Meanwhile, in today’s half-year results report, the directors declared a 7% increase in the interim dividend compared to the equivalent period a year earlier. And a steadily rising dividend is something shareholders are used to with the firm. Over five years it’s up almost 60%, which strikes me as a decent return for income-seeking investors.

A “transformational” acquisition

Today’s share price close to 380p puts the forward-looking dividend yield for the current trading year to September at just over 3%. Given the company’s strong record of growing the annual dividend, I reckon a 3% yield is a decent starting point.

City analysts following the firm anticipate earnings will cover the payment a little over three times. A robust level off cover like that suggests to me the directors anticipate further growth, otherwise they might pay more cash out to shareholders rather than ploughing it back into the business.

The accounts are dominated by the October 2018 acquisition of Cambian Group, which executive chairman Farouq Sheikh describes in the report as being “transformational” for CareTech. The integration of Cambian is “well underway” and the expected synergies from the enlarged operation are “on track.”

You can get a feel for the scale of the expansion from today’s figures. Overall revenue rose 120% compared to the year-ago number, underlying profit before tax shot up 50%, and the firm’s net asset value rose 58% to £328m. Net debt increased by 99% to £293m.

Things can get a bit blurry in the figures whenever a company first takes on a big acquisition. But like-for-like revenue in the original CareTech business went up 12% in the period and like-for-like EBITDA increased 4%. Meanwhile, underlying earnings per share increased by 7%. It seems to me CareTech is still trading well and growing organically.

The firm commissioned an independent valuation of the enlarged company’s property portfolio back in October on the date of the acquisition, which threw up a figure of £774m. I think the property backing with this share is one of its prominent attractions.

Consolidating the sector

The firm sees itself as something of a consolidator in the sector and there’s no sign it will ease off its plans to continue expanding both organically and by acquisition. As long as the firm remains profitable, keeps its borrowings under control and continues to move the dividend up, I think that’s a good thing.

As well as the benefits of an efficient operation for the firm’s care-users, this one could be a decent, cash-generating hold for long-term shareholders. I’m tempted to pick up a few shares to collect that growing dividend while waiting to see how the growth agenda plays out for shareholders.

The post Forget buy-to-let! I’d buy shares in this proven dividend-growing company appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any share 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.

I like the way CareTech Holdings (LSE: CTH) has raised its dividend over the last few years and I’m reassured by the property-backed balance sheet. Today’s full-year results from the UK-focused specialist social care services provider reveal net tangible assets of around £120m, which compares to a market capitalisation of £321m. Meanwhile, the overall property portfolio has a valuation of £329m.

An agenda for growth

On top of these basic value credentials, CareTech raised £37.4m in March to accelerate its programme of growth by funding the acquisition pipeline and organic growth projects. I think that’s a good idea because trading is steady and the company operates in a sector with constant demand. The firm has a good record of robust incoming cash flow that supports profits well. Doing more of the same could enhance the value for those holding the shares. Back in March, the directors promised to put the extra placing funds to work within one year, so I’m optimistic about the immediate outlook now.

Chief executive Farouq Sheikh tells us that some of the funds have already been used to acquire Selbourne Care during June and to move organic initiatives forward including property purchases and reconfigurations. But there’s more to come. The top executive said: “We enter the current financial year with strong underlying cash flow, solid organic growth and a sizeable pipeline of opportunities, which together give us confidence in continuing to deliver our exciting growth strategy.”

Good numbers

Today’s numbers suggest that the pot is boiling nicely. Revenue lifted more than 11% compared to a year ago, underlying profit before tax put on almost 13% and underlying basic earnings per share came in flat, which isn’t bad considering the dilution caused by the share placing. Pleasingly, the firm’s net asset value rose almost 35% during the year and the directors crowned all these financial achievements with a 7% hike in the full-year dividend.

CareTech strikes me as a solid, growing firm operating in a defensive sector, and I’d much rather take my chances with the shares than I would with a stock that I see as being in long-term decline such as Tesco (LSE: TSCO). These days, I think of Tesco as a dinosaur struggling to survive in a changing world. The firm was caught out clinging to an out-of-date business model that just won’t work to keep the firm at the top of the pile any more.

The imminent takeover of Booker Group shows that Tesco is adapting and changing to counter the onslaught form fast-rising discounters such as Aldi, Lidl and others. Earnings resurged from their nadir this year, and City analysts expect more progress next year. I wouldn’t expect the firm to collapse without a fight. However, I think the tide is still against Tesco and the most likely long-term outcome is a prolonged period of managed decline rather than a new epoch of growth.

Why I think the price is wrong

That’s why, at the current 204p share price, I’m concerned about the forward price-to-earnings ratio running at almost 16 for the year to February 2019 – I see it as too high. Dividends are being reinstated this year but at a shadow of their previous level, and I just don’t think Tesco deserves such a growth-like valuation, so I’m shunning the stock.

The post Why I’d shun Tesco plc for this dividend-growing stock appeared first on The Twelfth Magpie.

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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.