2024. That’s obviously very uncertain right now. But Rathbone has a record of regular annual dividend increases stretching back more than a decade. And that’s what I really want to see from a long-term income investment.

Whether we’ll get another annual raise remains to be seen. But the company lifted its interim dividend by 3.7%.

FTSE 100 bank

NatWest Group (LSE: NWG) is the third income stock I’ll be watching out for, with Q3 results due on 28 October.

It might be too early to tell what effect the latest economic turmoil might be having on the bank. But we could get some hint.

Banking shares are generally in the dumps, but NatWest has fallen only a few percent over the past 12 months. The sector weakness puts the shares on a forecast price-to-earnings (P/E) ratio of only around seven, which looks cheap to me.

There’s a forecast dividend yield of close to 5% now, so any news on where that’s likely to go will be welcome. I’m not sure if NatWest is the bank I’d buy, but on the whole it looks like a decent income investment to me.

Buy?

I’d do a lot more research before I’d buy any of these three. But following company news on a monthly basis is an effective way to build a list of candidates over the course of the year.

The reason for the Brewin Dolphin spike is straightforward enough. On the day, the investment manager announced it has agreed a takeover.

RBC Wealth Management (Jersey) Holdings Limited made an offer of 515p per share to acquire the whole company, and the Brewin Dolphin board has recommended it. That’s 62% above Wednesday’s closing price, and values the company at approximately £1.6bn.

It’s perhaps too late to for investors to benefit now, but I do think we can still gain indirectly from what’s happened. I have had my eye on the investment management business for a while now, thinking that some of the top companies are undervalued.

The Brewin Dolphin sale helps reinforce my take on the sector, and it might just spur me into action. It’s also a reminder that a takeover at a handsome premium is one way that the value of a cheap stock can find its way out and reward patient investors.

Another FTSE 250 winner

Shares in Trainline (LSE: TRN) jumped 21% Thursday morning, the second biggest FTSE 250 winner by the time of writing.

That’s welcome news for Trainline shareholders, who have seen the value of their stock plunge. Even after Thursday’s rise, it’s still down 48% over the past 12 months. So what’s happened?

Trainline and others have been in negotiations with the Rail Delivery Group, under pressure to lower commission rates. On Thursday, the company revealed it has agreed a cut that, combined with a fall in costs, will result in a 0.25% reduction.

That’s effectively only a backstop. If the ticketing companies cannot agree contractual terms, it will come into force. So it effectively caps commission rate reductions, and eliminates some troubling uncertainty facing the company.

The regulated nature of the business has kept me away. But one upside is that it often results in a more predictable outlook for a company’s business. I need to investigate further.

Another investment manager

The third FTSE 250 stock to climb by double digits Thursday morning is Rathbone Brothers (LSE: RAT), up 12%. Rathbone provides “individual investment and wealth management services for private clients, charities, trustees and professional partners“. So it’s another investment manager, just like Brewin Dolphin.

It seems others have an eye on this sector too.

The Rathbone share price has been flat over the past 12 months. And it’s down 18% over five years, so am I looking at good value here? I think I might be.

Rathbone’s earnings have been solid for the past few years. And it’s been lifting its progressive dividend. For 2021, it yielded a well-covered 4.1%.

On 2021 earnings, the shares are on a price-to-earnings multiple of a little over 11, which seems cheap to me at first look. But I need to do some more research before I consider buying this FTSE 250 stock. And future economic pressures could hurt the investment business. Still, it’s on my radar now.

What’s most important, though, is buying shares that pay out dependable dividends. This is because dividends are never guaranteed. Companies have to remain profitable before they consider paying dividends to shareholders like myself.

With this in mind, here are two companies I’m considering for my income portfolio that have paid consistent dividends over the years.

A dividend stock to count on

The first company is BAE Systems (LSE: BA), a provider of military equipment and security systems for governments across the world. The UK’s Ministry of Defence and the US Department of Defense are both major customers of BAE Systems. Revenue can typically be quite stable as these governments have to maintain and upgrade their security capabilities each year.

City analysts are expecting the dividend yield to be 4.5% in 2022. This isn’t huge like some other FTSE 100 stocks. But I still view this as a respectable dividend for my portfolio.

However, it’s the consistency of dividends here that I’m drawn to. In fact, BAE Systems has paid a dividend every year going back to at least 1992. This covers the dotcom bubble, the financial crisis, and most recently the pandemic. This is an impressive run of dividend payments.

Another dividend stock

The next company is Rathbone Brothers (LSE: RAT), an investment and wealth management business.

Jumping straight to the dividend forecast and this is a decent 4.1% for next year. Again, it’s not huge like some UK stocks, but I still consider this high enough for my income portfolio.

Rathbones Brothers has been able to pay a regular dividend over the years too. In a similar way to BAE, the company has paid one every year since at least 1992. This track record means there’s a good chance it’ll pay a dividend again in 2022.

Risks to consider

It’s important that I review a company’s history of dividend payments before I invest. However, this doesn’t guarantee that a dividend will be paid in the future. If either BAE Systems or Rathbones Brothers struggles in the year ahead and profitability falls, there’s a good chance the dividend will be cut, or worse, stopped altogether.

Rathbones Brothers generates fees on its assets under management, so a stock market crash could really impact the company’s profits. If this does happen, I expect the dividend to be reduced.

As for BAE Systems, it has to keep developing its technologies to keep up with global demand for security. There’s always a risk of losing a key government contract to a competitor, which would significantly impact its profits.

On balance though, I’m looking to buy these dividend stocks for my portfolio.

Early-stage company backer

As a backer of ambitious early stage companies, IP Group (LSE: IPO) has been in the news as Oxford Nanopore Technologies confirmed its intention to proceed with an initial public offering.

This ought to be good news for IP Group shares. Yet they appear to be cheap. The FTSE 250 group’s shares trade on a price-to-earnings ratio (P/E) of eight and a price/earnings-to-growth (PEG) ratio of 1.11. These ratios both suggest the shares could be undervalued. Yet there are reasons to be optimistic as the floating of Oxford Nanopore proves.

IP Group is experienced in backing early-stage companies, but there are inherent dangers in the industry. Such companies can be hit and miss and some could fail. But IP Group has a good track record and with the shares being so cheap, it could be one of the best UK shares to buy now. I’ll certainly consider adding it.

Two more on my buy list

Rathbone Brothers (LSE: RAT) is another FTSE 250 company that could have a bright future. Again it comes up looking cheap with a P/E of 12 and a PEG of 0.7. The asset manager is well established in ESG investing, and as this trend towards environmentally and socially conscious investing grows more popular, that positions it well within the asset management industry. It could bring in a lot more customers.

The decision to grow by bolt-on acquisitions is a new development and investors may well like seeing Rathbones beefing up to grow its market share. It currently has around 3.8% of the UK wealth management market.

As an asset manager it has strong margins, which adds to its investment case and, for me, makes it one of the best shares to buy now. 

Of course, there are reasons the share price might not do well in the future as other asset managers may grow more quickly, the company could make the wrong acquisitions, or overpay for some. 

Yet the potential for improvement in the business means I’m likely to add Rathbone Brothers shares to my portfolio.

Then there’s Sylvania Platinum (LSE: SLP), which strikes me as one of the best shares to buy. I hold the shares already and am keen to add more. Why? First and foremost a falling share price has made these shares cheap. The P/E is three and the PEG is 0.2. For a cash-rich, low-cost producer of platinum group metals (PGMs), including platinum, palladium and rhodium, this is too cheap for me to ignore.

The price of these metals has been falling, which explains the current share price slump and mining is undeniably cyclical and volatile. Yet markets for both palladium and rhodium are forecast to be in deficit this year. The result of this could well be that prices bounce back due to the imbalance between supply and demand.

The share price is volatile and metal prices could keep falling, potentially hurting the share price. But in my opinion, Sylvania Platinum is one of the best UK shares to buy now.

Income stocks to buy

The first on my list is Domino’s Pizza Group (LSE: DOM). With a dividend yield of 3.8%, at the time of writing, I think the stock offers an attractive income level. As the firm’s earnings per share have grown from 13.8p to 18.2p over the past five years, the payout has also expanded by 84%. If this growth continues, I think the company could potentially increase its distribution to investors. 

That said, Domino’s reported windfall profits last year from the pandemic. As such, the company’s dividend growth may slow this year as restrictions on eating out are eased. 

Still, I’d buy the income stock due to its track record of dividend growth and expansion plans. 

Property income

My list also includes Assura (LSE: AGR), which owns and operates healthcare facilities around the UK. This is a defensive business as the country will always require specialist facilities for the healthcare industry.

Set up as a real estate investment trust (REIT), Assura has to return the bulk of its income to investors to achieve tax benefits. As a result, the company offers a desirable dividend yield of 3.8%. 

The payout has grown steadily over the past five years as the company increased the size of its portfolio. The latest edition is an ambulance hub development in the West Midlands. Based on these positives, I’d buy the group for my portfolio of income stocks. 

Despite its attractive qualities, Assura is exposed to some risks. Chief among these is the fact the government is one of its largest customers. If this customer decides to reduce spending, or take property services in-house, the group’s income could fall. 

Another property company I’d buy for my portfolio of income stocks is LXI Reit (LSE: LXI). Just like Assura, this REIT has to return the bulk of its income to investors to achieve tax benefits. It also currently offers a dividend yield of 3.8%. 

Unlike Assure, LXI’s portfolio is incredibly diversified. It owns healthcare properties, hotels, industrial asset and retail assets. 

Unfortunately, this diversification means the group has suffered more over the past 12 months than its healthcare peer. As a result of the impact of the Covid-19 pandemic on its income, LXI’s full-year dividend is 3.5% lower than last year. This is disappointing, but I believe the overall package offered by the enterprise is appealing. 

Wealth manager

The final company I’d buy for my portfolio of income stocks is Rathbone Brothers (LSE: RAT). The equity currently offers a dividend yield of 3.8%.

The yield is supported by fees on assets managed by the group. These assets are growing steadily. In the three months to 31 March, funds under management and administration edged up 2% to £55.8bn, reflecting “continued good organic growth.”

As assets under management continue to expand, I’d buy the shares. Although, if assets under management start to decline, income may slide. This could put the company’s dividend under pressure. The threat of declining assets under management is the most considerable risk hanging over the stock today. 

Nonetheless, I’m confident in Rathbone’s growth potential as we advance. 

UK shares I’d buy 

The UK construction sector is booming. And to play this theme, I’d buy Travis Perkins (LSE: TPK). One of the biggest suppliers to the building market, the company should benefit from the rising demand for materials. 

Analysts expect earnings to increase rapidly over the next two years, reaching 108p per share in 2022, up from 93p in 2019. I think the company should be able to use this growth to reinvest in new facilities and products, which would ultimately increase its appeal to customers in the long run.

The biggest challenge the group faces is the cyclical nature of the construction industry. The sector is expanding right now, but it could take a sudden turn for the worse. That would be bad news for Travis. 

Still, considering its near-term potential, I’d buy the stock as part of a basket of UK shares today. 

Income and growth 

As one of the only publicly-traded hedge funds, I think Man (LSE: EMG) could be a great addition to a portfolio of UK shares. 

The purpose of hedge funds is to make money in all markets. Man has a solid track record of doing so and producing attractive returns for its public investors along the way. Indeed, analysts believe the stock’s dividend yield will hit 4.8% in 2021, although this is just a forecast at this stage. 

What’s more, based on current forecasts, the stock is currently dealing at a forward P/E of 12. That looks cheap to the market average of 16, in my view. 

However, I do think the business deserves a slight discount to the broader market. Hedge fund profits can be highly volatile. So, while Man has a good track record of generating profits for investors, there’s no guarantee this will continue. It also uses a lot of borrowing. As such, just one bad year could result in considerable losses. 

Due to the risks outlined above, this stock may not be suitable for all investors. But I’d buy Man for my portfolio of UK shares today. 

Asset management

Asset managers tend to do well in rising stock markets. With that in mind, as UK shares reach new all-time highs, I think the outlook for Rathbone Brothers (LSE: RAT) is bright.

The company is one of the UK’s most storied asset and wealth managers. Its reputation should continue to attract customers. Moreover, management has been complementing organic growth with acquisitions. I think these twin tailwinds should help the business go from strength to strength. 

The primary risk facing the business is the same as I’ve outlined for Man. A lousy year of trading could hurt management fee income. Also, if the group suffers reputational damage, customers could quickly move elsewhere. 

Even after taking these risks into account, I’d buy the stock for my portfolio of UK shares. 

Domino’s effect

UK system sales rose 3.9%, a performance the group described as “solid”, with sales in the Republic of Ireland up 2.4% in local currency terms. The group continues to expand, opening 12 stores in Q3, while online sales also grew at a healthy pace, up 7.2% in the UK, and 9.9% in Ireland. Online now accounts for 90.9% of delivery sales.

Management has reviewed its international markets, which include Switzerland, Iceland, Norway and Sweden, and decided to exit them “in an orderly manner.” That’s bad news for delivered pizza lovers in Oslo, but outgoing CEO David Wild concluded that “whilst they represent attractive markets, we are not the best owners of these businesses.”

That seems to make more sense than battling on in the face of “disappointing” international system sales, which were “flat year on year in local currency and down 2.7% on a reported basis in Q3.”

Wild and woolly

Domino’s has also been caught up in a bitter dispute with franchisees over their share of the company’s profits, rumoured to have been worsened by Wild’s hard man tactics and, today, he said a resolution would take time, with no settlement before 2020.

In August, the Fool’s Paul Summers noted that Domino’s no longer holds a net cash position, but instead has net debt of £239m. That doesn’t seem too onerous for a business with a market-cap of £1.29bn. But I’m deterred by its forecast valuation of 17.9 times earnings, for a stock that’s trading 20% lower than three years ago.

Domino’s is an established brand but faces plenty of competition in a crowded home food delivery market, and has serious internal issues to resolve as it wave goodbye to the Wild times. I think you can find better opportunities elsewhere, such as these two Brexit-proof stocks.

Bother for the Brothers 

Fund manager Rathbone Brothers (LSE: RAT) is having a bad time of it with its share price down more than 10%. That comes as investors recoiled at today’s trading update, with its key Investment Management arm suffering net investor outflows in a “difficult market for savings.”

Total funds under management did rise 4.4% year-on-year to £49.4bn at 30 September, over a period when the FTSE 100 fell 1.4%, while gross quarterly organic inflows in Investment Management “remained resilient” at £800m, same as last year.

However, net quarterly outflows in Investment Management totalled £200m, against net inflows of £6.9bn last year (mostly down to acquiring Speirs & Jeffrey). Today’s interim statement blamed “ongoing weak investor sentiment and investment manager departures,” together with anticipated outflows from short-term discretionary mandates.

Worse, this is expected to continue to weigh on net growth in funds under management and administration in 2020 too.

Today’s volatile markets are tough for asset managers, and they will get tougher if the global economy continues to slow. The Rathbone Brothers share price has grown a third over the last three years, but today’s pricey valuation of 18.3 times earnings hardly tempts, while the 2.9% forecast yield isn’t enough compensation.

La vida Aviva

FTSE 100 insurer Aviva (LSE: AV) currently offers a stonking forecast yield of 6.7%, generously covered twice by earnings. That is serious income, although experienced investors will tell you that high yields can often signal underlying worries.

Aviva’s share price has fallen 17% in the last three months, partly because, as Rupert Hargreaves explains here, it has been hit by the regulatory threat to one of its major products, equity release lifetime mortgages. Aviva could be forced to hold more capital to safeguard against these risks, and that could imperil its dividend.

Once in a lifetime

That is a concern but Aviva is already well capitalised and the threat has partly been priced in. The group now trades at just 7.5 times forecast earnings, well below the 15 times that is seen as fair value. It has been growing strongly too, with earnings per share (EPS) up 129% in 2017 and forecast to rise another 65% this year, then 8% in 2019. By then, the yield is forecast to hit 7.5%.

There are other threats, as there always will be to a business of this size. Another severe winter could hit profits while rival Prudential has greater exposure to fast-growing Asian markets.

Aviva’s long-term share price performance has been disappointing, it still trades at the same level it did five years ago. However, I still think current share price weakness may be a buying opportunity, given the juicy dividend. If you don’t agree, there’s always that cash ISA.

The Brothers

Or you might want to look another financials company, such as asset manager Rathbone Brothers (LSE: RAT), which published a trading update this morning showing funds under management increased to £47.3bn in Q3 following its acquisition of Speirs & Jeffrey.

This added £6.7bn to its funds and chief executive Philip Howell said the resulting increase in scale “places us in a strong position to continue to improve our service to clients and, mindful of recent volatility in investment markets, to maintain our disciplined investment in the business”.

Asset growth

Stock market volatility always hits fund managers and the Rathbone share price is trading 10% lower than a year ago, although it is still up 50% measured over five. Excluding the acquisition, total funds under management still rose 1.8% in Q3, against a 1.7% drop in the FTSE 100. This was an annualised rate of 2.8%, marking a slowdown from 3.5% in 2017.

Rathbone remains a steady business in these volatile times, posting double-digit EPS growth for each of the last five years. Growth is forecast to slow to 4% this year then rise 11% in 2019. It is fully valued at 15.9 times earnings, and the yield is unexciting at 2.8%, although cover of 2.2 gives scope for progression. The group’s pedigree stretches back to the 1720s and it’s one to consider in the next market meltdown.

I believe that this trend is set to continue for many years to come as it continues to work on its reputation as a leading wealth manager. Today it reported that profit before tax, for the year to December 31 increased by 17.6% to £58.9m as funds under management expanded to £39.1bn, up 14.3% year-on-year. By the end of 2018, management hopes to have boosted this figure to £40bn. 

Thanks to the performance of its investment managers, the group should have no trouble reaching this goal. Rathbone manages a portfolio of unit trusts for both its clients and outside investors. These trusts have performed well over the past year, so well in fact that assets managed by the trusts grew by 21.8% for the year to a record of £5.3bn. 

Off the back of these impressive figures, management has hiked the final dividend per share to 39p, giving a full-year payout of 61p, an increase of 7% year-on-year. 

Built for the long-term

Rathbone’s peer, Charles Stanley (LSE: CAY) is another asset manager that I believe could help you make a million. 

It too is benefitting from rising demand for asset management services. For the six months to the end of September, it reported profit before tax increased 53.3% while funds under management rose 1.3% to £24.3bn. Even though the company is still relatively small compared to its larger peer, management believes the business can become “the UK’s leading wealth manager by 2020.” This implies that in the years ahead, the group will be working hard to drive growth in assets under management and profitability, which should be great news for shareholders looking for growth.

The company’s well-established reputation should help the proposition to clients as the business is one of the oldest firms on the London Stock Exchange and has been advising clients on wealth management for over 230 years. 

An investment for all environments 

The great thing about these two wealth managers is that they are well positioned to profit in all market environments. For example, today with markets steadily rising, they’re attracting assets from investors wanting to get in on the action. A higher level of assets should translate into more residual income from investment management. On the other hand, in volatile markets, which might scare new investors away, these two firms will benefit from higher levels of trading commission revenue. 

Put simply, no matter what the market environment, Charles Stanley and Rathbone should be able to generate steady returns for investors for many decades to come. Right now shares in Rathbone support a dividend yield of 2.4% and trade at a forward P/E of 19.3. Meanwhile, Charles Stanley trades at a forward P/E of 13.2 and supports a dividend yield of 3.5%.

However, Legal & General (LSE: LGEN) is one company which still appears to offer a compelling investment case. It could generate high total returns in 2018, but is not the only company with the potential to do so.

Income potential

With a dividend yield of 5.6%, Legal & General is still one of the highest-yielding stocks in the FTSE 100. At a time when inflation is continuing to move higher, this could make it a highly attractive stock to own over the medium term. Since dividend payments are covered 1.7 times by profit, they have scope to move higher at a faster pace than profit growth without hurting the financial health of the business.

The company’s dividends are expected to increase by 6% in the 2018 financial year. This means the stock could be yielding 6% in the current year. Investor sentiment could therefore improve significantly over the coming months.

Valuation

Despite its upbeat income outlook, Legal & General continues to trade on a relatively low valuation. The company’s share price may have risen by 11% during the course of the last year, but it still trades on a price-to-earnings (P/E) ratio of just 11. At a time when the FTSE 100 is trading at a record high, this suggests that the stock offers a wide margin of safety. This indicates that it is relatively unpopular at the present time, but that it could generate high returns in the long run.

Total return potential

Also offering high total return potential in the long run is wealth management specialist Rathbone Brothers (LSE: RAT). The company released a positive trading update on Thursday for the three months to the end of December. It recorded robust growth in funds under management, rising by 14.3% to £39.1bn. Total net inflows across the company for the 2017 financial year were £2.1bn, which is higher than the £1.7bn recorded in 2016.

Looking ahead, Rathbone Brothers is expected to report a rise in its bottom line of 10% in the current year. This could be boosted by the prospects for improved performance from global stock markets, with investor sentiment remaining upbeat at the present time. Despite this, the stock trades on a price-to-earnings growth (PEG) ratio of 1.9, which appears to be low relative to its sector peers.

With a dividend yield of 2.6% and dividend cover of 2.2, the company looks set to become an enticing income play in the long run. As such, now could be the right time to buy it.