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Earnings preview: Ashtead, Halma, FirstGroup

John Choong — Sun, 12 Jun 2022 12:56:00 +0000

Earnings results are a great way for investors judge a company. It used to determine whether companies are on track with their initial guidance. These results can often radically move share prices in either direction, depending on the numbers reported. So, here is an earnings preview for three FTSE firms reporting results this week.

Ashtead

Ashtead (LSE: AHT) is a British industrial equipment rental company. It has networks in the UK, US, and Canada. It also trades under the name of Sunbelt Rentals. The industrial firm is expected to report earnings for its financial year 2022 on Tuesday, 14 June 2022. The earnings preview indicates a positive trend in both its top and bottom lines as it recovers from its pandemic woes.

Market cap: Â£17.5bn
Price-to-earnings (P/E) ratio: 18
Dividend yield: 1.1%

Earnings per share estimate (FY 2022): Â£2.47
Earnings per share (FY 2021): Â£1.56
Total revenue estimate (FY 2022): Â£6.47bn
Total revenue (FY 2021): Â£5.0bn

Halma

Halma (LSE: HLMA) is a British global group consisting of safety equipment companies. These firms make products for hazard detection and life protection. The FTSE 100 group is expected to report earnings for its financial year 2022 on Thursday, 16 June 2022. The earnings preview indicates slight growth from the previous year.

Market cap: Â£8.0bn
P/E ratio: 30
Dividend yield: 0.9%

Earnings per share estimate (FY 2022): 63.1p
Earnings per share (FY 2021): 58.7p
Total revenue estimate (FY 2022): Â£1.5bn
Total revenue (FY 2021): Â£1.3bn

FirstGroup

FirstGroup (LSE: SSE) is a British multi-national transport group. The company operates transport services in the UK. The transport company is expected to report earnings for its financial year 2022 on Tuesday, 14 June 2022. Earnings preview indicates a drop in revenue and a return to unprofitability.

Market cap: Â£1.0bn
P/E ratio: 2
Dividend yield: –

Earnings per share estimate (FY 2022): -0.4p
Earnings per share (FY 2021): 2.4p
Total revenue estimate (FY 2022): Â£4.52bn
Total revenue (FY 2021): Â£6.8bn

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John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has recommended Halma. 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.

I’d buy these 2 FTSE 100 stocks for growth in an ISA

Harvey Jones — Sat, 13 Feb 2021 10:17:00 +0000

I love buying FTSE 100 stocks for growth. It’s hugely satisfying looking at a stock pick that has doubled or tripled in value, and thinking: I got that one right.

Here I’m picking out two FTSE 100 stocks with momentum on their side. Although both are now too big to continue rising at the same speed, I still think there’s more growth to come.

JD Sports Fashion (LSE: JD) has delivered a total return of 1,830% measured over 10 years, way more than most FTSE 100 stocks, according to AJ Bell. The vast majority of this, 1,800%, came from share price growth. It would have turned £10,000 into £193,000 in that time.

I’m going for growth

Lately though, the JD Sports share price has stalled. It has fallen 7% over the last 12 turbulent months, although this is better than an average drop of 12% across all FTSE 100 stocks.

I actually think this could be a buying opportunity for me. Last month, JD Sports said full-year pre-tax profit should be “significantly” ahead of market expectations, coming in at more than £400m, rather than the anticipated £295m. Despite lockdowns and shuttered stores, Britons still demand their trainers and athleisure wear.

The JD Sports Fashion share price could rebound if vaccines liberate us from lockdown, and shoppers go on a spree with their accumulated savings. My worry is that its customer base, which is relatively young, will be disproportionately hit by job losses. This FTSE 100 stock is also a little expensive, trading at 23.71 times earnings, although not that expensive. With management raising £464m to hit the acquisition trail, I think the future looks promising.

I am not expecting another 1,830% growth over the next decade, even if we do enjoy another ‘roaring twenties’ as some claim. That would lift the JD Sports market cap from today’s £8.46bn to an unthinkable £163bn! It’s a big boy now, but I think it still has room to expand overseas.

Only one FTSE 100 stock has grown faster over the last decade, and that’s construction equipment rental supplier Ashtead Group (LSE: AHT). It has been helped by the strong US economy, where it generates the majority of its revenues.

Over the last decade, Ashtead has generated a total return of 2,170%, turning £10,000 into £227,000, beating all other FTSE 100 stocks, AJ Bell says. Of that, all but 2,050% came from share price growth, because again, investors get only a measly dividend. I doubt they are complaining.

Two of my favourite FTSE 100 stocks

In contrast to JD Sports, Ashtead has powered on during the pandemic, its share price trading an incredible 45% higher than a year ago. That also makes it a little expensive, at 22.3 times earnings, but again, not that expensive.

I think the Ashtead share price could enjoy another lift, as President Biden pushes through his $1.9trn American Rescue Plan. My concern is that Ashtead has cut its capital expenditure lately, and that could hit future returns. The other is that the pandemic will persist, but as we have seen, Ashtead may weather that better than many FTSE 100 stocks.

I’d buy both inside a Stocks and Shares ISA and take that growth tax-free.

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Harvey Jones 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.

US election too close to call! I’d buy these 2 FTSE 100 stocks if stock markets crash

Harvey Jones — Wed, 04 Nov 2020 10:45:18 +0000

As I write this, the US election result is hanging in the balance, and the same can be said of FTSE 100 stocks. The index is slightly down, as investors wait to see whether Donald Trump or Joe Biden wins the presidency.

The uncertainty could drag on for weeks, and may have to be settled in the US Supreme Court. Markets hate uncertainty, so this could hit FTSE 100 stocks, especially those with outsize exposure to the US. If share prices do fall sharply, I’d consider snapping up these two top dividend and growth companies.

Equipment rental company Ashtead Group (LSE: AHT) earns around 90% of its revenues through US subsidiary Sunbelt, and has benefited from the country’s lengthy bull run. Its stock has soared by 2,338% in that time, making it possibly the most rewarding FTSE 100 stocks of the decade.

If stock markets crash, buy shares

The Ashtead share price plunged during the first Covid-19 lockdown but has more than doubled since March. That’s why we at the Motley Fool urge investors to buy top companies in a stock market crash. You can make outsize profits when the initial panic passes.

While FTSE 100 stocks have held steady this morning, Ashtead is down nearly 3%, which may reflect current US uncertainties. I’ll be watching its share price like a hawk, because if the electoral troubles intensify, it could fall further.

Frankly, I’d buy Ashtead any time, given its healthy past performance and strong growth prospects. However, following recent strong growth it’s looked a tad expensive, trading at 17.33 times earnings. If US share prices crash and it gets cheaper, I’d fill my boots.

My other FTSE 100 stock with hefty US exposure is plumbing and heating products distributor Ferguson (LSE: FERG), which also generates more than 90% of its revenues from across the pond. Ferguson has also done brilliantly over the last 10 years, rising 350%, with dividends on top. Like Ashtead, it has doubled since March.

I’d buy both these FTSE 100 stocks

The US stock market has easily outperformed the UK in recent years and, on the day before the election, stood at a two-year high. Every UK investor should have some exposure to the US, and it’s great that one can do this by investing in top FTSE 100 dividend and growth stocks like these two.

Like Ashtead, Ferguson is also relatively expensive today, trading at 20.98 times earnings. It has more than justified that valuation, but I’d still rather buy it at a reduced price, should we get a US stock market crash.

As far as these two companies are concerned, I don’t think it matters whether we get President Trump or President Biden. Both FTSE 100 stocks have excellent track records and should thrive, whoever’s in The White House. However, short-term political wrangling may present an opportunity to gain exposure at a reduced price. So that’s another reason to keep eyes glued to the US electoral results.

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I’d buy this top-performing FTSE 100 dividend stock before the next bull market

Harvey Jones — Tue, 16 Jun 2020 12:53:53 +0000

Ashtead Group (LSE: AHT) has jumped more than 8% today as the FTSE 100 dividend stock continues its impressive recovery following the stock market crash. It’s just posted a solid set of fourth-quarter results, and defied the Covid-19 pandemic to maintain its shareholder payout. This gives investors good cause for celebration.

But loyal investors have been celebrating for years. The Ashtead share price was the second-best FTSE 100 performer during the decade to December 2019, with a total return of more than 3,000%. I wrote then that it looked like a buy to me. Despite the pandemic, it looks like a buy today as well.

Although Ashtead is listed on the FTSE 100, this dividend stock generates 90% of its earnings from the US, through its Sunbelt subsidiary. The group rents out general construction equipment, industrial tools, pumps, power generation, scaffolding, and restoration equipment. It’s benefited from the US boom, but punished by the Covid-19 bust.

Well-equipped for growth

The Ashtead share price fell more than 40% in March, but has since recovered almost all of its losses. The FTSE 100 dividend stock is renowned for steadily increasing payouts year after year. That run of growth now extends for 15 years, surviving both the financial crisis and the current pandemic.

Naturally, the lockdown hit demand for tool hiring. But today, management could still highlight a “resilient performance,” with full-year rental revenue up 8%, and operating profit up 0.9% to £1.2bn. Ashtead also posted record full-year free cash flow of £792m, more than doubling last year’s figure.

Chief executive Brendan Horgan is looking forward to a year of “strong cash generation and strengthening our market position.” This persuaded the board to maintain its progressive dividend policy and to recommend a final dividend of 33.5p. It also confirms Ashtead’s position as a top FTSE 100 dividend stock. Sensibly, it will pause acquisitions and share buy-backs for now.

I’d buy this FTSE 100 dividend stock

The Ashtead share price may get a further boost from reports that President Donald Trump is planning a $1trn US infrastructure plan, which will inevitably boost demand for its tools.

I’m so impressed Ashtead has been able to get through the crisis without making anyone redundant or using Government-backed job retention schemes, either in the UK or Canada. Q4 pre-tax profit inevitably plunged, by 52% to £98m, the first drop since 2011. Just imagine how impressive full-year profits might have been otherwise.

What Ashtead needs now is for the US economy to start flying again. That may happen as monetary and fiscal stimulus hits the market. So long as we don’t get a second wave of coronavirus.

This top FTSE 100 dividend stock has shown it has the strength to withstand a recession, and the muscle to power ahead in a bull run. Ashtead looks like a stock for all market conditions.

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These 2 FTSE 100 stocks grew more than 3,000% in the last decade! Here’s what I’d do now

Harvey Jones — Mon, 30 Dec 2019 11:12:16 +0000

Wow. Just wow. The best performing stock on the FTSE 100 over the past decade has grown by an incredible 3,200%, according to new research by wealth platform AJ Bell.

If you are not impressed by that number, try this one instead.

If you had invested £1,000 in this particular stock on January 1 2010, you would have had a whopping £32,000 by 18 December this year (with dividends reinvested), which might have made you feel better as you navigated doing that last minute Christmas shopping.

Sporty stuff

So what is this mighty 30-plus bagger? A round of applause, please, for branded sportswear, fashion and outdoors retail specialist JD Sports Fashion (LSE: JD).

Its performance is nothing short of phenomenal, given that this was such a tough decade for retailers, as shoppers abandoned the high street to spend yet more time in front of their screens, and price growth outpaced wages for most of the decade.

Kicking yourself for missing out? You’re not the only one, my colleague Paul Summers wished he had bought this classy business too.

JD Sports was relatively small beer at the start of the decade. Russ Mould, investment director at AJ Bell, says that isn’t surprising, quoting legendary investor Jim Slater’s mantra that ‘elephants don’t gallop’: “The established giants of the FTSE 100 simply can’t grow fast enough to necessarily generate these sorts of meteoric returns,” Mould said.

JD Sports only joined the FTSE 100 this summer but has continued its winning streak, rising another 38% in the last six months, lifting its market cap to almost £8bn.

Obviously, the big money has now been made. If JD Sports rose another 3,200% in the next 10 years its market cap would hit £264bn, and although it is expanding its template globally with much success, I can’t see that happening.

The JD Sports share price now trades at 23.5 times earnings, comfortably above the FTSE 100 average valuation of just over 18 times, but not massively pricey. There are signs of the inevitable slowdown, as earnings growth of 58% 55% and 32% in the three years to 2018 are set to fall to 17% in 2020 and 13% in 2021.

That is still pretty good going, though. I’d buy and hold it for the next decade.

Ashtead Group

The second-best performing FTSE 100 stock over the same period was equipment rental firm Ashtead Group (LSE: AHT), close behind after growing a mind-boggling 3,110%. A repeat over the next decade would lift its market cap from £11bn to £353bn, so again, it ain’t gonna happen.

Ashtead generates 90% of its revenues through its US subsidiary Sunbelt, so has benefited from the booming economy stateside. That may be a problem as the IMF predicts growth will fall from 2.4% this year to 2.1% in 2020, although US Federal Reserve rate cuts and a US-China trade deal may keep the party going a little while longer.

The firm has increased its dividend every year for the last decade, so although the current yield of 1.8% seems low, you can brace yourself for plenty of progression. Especially since the payout is covered a massive 4.6 times by earnings.

The Ashtead share price looks stupendously cheap at 11.7 times forward earnings, although again, earnings are slowing. After years of growth measured at more than 20% or 30%, we are looking at 13% and 9% over the next two years.

At today’s valuation, it still looks a buy to me. Now roll on 2020.

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These 2 FTSE 100 companies are my best dividend stocks of the past decade. I’d buy them today

Harvey Jones — Mon, 04 Nov 2019 14:08:38 +0000

If you want to decide if a company’s a dividend hero, you look at the current yield, don’t you? Wrong. What really matters is dividend growth, according to new research from AJ Bell.

The wealth platform shows companies that consistently grow their dividend, year after year, deliver the best returns, both in terms of income and capital growth.

It came to this conclusion after examining the 26 companies on the FTSE 100 that have increased their dividend every single year for the last decade. Currently, they return just 3.1% on average, well below the 4.8% average across the FTSE 100. But in growth terms, they’re unbeatable.

Ashtead Group

The top FTSE 100 dividend stock over the last 10 years is equipment rental specialist Ashtead Group (LSE: AHT). If you had invested £1,000 in 2009, you’d be getting dividends totalling £531 a year, a return of 53.1% on your original investment.

This unsung investment hero has also delivered regular share price growth, jumping 130% over five years, and 20% over the last year. Ashtead has been boosted by its massive exposure to the US economy, so no Brexit worries here.

Ashtead’s North American subsidiary, Sunbelt, generates an astonishing 90% of group earnings and more than £1bn of profits, which has helped to offset weaker UK margins. The big concern is that the US economy will slow, but with the Fed cutting rates, that’s less of a worry.

The £11bn group trades at just 11.1 times forward earnings, which is surprisingly low given its healthy share price outperformance and rapidly rising revenues. It has posted double-digit earnings per share growth for each of the last five years, ranging from 22% to 37% a year. There are signs of a slowdown though, with City analysts forecasting earnings growth of ‘just’ 17% in the year to 30 April 2020, and 11% the year after.

Ashtead’s current yield is just 3.5%, but management remains committed to “a progressive dividend with consideration to both profitability and cash generation that is sustainable through the cycle.” In this respect, it has good form.

St James’s Place

Next best dividend stock of the decade, financial advisory group St James’s Place (LSE: STJ), trails some way behind. If you’d invested £1,000 a decade ago, you’d currently draw £183 a year in dividends, a yield of 18.3% calculated on your original investment. Current forecast yield is 4.7%, although cover is low at 0.7.

The St James’s Place share price is up 10% in the last month, as strong customer net inflows drove funds under management to a record £112.8bn, even if the rate slowed slightly amid “an uncertain external environment.”

St James’s Place draws regular criticism for overcharging its customers but investors have nothing to complain about, as the group has increased its payout at a compound annual rate of 25%.

In July, management froze its interim payout at 18.49p per share, after short-term profits were hit due to extra investment in the group’s partnership network and academy, and its Asian and Rowan Dartington operations.

Another concern is that it’s expensive, trading at 28.7 times earnings, due to a projected 39% earnings drop this year (they’re expected to jump 42% next).

Despite that, both these dividend heroes look nicely set for another decade of income and growth.

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The market has been too hard on this bargain FTSE 100 growth stock. I’d buy it

Harvey Jones — Tue, 10 Sep 2019 17:00:45 +0000

The US economy has been powering ahead for the last decade but now there are signs of slippage, as the trade war with China drags on.

This is a particular problem for UK companies with hefty exposure to the States, notably FTSE 100 equipment rental specialist Ashtead Group (LSE: AHT), which generates an astonishing 90% of its earnings from across the Atlantic, via its Sunbelt subsidiary.

Atlantic crossing

It’s been doing very well out of the US, with its share price rising 125% over the last five years, against average growth across the FTSE 100 of less than 7%.

The Ashtead share price has enjoyed a strong 2019 too, rising 16% in the last three months despite growing fears of a market slowdown, making it one of the buys of the summer. It relies on strong US industrial and construction activity, and that worries investors amid signs of a slowdown on that front.

It shrugged off these worries to report an impressive 17% rise in first-quarter underlying revenue to £1.3bn, while profit before tax climbed 8% to £304.7m.

This reflects strong profit growth in the US, a more moderate improvement in Canada as it invests in the business, and “a slight drag from weakness in the UK.”

Harsh judgement

The shares are down 2.62% at time of writing, as UK margins weakened and profit growth slowed. The verdict seems harsh as, otherwise, these are a positive set of results. But the prospect of a US slowdown has made investors wary of anything aside from flat-out growth.

There’s another worry. Ashtead’s net debt has climbed above £5bn, as it spends money on acquisitions, invests in the business, and rewards shareholders. However, management says it’s maintaining leverage within its target range of 1.9 to 2.4 times net debt to EBITDA, and remains “focused on responsible growth.”

So far, this hasn’t been a problem, because the US economy and Ashtead have both been growing. But it could weigh on the company if we see a sustained downturn.

Well-equipped

The £10bn group’s increasing scale and strong margins are generating good earnings growth and significant free cash flow, helping to fund £125m of buy backs in the quarter, with at least £500m planned across 2019/20.

Ashtead has been an unsung FTSE 100 hero but future growth may be less impressive if the US does run into trouble. Over the last five years, earnings per share have grown by double digits, ranging from 22% to 37%, but this year City analysts forecast a slowdown to 18%, followed by 11% next year.

That is hardly disastrous and the concern has been priced in, with the stock trading at 11.2 times forward earnings, and a PEG of just 0.6. The forecast yield is low at 1.9%, albeit massively covered 4.7 times by earnings. However, management has been progressive, hiking every year since 2005.

I can see why investors may be wary, as the share price has surged while lead indicators for manufacturing activity slowed. I still think today’s market response has been overly negative, and the way Ashtead is investing in its business suggests it still sees a bright future. Although you may prefer this rapid fire growth stock instead.

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Is this FTSE 100 dividend stock the best buy of the summer?

Royston Wild — Sun, 30 Jun 2019 10:08:09 +0000

Ashtead Group (LSE: AHT) has emerged as one of the FTSE 100’s big winners since the start of the month.

In fact, it sits second on the list of blue-chip risers for June, just behind precious metals digger Fresnillo. There’s no shame in this, either, given the electric growth in gold and silver values that’s powered the share prices of London’s mining giants.

Ashtead has actually gained an impressive 20% in value since the month kicked in, and it’s now dealing at levels not seen since last October. It was treading water until the release of full-year financials on the 18th but investor appetite has fizzed on the back of that other brilliant trading release.

Despite these exceptional bouts of buying, though, the business — one of the biggest rental equipment specialists in North America and the largest here in the UK — is still attractively priced, as illustrated by its forward price-to-earnings (P/E) ratio of just 11.1 times.

Throw the added bonus of a 1.9% and 2.1% dividend yield into the bargain, too, and I reckon Ashtead is one of the best buys of the summer.

Dividend hero

There’s clearly stocks out there with bigger dividends than Ashtead, but very few with the sort of stunning record of payout growth as the rentals giant has.

It has hiked shareholder rewards by an outstanding 162% over the past five years, culminating in the 42p per share dividend for the financial year ending April 2019, and it appears in great shape to keep on raising them at a jaw-dropping rate.

City analysts are expecting earnings to advance an extra 12% in fiscal 2020, forecasts that are supported by Ashtead’s recent commentary that “our business continues to perform well in supportive end markets” and that “with our business performing well and a strong balance sheet to support our plans [we] look to the medium term with confidence”.

Forecast boosts around the corner?

For this reason I would argue that current dividend predictions from the City, estimates that suggest rewards of 42p per share for this year and 47p for the next period, are actually looking pretty conservative.

Sure, net debt at Ashtead may have risen by almost a billion dollars last year to £3.7bn, an increase that primarily reflected a significant uptick in capex and acquisition-related bills. But the business continues to generate boatloads of cash, something which has encouraged it to embark on at least another £500m worth of share buybacks this year alone.

And I believe current payment projections could well be upgraded in the weeks and months ahead, and potentially to a sizeable extent should first-quarter results for September 11 show that Ashtead continues to make supreme progress on the trading front.

Given the prospect of some sizeable amendments to both profits and dividend estimates, I think there’s plenty of scope for more significant share price gains. And for this reason I think Ashtead is one of the best big caps to buy this summertime.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. 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 buy these 2 FTSE 100 growth stocks if US interest rates fall

Harvey Jones — Sat, 22 Jun 2019 08:15:03 +0000

The last year has been bumpy for US stock markets as the Federal Reserve’s interest rate hikes drove up borrowing costs and dampened sentiment. President Donald Trump’s trade war threats also didn’t help.

Heading Stateside

This has hit top FTSE 100 companies with major exposure to the States, such as Ashtead Group (LSE: AHT) and Ferguson (LSE: FERG), both of whom generate the vast majority of their profits from the world’s largest economy.

Both struggled over the last year, their share prices falling 17% and 5% respectively, but that could be about to change. After six interest rate rises since 2015, markets are penciling in an 80% chance of a Fed interest rate cut in July, and maybe one or two more before the year is out.

On the rebound

This could drive US markets back up, particularly if Trump follows through on Twitter pledges to hold “an extended meeting” with Chinese president Xi Jinping at next week’s crucial G20 summit in Japan.

Markets are already surging in anticipation of these two events and this could signal brighter times ahead for Ashtead and Ferguson.

Equipment rental supplier Ashtead could do with a construction boom, although it’s doing well without one. It reported pre-tax profits up 17% to £1.22bn earlier this month, as it grows by snapping up smaller rivals and adding them to its Sunbelt brand.

Buy backs

Ashtead also increased its full-year dividend to 40p, up 21% from last year’s 33p. It should further reward shareholders with a £500m shares buyback. A slight concern is net debt, which grew from £2.71bn to £3.75bn over the year, largely due to acquisitions.

The Ashtead share price isn’t cheap, trading at 17.28 times earnings. And with US construction slowing, it needs the added boost of lower borrowing costs and the lifting of trade war concerns. Will it get them? We may find out soon.

Cashing in

Plumbing supplier Ferguson also announced a generous share buyback offer this month, this time of $500m, in its quarterly results to 30 April. These showed ongoing revenue up 6.2% overall to £5.27bn, with disappointing UK growth boosted by a better ongoing US performance at 8.4%. That’s handy, given that it generates around 80% of its earnings from the States. Ongoing trading profit of $359m was $8m ahead of last year, while it generated $632m of operating cash in the quarter.

Ferguson stock has delivered an annualised rise in dividends per share of 15% in the last four years, which compensates for a relatively low current yield of 2.58%.

Blame Canada

The Ferguson share price now trades at just 14 times forward earnings. But there are potential clouds on the horizon, notably in Canada, where the property market is slowing due to tighter laws on mortgage lending.

After years of strong earnings growth, analysts have been alerting investors to data suggesting the US housing market is also weakening. Against that, you have to set the prospect of cheaper interest rates and a trade deal boost, which could turn things round.

If you want exposure to a resurgent US economy, Ashtead and Ferguson could be worth a look.

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I think it’s worth tucking these FTSE 100 income stocks into your ISA

Rupert Hargreaves — Mon, 18 Mar 2019 12:59:35 +0000

If you are hunting for income stocks to include in your ISA, I think it’s worth looking beyond the FTSE 100’s most discussed income shares to the lesser-cover parts of the market. That’s why I’m profiling what I believe are two FTSE 100 hidden income stocks today.

Market leader

Equipment rental group Ashtead (LSE: AHT) might not be the most exciting business around, but it gets the job done. As more firms have tended to rent rather than buy equipment outright over the past five years, the company’s sales and profits have grown substantially.

Revenue has increased at a compound annual growth rate of 22%, and net profit has surged. Analysts believe the business will report earnings per share of 173p for 2019, up from just 50p for 2013.

The company has been able to expand so rapidly by using a combination of both organic and bolt-on growth. Select acquisitions have helped Ashtead expand in new markets, like the US, without having to take on too much risk. By acquiring already established businesses, management doesn’t have to spend heavily to try to gain market share. Doing deals allows the firm to enter a market and then use its global size to improve margins and customer offering. This strategy seems to be paying off — as the numbers show.

As earnings have more than tripled over the past five years, Ashtead’s dividend to investors has expanded at an average rate of 35%. Considering this growth, even though the stock might not look that attractive as an income play today — it only supports a dividend yield of 2% at the time of writing — if the distribution continues to grow as it has done since 2014, investors buying today can look forward to a dividend yield of 4% by 2023.

As the dividend is covered 4.5 times by earnings per share, the company has plenty of room to continue to increase the distribution and then some without having to worry about facing a cash crunch. That’s why I think this hidden dividend stock is worth considering for your ISA today.

Making a comeback

The other FTSE 100 dividend stock I’m profiling today is Micro Focus (LSE: MCRO). I’ll admit I haven’t always been optimistic about the outlook for this group. The botched integration of HP’s Enterprise business, which it recently acquired, put me off the company for some time.

However, recently the deal has started to pay off and it now looks as if Micro Focus is back in business. The stock has nearly doubled from it’s low printed in March 2018, and City analysts now expect it to report earnings growth of almost 29% in 2019 and just under 10% in 2020.

Analysts are also expecting a substantial increase in the company’s dividend for 2019. They’ve pencilled in a total distribution of $1.04, which gives a dividend yield of 4.1% at the current price.

On top of the regular dividend, the company has also informed investors that it’s planning to return the majority of the proceeds from the sale of its SUSE business — around $2.1bn, or £1.6bn at current exchange rates — implying a special dividend yield of nearly 20% this year.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Micro Focus. 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.