Beating the market 

Brooks has been punching above its weight in recent years. The firm has expanded rapidly, building on its physical presence around the UK to attract high net worth clients to its award-winning offering. 

According to a trading update issued by the firm today, discretion funds under management totalled £11.66bn at the end of March, a decrease of 0.7% over the quarter. While the decline is disappointing, it’s mostly due to market volatility during the period. Indeed, according to the update, new business totalled £343m for the quarter. Investment performance, on the other hand, detracted £422m from total funds under management. For some comparison, over the period the MSCI WMA Private Investor Balanced Index — a closely watched benchmark for private investor returns — decreased by 4.5%. 

Commenting on these numbers, CEO Caroline Connellan declared that the firm’s performance during the period demonstrated the “value of good active management in difficult markets.” 

As Brooks continues to exhibit “good active management” I believe that the company will continue to produce outsized returns for investors.

Over the past decade, the stock has returned 23.8% per annum. At this rate, a £1,000 investment made 10 years ago would be worth £9,500 today. Earnings growth has been the primary driver behind these gains. If the firm hits City growth targets for the next two years, it will have managed to grow earnings per share 100% in just five years. 

What’s more, over the past six years, the dividend per share has risen at a compound annual rate of 17.3%, and there’s still plenty of room for payout growth. The distribution is covered 2.3 times by earnings per share. 

And despite all of the above, shares in Brooks still look cheap. The stock is currently trading at a forward P/E of 13.8 and supports a yield of 3.1%.

Cash cow 

Another small-cap that I believe can produce significant gains for investors is Advanced Medical Solutions (LSE: AMS). 

A manufacturer of wound care solutions, Advanced’s growth over the past six years has been nothing short of outstanding. Revenues have doubled over this period, and so has net profit. 

But what I really like about this business is its cash generation. Since inception, the group has been a cash cow, and today, the firm has a net cash balance of around £63m, just under 10% of its market capitalisation.

As the business does not require much in capital spending, the company has lots of options regarding what it can do with these funds, including boosting the dividend payout to investors. While the shares only yield 0.4% today, the payout is covered nine times by earnings per share and, according to my figures, the firm has enough cash to maintain its payout for more than 10 years at current rates if profits fall to zero. Management is also “actively reviewing M&A opportunities that will further increase value for shareholders” according to Advanced’s latest full-year results release.

The post 2 inflation-busting dividend growth stocks to help you make a million appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Advanced Medical Solutions. 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.

The keys to the firm’s growth remain twofold: improving economies across the markets where it operates; and the shift towards e-commerce that is fuelling demand for its cardboard boxes. In Europe, cardboard box volume demand was up 3% year-on-year in 2017, with Q4 demand increasing 5%.

However in the Americas, volumes were up only 2% when excluding the basket case that Venezuela’s economy has become. This weak performance was mainly due to the rising US dollar making it more expensive to export boxes into Latin America and the continued supply shortfall from its US plant making higher-end, non-recycled kraftliner boxes.   

Despite these headwinds, group sales still rose 5% in 2017 to €8.5bn, with growth accelerating to 7% in Q4 as the effects of price increases began to flow through. And although EBITDA was flat year-on-year at €1.2bn and pre-tax profits dropped 12%, the medium-term outlook for the group still looks quite appealing.

This is because of the aforementioned economic tailwinds as well as industry-wide action that is leading suppliers to increase the prices they charge customers. Passing on these rising input costs has already begun to restore forward margin progress with Q4 EBITDA marching 10% higher than in the year prior.

On top of continued sales increases and renewed margin improvements, Smurfit Kappa also offers investors a very nice full year dividend of 87.6 cents that’s more than covered by basic earnings of 177.2 cents per share. And with net debt comfortably within the target range at 2.3 times EBITDA at year-end, the group’s balance sheet is in good health.

So, with its final dividend payment growing by 12% continuing a run of double-digit dividend increases, earnings growth restored in Q4 and a positive global economic outlook, I reckon Smurfit Kappa could be a great pick for long-term investors at a very attractive valuation.

Benefiting as rivals struggle

Another company with a fast-growing dividend that’s caught my eye is asset manager Brooks Macdonald (LSE: BRK). Since 2013, the group’s payout has nearly doubled from 23p to 41p per share as rapid increases in the group’s assets under management (AuM) are driving revenue and profits higher.

This process continued strongly in the half year to December as AuM rose 12.3% higher to £11.7bn. Encouragingly, this impressive growth was down to both net fund inflows and strong performance from assets already under management.

While some of this growth is coming in lower margin areas, there’s still good potential for the group as a whole to continue increasing underlying pre-tax margins from the 20.1% achieved in full-year 2017. This is especially true as investments in back office functions begin to cut costs and fund inflows domestically and internationally lead to increased benefits of scale.

Although Brooks Macdonald may only kick off a 2% dividend yield based on today’s share price, the group’s high-performing funds are laying the groundwork for even more growth in AuM, profits and dividends.  

The post 2 growth dividend champions for long-term investors appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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.

Rising markets are proving to be an excellent tailwind for AIM-listed investment manager Brooks Macdonald (LSE: BRK). 

According to the company’s half-year trading update published this morning, for the six months to the end of December, funds under management expanded 12.3% during this period. Net organic growth over the period was 7.7%, with rates of growth remaining strong in UK Investment Management. 

For the three months to the end of December, assets under management expanded 6.8%. The growth was a combination of several factors, including performance (£319m) and net new business (£431m). 

Unfortunately, even though Brooks seems to be attracting new business, management warned today that due to lower yields across the market, performance had deteriorated and this is weighing on margins. Still, a tight grip on costs, management believes, should help offset this pressure. Today’s update said: “Our strong FUM trajectory, combined with a disciplined approach to costs, means we are well placed to mitigate external pressures on revenue yield.“

Improving dividend outlook 

For the full-year to June 2018, City analysts are expecting Brooks to report flat earnings. But next year, growth is expected to return with an expansion of 22% pencilled in, giving a 140p per share estimate of forward earnings. On this basis, the shares do look slightly expensive, trading at a forward P/E of 14.3. However, it’s the company’s dividend potential that interests me. 

Analysts are expecting the firm to pay out 50p per share to investors for 2018, and 60p for 2019 giving a dividend yield of 3.1%. This payout is going to cost around £6m, easily covered by the estimated pre-tax profit of £23m and backstopped by £32m of cash on the balance sheet as of the end of fiscal 2017. 

So not only does it look as if Brooks’ dividend is safe, but it also seems as if management has plenty of room to grow it further in the years ahead. 

Market-beating managers 

Miton Group (LSE: MGR) is another asset manager with a bright dividend future. At the time of writing, the shares support a dividend yield of 3.2%, which is just below the market average. However, over the past four years, the dividend has doubled as earnings per share have risen 100%, and City analysts are expecting growth of 28% for 2017 followed by 14% for 2018.

 This earnings expansion should, according to the City, enable the firm to increase its payout 40% during the next two years. Backing up the distribution is a net cash balance of nearly £20m. 

A trading statement issued by Miton last week confirmed that the company is on track to hit City growth targets for the full year. For the 12 months ended 31 December, assets under management were £3.8bn, up 32% year-on-year. A strong performance by the group’s funds during the period helped convince investors to come on board. 13 out of 15 of Miton’s funds were ranked as “first or second quartile performers since manager tenure.” Also, the group’s top fund manager, Gervais Williams has a significant stake in the firm. 

As long as its fund managers can keep up this rate of outperformance, Miton should continue to throw off cash and fund further dividend increases. 

The post 2 monster growth and income stocks I’d buy for 2018 appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Rupert Hargreaves owns shares in Miton Group. 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.

I’m talking of inflation-beating progressive dividends, which might not offer top yields just yet. If you get in early, you can gear up the effective yield on your initial purchase price over the coming years.

Investment management firm Brooks Macdonald Group (LSE: BRK) looks like one such candidate to me. Although its forecast dividend yield for the year to June 2018 stands at a modest 2.5% on today’s price of 2,000p, that would represent a 125% increase in cash terms in just five years.

If you’d bought shares back then, you’d already be looking at an effective yield this year of 3.8% on your purchase price, and further progressive rises would keep on boosting that.

Five-year record

And you’d have a 50% capital gain over five years too, even after this summer’s share price spike has fallen back — and good dividend stocks are surprisingly good at achieving share price growth too.

In fact, if you’d bought shares at flotation in 2005, you’d now be sitting on a 13-bagger, and this year’s dividend would yield 33% on the flotation price.

A quarterly update Tuesday told us that discretionary funds under management at 30 September had risen 5.1% since 30 June, to £11bn, with the gain consisting of £376m in net new business and £155m in investment performance.

EPS forecasts for this year are actually pretty flat, but that sounds like it might be too pessimistic. On a forward P/E of 18, Brooks Macdonald Group looks like a buy to me.

Little boxes…

…well, boxes of all sizes, with a variety of other packaging products thrown in. That’s the order of business for DS Smith (LSE: SMDS), and it’s been pretty good at it, bringing in years of steady EPS growth — and that all-important progressive dividend too.

From 8p in the year to April 2013, the annual payment is expected to have doubled by the same stage in 2018. The share price, at 497p, has kept in step as earnings have climbed, so the yield has been steady at around the 3.2% to 3.5% level — which is close to the long-term FTSE 100 average.

But what is far from average is that level of dividend growth. Looking at the five-year story again, anyone who bought in late 2012 would be facing an effective dividend yield this year of 7.4% — and a 136% rise in the share price.

They’re cheap

The shares are on forward P/E multiples for this year and next of 14.5 and 13.2 respectively — slightly below the FTSE 100 average, but with a significantly better-than-average track record and long-term expectations.

For a stock with attractive prospects for both growth and dividends, that just looks too cheap to me — and I can’t help wondering if the temporary slip to only single-digit EPS growth predicted for this year is scaring off investors, even though there’s a boost to 10% pencilled in for next year.

Meanwhile, European growth continues, with the company having just snapped up Romania’s EcoPack and EcoPaper for approximately €208m. DS Smith says this will “significantly enhance our capacity to serve customers in this high growth region as well as supporting our wider substantial Eastern European presence.“

Perhaps “Europe” is frightening the punters? It shouldn’t.

The post 2 cheap dividend stocks that could help you retire rich appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended DS Smith. 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.