Buying GE, Dumping GM, Cisco, DowDuPont, Lilly

ALPS Advisors, which leans toward energy in its portfolio, boosted its GE stake by 42% in Q4.

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Two growth stocks I’d buy and hold for 25 years

I would be very confident to invest a plump sum into Unite Group (LSE: UTG) and then sit back and relax.

I have long taken a positive tone on the student digs provider as the yawning gap between accommodation demand and supply is likely to remain supportive for future earnings. Indeed, the benefits of this dynamic was laid out in Unite’s full-year update on Wednesday.

The FTSE 250 business declared that, thanks to like-for-like rental growth 3.4% in 2017, pre-tax profit rose 14% to £229.4m.

Unite is in great shape to keep earnings on an upward trajectory, too, with the business noting: “Reservations for the 2018/19 academic year are at record levels for this time of year, supporting our rental growth guidance of 3.0-3.5% on a like-for-like basis.” Reservations for the upcoming academic period now stand at 75%.

The business’s policy of aligning its accommodation portfolio to the “strongest” universities where demand is at its highest is clearly paying off handsomely. And its robust secured development pipeline (7,550 beds are slated for delivery over the next three years alone) gives plenty more reason to expect profits to continue rolling in.

Dividend dynamo

Against this backcloth, it’s not a stretch to understand why City analysts are expecting profits at Unite to keep growing at a terrific pace. In both 2018 and 2019 earnings expansion of 15% is expected.

And these brilliant projections are expected to keep dividends shooting skywards as well (shareholder payouts have risen at a compound annual growth rate of 36.9% during the past five fiscal periods).

This year, a 26.2p per share reward is predicted, up from 22.7p in 2017 and yielding 3.3%. And in 2019, the dividend is expected to march to 30p, resulting in an inflation-stripping yield of 3.8%.

It may be expensive as Unite currently deals on a forward P/E multiple of 22.4 times. But I believe its disciplined growth plan in an expanding marketplace merit a lofty rating.

Stateside star

Homeserve (LSE: HSV) is another FTSE 250 stock that I am confident can, and should, deliver handsome returns to growth hunters in the coming years.

City analysts are also expecting earnings to grow at double digits in the more immediate future. Rises of 19% and 11% are currently being predicted for the periods ending March 2018 and 2019, respectively.

This isn’t the only parallel the emergency callout play shares with Unite, as dividends are also predicted to keep swelling at a pretty pace. Fiscal 2017’s 15.3p per share reward is forecast to rise to 17.9p this year and again to 19.7p next year, creating plump yields of 2.4% and 2.7% respectively.

I have previously commented on the exceptional progress Homeserve is making in North America and ongoing M&A activity is likely to keep business flowing through the doors. Just in October, the company acquired the home assistance cover business of US-based Dominion Products and Services. But the States is not the only story as revenues are also growing in its other territories of the UK, France and Spain.

Homeserve may also be expensive on paper, but its exceptional progress around the globe still makes it worthy of a prospective P/E ratio of 22.8 times, in my opinion.

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Royston Wild has no position in any of the shares mentioned. 
The Motley Fool UK has recommended Homeserve. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Why I’d sell multi-bagger growth stock Versarien plc today

Shareholders of materials group Versarien (LSE: VRS) have seen the value of their stock rise by 296% over the last year. However, those same shares have also lost 37% of their value since peaking in January.

Now seems like a good opportunity to take stock of the situation and I believe potential investors need to answer two questions:

  • What’s the outlook for the business?
  • Are the shares attractively valued?

A new opportunity

The firm’s big hope for future growth lies in products which use graphene, a carbon material that could be the next wonder material.

Most potential uses for graphene are still in the development stage. A good example is the medical trial announced by Versarien today. This will see the firm work with a surgeon at Addenbrooke’s Hospital in Cambridge to test a new type of wound dressing.

The firm will develop “a range of graphene-based sensor technologies to enable the creation of digital bandages and wound dressings capable of various forms of physiological movement and excretion detection.”

From what I can tell, the goal of this is to produce dressings which enable a patient recovering at home to tell when their dressing needs changing, or if their wound is becoming infected.

The firm is also working on potential products for the chemical, aerospace and consumer goods sectors plus a potential joint venture manufacturing facility in China.

Of course, Versarien isn’t the only materials firm hoping to make money from graphene. It faces tough competition from rivals. Not all of this information is public — many larger companies wouldn’t bother announcing early-stage trials like these.

What are the shares worth?

The commercial potential for graphene could be massive and Versarien could do well. But shareholders need to consider the financial picture as well.

It could be several years before the company achieves commercial success from graphene. In the meantime, it will need cash to support its operations. Some of this will come from existing operations.

The group’s revenue rose by 167% to £4.37m during the first half of this year. Broker forecasts suggest that full-year revenue will rise by 28% to £7.6m for 2017/18 and by 47% to £11.2m in 2018/19.

Unfortunately, this progress won’t generate much profit. Brokers expect a loss of 0.3p per share this year and earnings of 0.6p per share next year. So profits will probably still be a long way short of what’s needed to justify the current share price of 76p.

Although the firm raised £2.8m of fresh cash by selling new shares in November, the interim results show a cash outflow of £1.1m during the period. This suggests to me that the company could run out of cash again in a year or so, given the planned investment in production facilities.

Why I’d sell

The firm’s current market cap of £113m is more than 10 times next year’s forecast sales. That’s a very steep valuation for a company that’s still running at a loss.

By comparison, Morgan Advanced Materials, a profitable rival, trades at less than one times sales.

I believe Versarien’s sky-high valuation leaves shareholders exposed to a lot of downside risk. Even if Versarien is successful, the shares could fall a long way from current levels before they find support.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Morgan Advanced Materials. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Reckitt Benckiser Group plc isn’t the only growth stock you could retire on

The latest financial update this week from Reckitt Benckiser (LSE: RB) may have cast doubt over its reputation as a go-to stock for growth investors.

I for one remain compelled by the Nurofen and Durex manufacturer’s long-term earnings outlook, however, and consider current trading problems in some of its regions as nothing more than a few bumps in the road.

I plan to delve into Reckitt Benckiser’s brilliant investment potential in some detail. But before I do, I would like to look another London-quoted share making the headlines this week with fresh profits news of its own, namely food ingredients and nutrition specialist Glanbia (LSE: GLB).

Earnings grow again

On Wednesday, the company announced that 2017 revenues had jumped 7% to €2.39bn, a result that powered pre-tax profit 2% higher to €229.7m.

Meanwhile, Glanbia saw pro-forma adjusted earnings per share rise 10.2% at constant currencies, the eighth successive year of double digit earnings expansion. However, news that the business expects growth on a comparable basis to slow to between 5% and 8% in 2018 sent investors scurrying for the exits (the foodie firm was last 6% lower from Tuesday’s close).

 City analysts had expected Glanbia to record an earnings rise of 9% in 2018 and to follow this with an 8% advance in 2019. But even if these figures undergo some downward adjustment, I believe the company remains a compelling growth pick for the years ahead.

You see, the Irish giant is taking steps to become, as it says, “one of world’s top performing nutrition companies.” And in keeping with this goal, Glanbia added that its focus in 2018 “will be on volume-driven revenue growth across [its] wholly-owned growth platforms of Glanbia Performance Nutrition and Glanbia Nutritional.”

The ingredients giant has invested heavily in brand development and product launches in recent years, while it has also forked out a fortune in boosting its plant and IT systems at both divisions, as well as building a new innovation centre at GPN. It’s also been busy building a presence in the nutritionals segment through targeted M&A and last year it bought Amazing Grass of the US and the Netherlands’ Body & Fit for a combined €168.2m.

Ongoing investment doesn’t come cheap but these vast near-term costs should provide the basis for Glanbia to make a significant splash in this fast-growing market. I believe a forward P/E ratio of 16 times is a compelling level at which to latch onto this exciting growth play.

In great health

Now for Reckitt Benckiser. Also trading outside the widely-accepted value territory of 15 times or below, the FTSE 100 business is dealing on a forward P/E ratio of 16.9 times. Like Glanbia, it’s also expected to generate earnings growth of 9% this year and 8% in 2019.

But in my opinion, the brilliant earnings visibility created by its raft of market-leading labels warrants this slight premium, as does Reckitt Benckiser’s sprawling presence across both developing and emerging markets.

With the acquisition of Mead Johnson helping it on its way to become a major player in the consumer healthcare segment (this division finally returned to growth at the back end of last year), I reckon the Footsie firm has everything to make investors a fortune in the years ahead.

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Royston Wild has no position in any of the shares mentioned. 
The Motley Fool UK has recommended Reckitt Benckiser. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

One property stock I’d buy today and one I’d sell in a heartbeat

Although property companies at this stage in the economic cycle have fallen out of favour with many investors, you’ll still find contrarians such as Neil Woodford placing big bets on homebuilders and related firms. And while I’m avoiding his holdings such as Taylor Wimpey and Barratt Developments, there is still one property developer that’s caught my eye.

That’s MJ Gleeson (LSE: GLE), which builds homes on brownfield land in what it terms “challenging communities” in the North of England.  This means marketing homes with an average selling price of £124,000 to low income buyers who are generally ignored by bigger homebuilders.

This is appealing to investors for several reasons. For one, purchasing former industrial land, reclaiming it and rezoning it into housing stock means the company can buy its properties for very low prices compared to rivals.

Furthermore, selling homes at relatively low prices means the company is insulated from external issues such as the increased stamp duty, strengthening pound or Brexit-related worries that are creating headaches for developers in the south of the country.

This is borne out in the company’s financial results for the half year to December, when an increase in housing plots sold and rising prices buoyed revenue by 34.7% to £73.7m for its homes division, while operating profits jumped 44.7% to £12.3m.

Improved margins boosted the group’s period-end net cash balance to £26.7m and allowed management to increase its interim dividend payout by 38.5% to 9p per share. With its shares trading at just 14.6 times earnings, a 3.6% dividend yield and solid growth prospects, I think MJ Gleeson could be an attractive option for investors wanting exposure to the property sector.

All its eggs in one basket

On the other hand, I’m steering well clear of London developed Capital & Counties (LSE: CAPC). The company has two developments, one in progress in Earl’s Court and another already well established in Covent Garden.

And while the Covent Garden estate continues to perform well, with its value increasing by 4.3% year-on-year on a like-for-like basis, the Earl’s Court development’s value plummeted by 11.8% during the year. Management blamed political and economic uncertainty for the falling value of this development and for the time being it looks like these twin problems will continue to haunt developers as Brexit negotiations drag on.

For now this isn’t a huge issue as the Earl’s Court development is still very much a work in progress and Capital & Counties is a long-term developer with low levels of leverage. However, over the long term, the company’s prospects still rely entirely on continued gains for property prices in London.

And while London property has proved resilient in previous downturns, I’m not entirely convinced the capital’s housing market can continue to appreciate astronomically forever, especially as Brexit begins to bite in a few years’ time. With that in mind, there’s little chance I’ll be investing in Capital & Counties any time soon.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Why I’m avoiding big-yielding Glencore plc and Barratt Developments plc now

Commodities miner, producer and marketer Glencore (LSE: GLEN) delivered blockbusting full-year results today causing the shares to pop up around 4% as I write. But the real story is the 440% increase in the share price since its January 2016 nadir. If you rode that trend, give yourself a pat on the back for your prescient cyclical trade.

But what now? These figures are stunning. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) shot up 44% compared to the year before, and net cash from operations before working capital adjustments lifted 51%. The cash inflow allowed the reduction of net debt by 31% to $10.6bn, which is still a lot of borrowing, but commodity prices are robust, so who cares?

An investing conundrum

On paper, the stock looks attractive. At today’s share price near 400p, the forward price-to-earnings (P/E) rating for 2019 sits at just over 12 and the forward dividend yield at about 3.6%. Chief executive Ivan Glasenberg said in the report: “Our performance in 2017 was our strongest on record, driven by our leading Marketing and Industrial asset businesses.” To mark the occasion, the directors declared a total dividend for the year of $0.20, which works out as a historical yield of around 3.6%.

Higher commodity prices combined with a continued strong unit cost performance to drive up mining margins in the firm’s metals and energy operations. But I think that’s a big part of the investing conundrum now. Things are going well. The shares have risen a lot. However, cyclicals cycle, and if I’d been invested here over the past couple of years I’d be thinking about selling now. I reckon it’s best to buy shares like Glencore when things look bleak and the share price is on the floor and to sell when things look rosy and the shares are riding high.

Meanwhile, housebuilding company Barratt Developments (LSE: BDEV) issued interim results today. This is another cyclical firm where canny investors scored big. If you’d bought a few of the firm’s shares during August 2011, you’d be sitting on a gain of around 640% at today’s 555p.

Beware of the ‘square share’

The figures are good but not spectacular. Revenue is 9.5% higher than the equivalent period the year before, and net profit from operations is up 9.6%. The directors pushed up the interim dividend by 17.8%, which suggests their confidence in the outlook. Chief executive David Thomas said in the report: With good consumer demand, a healthy forward order book and a robust balance sheet, overall we have had a strong first half.”

At first glance, the valuation indicators look attractive. The forward P/E ratio for the year to June 2019 is just over eight, and the forward dividend yield also sits around eight. But hang on, this is now a ‘square share’ and you may remember what happened with the big banks just before the financial crisis last decade when their valuations went ‘square’, with dividend yields equalling the P/E rating — they plummeted.

We never know when the next cyclical plunge will arrive, so why take the risk with cyclicals like these two now? I certainly wouldn’t be stuffing these shares into a long-term portfolio for income.

Where should you invest for 2018 and beyond?

A long-term approach is essential for building wealth. However, I think a long-term approach to holding out-and-out cyclical firms like these two could end up being a mistake.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Why I’d risk £2,000 on these 2 growth stocks today

Investing in growth stocks can be risky, but sometimes the balance seems right, and as long as it’s part of a diversified portfolio then I reckon it can be a risk worth taking.

I feel like that when I look at Arix Bioscience (LSE: ARIX), a company that came to market only in February 2017, having raised £100m in an oversubscribed offering. Its investors included Woodford Investment Management on behalf of clients, and a couple of international pharmaceuticals companies.

The aim, in the words of chief executive Dr Joe Anderson at the time, is “supporting businesses in the vanguard of medical innovation.

Though it’s too early for there to be any meaningful financial valuations, Arix has been making steady progress in financing for a number of start-up companies and has signed a few key strategic agreements.

New deal

One came Wednesday as the firm has partnered with Ipsen, which it described as “a global specialty-driven biopharmaceutical company focused on innovation and specialty care.

The deal will see the two developing and commercialising innovative therapies, with Ipsen gaining access to Arix’s professional and scientific advisors. In turn Ipsen will “contribute research, development and commercial expertise to the partnership” and the two will work to “jointly create new companies focused primarily on the development and commercialisation of innovative therapies for patients.

This comes on the back of a similar agreement on 19 February with Fosun International to collaborate in pretty much the same way, and I think it points to an increasingly attractive-looking road towards profit.

There’s no profit currently forecast, so Arix is very much a ‘blue sky’ investment. But I’d say it deserves a close look.

Return to growth

Post-recovery growth can be a profitable investment too, and that’s what Avingtrans (LSE: ABG) is showing. After a few disappointing years, the small-cap engineer has some very strong forecasts on the cards. There’s a trebling of EPS indicated this year after a return to growth, followed by a further 86% in 2019.

Avingtrans sold off its aerospace division in 2016, returning £19m to shareholders in the process, and the company is currently focused on products and services for the energy and medical sectors. 

Now subsidiary Hayward Tyler has secured a $6.7m contract with Korea Hydro & Nuclear Power. It has been providing pumps and spare parts for more than 40 years, and the new order is for spares to upgrade and refurbish existing nuclear power plants.

Avingtrans only completed its acquisition of Hayward Tyler in September 2017, and this latest development means it has already contributed more than $10m in orders.

Good first half

Interim results from Avingtrans should be with us on 28 February, and January’s update told us that the first half has gone well and that results should be in line with forecasts. At the time, the firm had already secured new contracts to the value of almost £7m, including deals in the UK, Sweden and South Korea.

The key event has been the integration of Hayward Tyler, and that looks to me to be a potentially big driver of future growth.

The dividend is modest with a prospective yield of 1.7%, but it’s progressive and should be well covered by 2019. And there was year-end net cash on the books at 31 May of £26.4m.

Avingtrans could turn into a cash cow in the next decade.

Balanced risk

I reckon a growth stock portfolio should be balanced, by also including more mature companies which look safer at less volatile prices, especially ones in different sectors

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Is now the time to buy these unloved dividend stocks?

A disappointing financial release has seen FirstGroup (LSE: FGP) suffer another calamitous collapse in Wednesday trading. Its share price was last 14% lower, extending the company’s long-running downtrend.

The bus and rail operator has now shed almost a third of its value during the past 12 months as investors have lost faith in its long-running turnaround plan. And it’s not difficult to see FirstGroup extending these losses in the months ahead.

Today, the FTSE 250 firm announced that earnings for the full year are likely to fall short of expectations, thanks to problems at its North American businesses.

For its bus operations specifically, FirstGroup noted that “Greyhound’s long-haul business was affected by intensifying airline competition” in the period dating back to last September. But this wasn’t the only problem as “extremely challenging weather conditions in January” dented the performance of all three of its US divisions.

Dividend growth in danger?

Prior to today’s release, City brokers had been anticipating a wafer-thin 1% earnings improvement in fiscal 2018. But of course this is now likely to fall by the wayside, while the 14% forecast for next year looks in severe jeopardy.

Hopes that FirstGroup will re-emerge as a lucrative dividend stock has piqued the interest of some income investors in recent times. Although today’s release was pretty disappointing, one crumb of comfort for dividend chasers will be management’s guidance: “Notwithstanding the mixed trading picture in the period, we continue to expect substantial cash generation for the year as a whole.”

After four years of paying zero dividends to shareholders, the number crunchers were expecting the transit titan to restart its payout policy with a 1.5p per share reward this year, expected to leap to 2.9p in fiscal 2019. Yields for these years stand at 1.8% and 3.5% respectively.

While FirstGroup may have indeed the strength to resurrect its dividend policy in the current period, and to meet brokers’ current dividend projections, predictions of ripping payout growth may fail to come to fruition should difficult trading conditions persist.

With concerns also over the size of the company’s pension deficit, I reckon share pickers should ignore the colossal yields — as well as FirstGroup’s low forward P/E ratio of 6.6 times — and splash their investment cash elsewhere.

Hit the road

With consumer spending power coming under increasing attack in the UK, I reckon fellow big-yielder Inchcape (LSE: INCH) is also too dangerous to merit interest from share pickers today.

The auto retailer has seen its share price duck 13% since the start of October as a slew of industry rivals have all noted a decline in sales volumes in recent months. This is hardly a surprise as demand for ‘big ticket’ items like cars is always the first thing to fall as economic conditions become more difficult.

Reflecting these challenging conditions, City analysts are expecting earnings to dip fractionally in 2018, a projection I think — like the anticipated 4% rebound next year — could be severely downgraded in the months.

As a result, I would ignore an undemanding prospective P/E ratio of 10.8 times, as well as decent dividend yields of 4% and 4.2% for 2018 and 2019 respectively, and steer clear of the motor mammoth for the time being.

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Royston Wild has no position in any of the shares mentioned. 
The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Why this potential dividend dynamo could blow Barclays plc out of the water

It’s no secret that income investors accustomed to banking stocks delivering consistent and impressive dividend yields have been severely underwhelmed since the end of the financial crisis. Indeed, the likes of Barclays (LSE: BARC) still offers shareholders a miserly 1.5% yield after it slashed its dividend in 2016.

However, I think over the long term, smaller challenger banks such as Virgin Money may just prove to be the dividend dynamos their larger rivals once were. This is particularly true of Metro Bank (LSE: MTRO), which is quickly growing its substantial loan book and this morning announced it delivered its maiden profit in 2017.

Last year was another great one for Metro Bank as its loan book grew 64% to £9.6bn and it recorded a 47% uptick in deposits to £11.6bn. Importantly, the bank’s loan-to-deposit ratio also grew from 74% to 82%, which shows it is still finding suitable investments to deploy its ever-growing mountain of customer funding.

The management team has also set itself a series of ambitious targets for 2023 that would make it a fairly large and highly profitable lender with plenty of excess cash that could be returned to shareholders. From its current base of 55 stores and £11.7bn in deposits, Metro’s management wants to have 140-160 locations in five years with £50bn-£55bn in deposits.

Judging by the pace at which customers are flocking to its expanding online and offline array of services, this isn’t a far-fetched target. And due to the increasing benefits of scale, management is aiming for a cost-to-income ratio of 55%-58% by that time with a return on equity (RoE) of a whopping 17%-19%.

This is the level of returns that big banks were delivering before the financial crisis, but with its sole focus being on boring old retail banking, I believe Metro Bank’s plans are significantly less risky than those of the old Barclays or RBS. If management hits its targets, I could see it turning into a fantastic dividend-payer over the long term as it kicks off enough cash to cover expansion plans and shareholder rewards alike.

The right strategy? 

Compare this with Barclays, which under the direction of CEO Jes Staley is doubling-down on its huge investment banking operations even as it retreats from areas such as its African operations. While this could prove wise in the long term, for now the investment bank is recording relatively low profits that are obscuring the group’s highly profitable credit card and retail banking divisions.

In the first nine months of 2017, the corporate and investment banking division recorded RoE of 8.4%, which was lower than the 19.3% of the credit card division and 9.4% of UK retail banking operations. Furthermore, unlike newcomer Metro, Barclays is still weighed down by legacy bad assets and legal issues that sent the group’s statutory RoE down to -1.4% in the nine months to September.

While management is doing well to whittle down its bad asset portfolio, I remain unconvinced that pursuing the universal banking business model is still the way to go considering ever tighter regulatory requirements on banks. With a relatively low dividend yield and a lack of compelling growth prospects, I’d easily choose Metro over Barclays for the long term.

But even in the rosiest scenario, Metro Bank is several years from paying big dividends as management prioritises growth opportunities. So, if you’re looking for high-yield income options right now, I recommend instead considering the Motley Fool’s Five Shares To Retire On.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.