StockRanks for income: where are the opportunities today?

In two recent pieces in the Stockopedia Academy, I suggested some simple StockRank-based screening approaches to find good quality dividend growth and high-yield stocks.

In this piece, I’m going to take a look at some examples of shares from these screens that I think could be interesting opportunities today. I’ve selected 10 in total – five for high yield and five for dividend growth.

As always, these are only my thoughts, not recommendations. Please DYOR and form your own views before making any investment decisions.

5 dividend growth stocks

Here’s a quick reminder of the screening criteria I used to help create a shortlist of dividend growth stocks for further research. You can see (and copy) the screen here.

TI Fluid Systems (LON:TIFS) - yield 4.1%

This British engineering group has a long and illustrious track record in the automotive industry. It’s a leading manufacturer of thermal management and fluid-handling systems for cars, notably fuel systems.

However, TI suffered a spell in private equity ownership from 2015-2017 and has struggled since its return to the UK market – not helped buy a notable debt burden.

The business has also been forced to face up to the need to diversify its product range, in order to reduce its historic dependence on fossil-fuel powered cars. Fuel systems generated about half the group’s profits last year.

This turnaround is still underway, but I’m encouraged by progress – 43% of new order bookings related to electric vehicles last year.

From a dividend perspective, last year’s strong cash generation supported debt repayments and a useful 6.8p per share payout, giving a 4% yield.

The shares remain modestly valued on a forward P/E of 6. If the company can deliver on its plans, I think there could be an attractive dividend growth opportunity here.

Ultimate Products (LON:ULTP) - yield 4.2%

This housewares group – whose brands include Beldray and Salter – floated on the London market at around the same time as TI Fluid Systems. It also suffered a post-IPO slump but has since been a much more successful investment.

One reason for this might be the presence of owner management in the boardroom. Founder and CCO Simon Showman is the group’s largest shareholder, controlling more than 20% of the stock.

Ultimate outsources manufacturing to China, resulting in a capital-light business model that generates excellent quality metrics:

Cash generation is good and the share price looks undemanding to me. 2024 forecasts point to a P/E of 11 and a 4.4% dividend yield.

My main concern here is the risk that the group’s competitive advantages may be limited to the strength of its brands and its marketing distribution reach. Most of Ultimate’s products could be easily duplicated by competitors, in my view.

This dependence on commercial excellence might explain why the founder occupies the CCO role.

Even so, I think Ultimate’s owner management, steady progress and strong financial metrics make this business an interesting option for dividend growth.

Computacenter (LON:CCC) - yield 2.7%

This FTSE 250 valued-added IT reseller is another founder-owned business with an impressive long-term record of growth. Computacenter’s dividend record speaks for itself and the shares have four-bagged over the last 20 years.

One constant during this period has been the leadership of CEO Mike Norris. He’s been supported by founders and non-execs Sir Peter Ogden and Philip Hulme, who control about 22% of the shares.

I think there’s some key person risk here – Mr Norris would be a tough act to follow – but Computacenter’s recent trading has been strong and the group has substantial net cash and a stable outlook.

Margins are inevitably low in this business, due to the resale element. But Computacenter’s returns on capital are consistently high. I see this as a quality operation with long-term growth potential.

Coca Cola HBC AG (LON:CCH) - yield 3.1%

This FTSE 100 firm is one of Coca-Cola Co (NYQ:KO) regional bottling companies. CCH has an exclusive licence to distribute Coca-Cola products in a range of western, central and eastern European countries, plus some African markets. The group also continues to operate in Russia, selling local brands only.

I see this as a classic defensive consumer goods business, relying high-volume, low-cost branded sales. I think the group’s relatively stable profit performance during the pandemic supports this view:

Quality metrics and cash conversion are consistently strong and the group has established a solid dividend growth record since it switched its listing from Greece to the UK in 2013:

In my view, CCH makes an interesting alternative to consider alongside homegrown UK soft drinks businesses Britvic (LON:BVIC), A G Barr (LON:BAG) and Nichols (LON:NICL).

B&M European Value Retail SA (LON:BME) - yield 2.8%

This discount general retailer is familiar to a growing proportion of UK (and French) shoppers. B&M’s clever and ever-changing ranges of food and non-food products keeps shoppers returning regularly. It also allowed the group to qualify as an essential retailer and keep its stores open during the pandemic, triggering a remarkable run of growth.

B&M’s product ranges are masterminded by Trading Director Bobby Arora, who bought the group with his brother Simon in 2004. While former CEO Simon Arora stepped down in 2023, Bobby Arora remains locked in through a lucrative retention deal that was felt to be important enough to warrant its own RNS. I don’t disagree.

This business is well run, in my view, and enjoys significantly stronger profitability than UK supermarkets. Dividends have always been prioritised, with special payouts on occasion. Consensus forecasts suggest a 4.2% yield for the current year.

B&M shares look reasonably valued to me at current levels, and think the business has scope to continue growing.

5 high-yield dividend stocks

Here’s a quick reminder of the screening criteria I used to help create a shortlist of high-yield dividend stocks for further research. You can see (and copy) the screen here.

VP (LON:VP.) - yield 5.7%

Specialist equipment hire group VP is another business with founder management – chair Jeremy Pilkington controls just over 50% of the stock.

While this gives him effective control of the company, I don’t find this too much of a concern. This business has been listed since 1973 and has established an excellent record of profitable long-term growth.

As far as I can see, the dividend hasn’t been cut for 30 years, except during the pandemic:

In addition to competing in the general equipment hire market, VP has built a portfolio of niche hire businesses that serve higher-margin segments in a range of end-user sectors. These include water and civil engineering, rail and offshore oil and gas.

Although VP isn’t the cheapest stock in this sector at the moment, I feel it’s an above-average quality business. I would argue that the current valuation offers good value and the near-6% dividend yield looks sustainable.

Imperial Brands (LON:IMB) - yield 8.1%

This FTSE 100 tobacco group needs little introduction and will divide opinion. But its credentials as a high-yield dividend stock are strong, in my view.

Imperial’s performance has improved significantly since CEO Stefan Bomhard took charge in 2020. Profits have returned to growth, debt levels have fallen and the stock’s 8%+ yield looks well supported to me for the foreseeable future.

The word foreseeable is probably key to the risk inherent in this investment. Imperial’s earnings are concentrated in developed markets ,where more restrictive regulations on tobacco sales are a constant risk. Declining smoking rates are also a concern.

Imperial shares currently trade on six times forecast earnings and boast a price-to-free cash flow ratio of six.

While I wouldn’t want to pay a high price for this stock, I think much of the risk is priced in at current levels. I suspect Imperial will remain a cash cow for some years yet.

PayPoint (LON:PAY) - yield 7.1%

Graham included this UK fintech in his top 10 ideas for 2024. I also think that it is a good business that’s probably undervalued by the market and currently hold the shares in my rules-based SIF portfolio.

One caveat I’d add to this positive view is that there are quite a lot of moving parts to this business. This means that tracking like-for-like progress isn’t always easy. But recent results have been positive and PayPoint’s strong profitability and cash generation isn’t in doubt, in my view.

PayPoint’s dividend was cut before the pandemic as the group’s business was reshaped. But the current payout gives a 7.5% yield and looks sustainable to me, with some growth potential.

Robert Walters (LON:RWA) - yield 6%

Recruitment is an intensely cyclical business. If Robert Walters’ share price action is to be believed, the business is close to the bottom of the cycle at the moment:

Such dramatic cycles mean that this stock is arguably not well suited as a buy-and-hold position. But I would expect to see gains from current levels, when market conditions improve for the sector.

In the past, Walters has managed to maintain its dividend through downturns before increasing the payout during the next upcycle.

I expect this record to be maintained this time round. The group reported a net cash balance of £80m at the end of last year and its dividend remains largely covered by earnings. The 6% yield looks safe enough to me.

M&G (LON:MNG) - yield 10%

This retirement savings and asset management group is perhaps unlikely to be a dividend grower. But the 10% yield provides sufficient return in itself if it’s sustainable, which I think it is.

M&G shares have gone nowhere since its 2019 demerger from Prudential (LON:PRU). But the company’s guidance on cash generation and dividends has been consistently met.

More recently, the company’s asset management business has attracted new inflows and reported more positive investment performance than some UK rivals.

As a pure high-yield play, I think M&G makes sense. While such a high yield will never be without risk, this is an old and well-established business with reasonable scale and a sensible strategy. I’d be happy to buy at current levels.

Please let me know what you think in the comments below. Where are the best dividend growth and high-yield opportunities today?

Disclosure: Roland owned shares in Ultimate Products, Computacenter, PayPoint and Imperial Brands at the time of publication.