This week we are looking at smaller companies with excellent dividend paying track records, good dividend cover and a decent dividend growth forecast. We open up our search in the DividendMax optimizer by selecting stocks from the FTSE 250 with a CADI (consecutive annual dividend increases) of more than 5. A large number of companies passed that test; 65 in all and far too many to list. Next we select those with a forecast dividend increase of more than 10%. That sorts things out and brings our list down to 12, but we need good dividend cover so we refine our search further by looking for cover greater than 2. That gives us 10 stocks:
Cobham, Inmarsat, RPS, Microfocus, Hunting, Synergy Health, Rotork, Dialight, Aveva and Ashtead group.
A number of these companies are reporting this week including Ashtead, Rotork, Cobham and Inmarsat.
Aveva, Dialight and Ashtead all yield under 2% on the 3 Dividend Optimizer so cannot really qualify for Dividend of the week. I cannot recommend Cobham as earnings are expected to be flat this year and not much better the following year as U.S. defence budgets come under pressure. It is however the highest yielder in the list and you can seriously expect over 6% over three dividends annualised between now and May 2014. Inmarsat are the next best yielder, but again, growth is pretty anaemic over the next two years. Microfocus have already jumped 63% from their 52 week low and that looks too much. They are on a P.E of 13.8 for 5% EPS growth and with the strong rise that does not look like value to me. Synergy Health also look pricey on a P.E. of over 16x and not particularly good growth forecast. The yield does not over excite at 2.3%. Rotork is clearly an excellent company, but again you are seriously paying for the privilege at over 25x earnings and another unspectacular yield. Rotork is associated with the Oil industry as well as gas, power, water and waste treatment industries. Interestingly, the two remaining stocks are also associated with Oil, which goes to show how much growth and money there is to be made in oil without having to run B.P. style risks and buy the majors.
I like the look of Hunting which is about a quid off its high for the past 52 weeks. It is on a P.E of 15.4x for forecast EPS growth of 41%. With final results due on the 7th March, the P.E. will drop to 13.7x December 2013 earnings. It yields just under 3% on the optimizer.
The final company we are going to look at is RPS Group. This stock is amazing. What a track record. They are about 6% off their 52 week high. They are the third highest yielder from our original list, at just under 4% on the optimizer due to the proximity of the final dividend which is 36 days away. This stock has increased its dividend by 15% every year for the last 19 years. I see no reason for this to stop. Earnings are forecast to increase by 10% in each of the next 2 years, but the dividend cover is sufficient to keep up the 15% record for some time yet. From the results last week:
‘The Board continues to be confident about the Group’s financial strength and is recommending a final dividend of 3.34 pence per share payable on 24 May 2013 to shareholders on the register on 12 April 2013. If approved the total dividend for the full year would be 6.40 pence per share, an increase of 15% (2011: 5.56 pence per share). Our dividend has risen at about this rate for 19 consecutive years. It increased 75% over the 4 years of the global financial crisis, whilst our net debt has reduced substantially, to an 8 year low, after investing £120.6 million in acquisitions in the same period.’
Although I really like Hunting, for it’s lower P.E, exposure to the same industry and that 1400% compound growth in the dividend over the past 19 years, our dividend of the week is RPS Group.
