BAE Systems

The recent flurry of activity in the defence sector has turned the spotlight back on juggernaut BAE Systems (LSE: BA). For me, this has (and will continue to be) a great source of dividends. 

The company’s down to return 24.6p per share in FY21. Using last Friday’s closing share price of 571p, that’s a yield of 4.3% — higher than that generated by the FTSE 100. What’s more, this income stream can be bought at a good price. Right now, BAE shares are changing hands for 12 times earnings. 

Of course, there are some drawbacks to investing here. I sincerely doubt BAE’s share price will ever explode. So, one ‘risk’ (aside from a dip in defence spending) is that I could ultimately make more money buying a stock with faster growth prospects and a more modest payout.  It’s also worth mentioning that dividend hikes, while consistent, aren’t massive, at roughly 2-4% a year.

Bunzl

If I were concerned with dividend growth rather than the size of those dividends, Bunzl (LSE: BNZL) is another company that would easily make my FTSE 100 shortlist. It’s been one of the most reliable top-tier hikers for years.

The reason for this is partly because it works in a defensive sector. Bunzl supplies consumable products such as disposable tableware, hygiene supplies and food packaging around the globe. It’s deadly dull stuff. And that’s what makes it so great, in my opinion.

As mentioned however, one potential drawback is the relatively small yield. A 55.4p per share return this year equates to 2.1%. That’s below what I could get from the FTSE 100 as a whole. So, is it worth taking on single stock risk if I could just buy a tracker and be done with it?

Personally, I think it might be, even if Bunzl trades on almost 19 times earnings. While hardly shooting the lights out, shares have done far better than the FTSE 100 over the very long term. And if dividends were reinvested, I suspect the difference in returns is even more stark. 

DCC

Dublin-based DCC (LSE: DCC) is my third pick of the best stocks to buy for dividend growth. Like BAE and Bunzl, the £6bn-cap sales, marketing and support services firm has a wonderfully-unblemished record of hiking its bi-annual payouts. 

Based on a potential 170p per share return in the current financial year, DCC yields 2.8%. Again, this is low relative to the FTSE 100 (and other constituents). However, the size of hikes in recent years is worth paying attention to.

Double-digit increases were seen in 2017, 2018 and in the last financial year. This is no guide for the future, of course, but it does make DCC stand out. What’s more, the shares still trade on a little less than 14 times earnings. 

Like the other companies however, DCC’s share price performance is unlikely to rival some of the index’s more glitzy members. I’d also need to be aware that this multi-faceted business could be impacted by a slowdown in demand for things like healthcare supplies and oil.  

The post FTSE 100: 3 of the best stocks to buy for dividend growth appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Bunzl. 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.

But, as investors found out a few months ago, Centrica’s earnings can be highly volatile. The company was forced to slash its dividend by 60% earlier this year. That followed six months of operational problems, including unplanned outages at UK nuclear power plants in which Centrica holds stakes. 

Furthermore, it looks as if the business is struggling to generate enough cash to invest in its operations and return money to shareholders. 

Raising money

Since 2015, Centrica has divested stakes in wind farms and big power stations as well as taking an axe to costs. It’s also planning to sell its 20% holding in the UK’s operational nuclear power plants and its Spirit Energy business.

Following these divestments, Centrica is now 40% smaller (on a shareholder equity basis) than it was in 2013.

The problem is, the group cannot continue to sell assets forever. Sooner or later the company will run out of bits to sell. It’s difficult to tell what will happen in this scenario, but I think another dividend cut is highly likely.

The situation is made worse by the fact Centrica is just not growing. Revenues have hardly budged since 2015 and two new divisions, Connected Home and Distributed Energy and Power, which were supposed to transform the group and generate £2bn in revenue by 2022, have fallen flat. 

So, considering all of the above, I think shares in Centrica could fall further over the next few years. For that reason, I’d advise staying away. 

A growth champion

A better place for your money could be DCC (LSE: DCC). Unlike Centrica, DCC knows how to grow. Over the past six years, the company’s net profit has grown at a compound annual rate of 16.6%, and the dividend to shareholders has grown at 12.5% per annum.

As Centrica has shrunk by 40%, DCC has more than doubled its shareholder equity through a combination of bolt-on acquisitions and the reinvestment of profits. 

Considering this track record, I think the stock would be a much better income investment than Centrica. While the dividend yield is just 2% at the time of writing, it’s covered 2.5 times earnings per share, and, more importantly, DCC remains in growth mode. 

As the company continues to invest in its operations over the next few years, City analysts are expecting earnings to jump by more than 20%, freeing up more capital to invest back in the business and return to investors. 

According to my calculations, with another five years of 12.5% per annum dividend growth, the yield could hit 3.5% by 2024, and 6.4% after 10 years. On that basis, I think DCC has much better prospects than Centrica as a long-term income investment. 

The post Warning! I think this FTSE 100 dividend stock could make you poorer appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no 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.

Here are a couple that I have to confess I haven’t paid much attention to myself. So have I missed out on a brace of hidden gems?

DCC

International sales, marketing and support services group DCC (LSE: DCC) has seen its stock more than double in the past five years, turning it into a £7bn business. However, the share price trajectory has flattened out lately, with the share price now trading at roughly similar levels to three years ago.

The group has been a strong and steady grower, with earnings per share rising by double digits for each of the last five years although, again, there are signs of a slowdown. EPS growth is expected to slow to 4% both this year and next.

This looks like a growth stock rather than play, as the yield is just 2.1%, although nicely covered 2.5 times by earnings. The group’s four divisions – LPG, Retail & Oil, Technology and Healthcare – look set to continue growing quite nicely, according to management, which said in July’s Q1 statement that profits are significantly weighted towards the second half of its financial year, which is expected to be “another year of profit growth and development.” Markets will know more when it reports its interims on Monday (30 September).

This acquisition-hungry business now operates across 18 countries, which gives it continued growth opportunities, and Rupert Hargreaves reckons it could double your money over the next three-to-five years. DCC has an excellent track record for delivering shareholder returns, although that’s reflected in its valuation, which is currently 18.8 times forward earnings. Sometimes you have to pay for quality.

Melrose Industries

This company’s motto is “Buy, Improve, Sell”, a nice, pithy description. Melrose Industries (LSE: MRO) aims to buy good manufacturing businesses with strong fundamentals, whose performance it reckons can be improved.

That’s worked out astonishingly well for investors. They’ve seen the share price graph 350% over five years, driving its market-cap to almost £10bn, making it one of the fastest growing stocks on the entire FTSE 100.

Earlier this month, Melrose’s interims showed a 75% increase in adjusted pre-tax profit to £428m, from £244m in the first half of last year, while revenue doubled to £6bn. It still hosted a pre-tax loss, although this narrowed from £372m to £128m on a statutory basis. If that looks odd, it’s due to the nature of the business, as acquisitions and sales can lead to massive lurches in both profits and losses. Happily, the overall trajectory has been positive.

As Alan Oscroft has pointed out, you need to be patient and have long-term horizons and like your profits lumpy. Melrose also aims to reduce risk by financing its acquisitions with a low level of leverage.

The stock trades at 15.2 times forecast earnings, with a forecast yield of 2.7%. Again, this is a growth rather than an income play. Melrose looks a strong buy and hold to me.

The post Why I’d buy these 2 overlooked FTSE 100 stocks today appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK owns shares of Melrose. The Motley Fool UK has recommended Lloyds Banking Group. 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.

This distribution business has grown rapidly over the past few years. A combination of organic growth and sensible bolt-on acquisition have enabled the firm to scale up in its key markets. That’s helped deliver earnings per share growth at a compound annual rate of 14.2% per annum for the past six years. And as earnings have pushed higher, so has DCC’s share price.

During the past five years, the stock has more than doubled investors’ money, that’s excluding dividends paid. Including distributions to investors, DCC has returned 16.4% per annum for the past five years, turning every £10,000 invested into £21,990, a total return of 119%.

Of course, past performance isn’t indicative of future returns. But considering the strength of DCC’s underlying businesses, I think there’s a very high probability the company could double investors money again over the next five years.

Return to growth

DCC’s fiscal 2019 was one of the worst for growth since 2014. The company’s earnings per share actually declined by 6.5% following four years of 20%+ earnings growth. The City believes this was just a blip and growth is expected to roar back in fiscal 2020.

Analysts have pencilled in earnings per share growth of 21% for the current financial year, and it looks as if the company is well on the way to meeting this forecast.

According to today’s first quarter trading statement, DCC has “delivered good growth in group operating profit for the first quarter ended 30 June 2019, driven by acquisitions completed in the prior year.“

Further, while profits will be weighted to the second half of the firm’s financial year, “the group reiterates its belief that the year ending 31 March 2020 will be another year of profit growth and development.” Overall, management believes the business is trading in line with expectations.

Acquisitions have always formed a crucial part of DCC’s growth strategy, and this isn’t going to change anytime soon. Back in May, the company told investors that it had committed £370m to acquisitions during the previous 12 months, to bulk out its fuel and technology business.

There’s also been the sale of its UK generic pharma activities and related manufacturing facility in Ireland, which management believes will “sharpen” the focus of the group’s pharmaceutical business “allowing it to concentrate on those areas where it has market-leading positions and sustainable competitive advantage.“

Price worth paying

After considering all the above, it looks to me as if DCC is firing on all cylinders. That’s why I think this could be a great place to invest your money today.

The one sticking point is the company’s valuation. The shares are currently changing hands at a forward P/E of 18.7, which is above what I would usually be prepared to pay for a distribution business.

However, when you factor in the company’s growth outlook, historical returns and track record of sensibly reinvesting profits to create value for shareholders, I think the stock deserves this premium. There’s also a 2.1% dividend yield on offer for income investors.

The post I think this FTSE 100 growth champion could double your money appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no 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.

Certainly, their dividends may be lower than those available elsewhere in the short run. But in the long run, their potential to raise shareholder payouts at a fast pace could lead to an impressive total return for investors.

With that in mind, here are two FTSE 100 stocks that could deliver an impressive income investing outlook over the long run.

DCC

International sales, marketing and support services company DCC (LSE: DCC) released its annual results on Tuesday. Revenue increased by 16% to £15.227bn, while adjusted operating profit from continuing operations moved 20.1% higher to £460.5m. With each of the company’s divisions reporting strong growth in profitability, it was a successful year for the business despite mild weather conditions.

The company committed £370m to acquisitions during the period, with it also announcing a variety of new acquisitions alongside its results. Due to its equity placing during the year, the company is of the view that it has the financial firepower to make further acquisitions, should opportunities arise.

While DCC has a dividend yield of just 2.2% at the present time, its dividend cover of 2.7 suggests that shareholder payouts could rise at a brisk pace. Indeed, it has increased dividends per share by 12.5% per year in the last four years. This suggests that the stock could become increasingly appealing from an income perspective, and may deliver improving income returns in the long run.

Reckitt Benckiser

Another FTSE 100 share with dividend growth potential is consumer goods business Reckitt Benckiser (LSE: RB). The company has a dividend yield of 3% at the present time, which is over 1 percentage point lower than the FTSE 100’s yield. However, the stock has the potential to deliver improving profit growth that could lead to a rapidly-rising dividend over the medium term.

Reckitt Benckiser’s position within key emerging markets such as China may mean that it enjoys a tailwind in the long run. Wage growth across the emerging world is expected to remain high, which could lead to rising demand for the company’s products.

Since the current dividend payout is covered 1.9 times by profit, dividends could rise by the same level as profit over the long run without hurting the financial strength of the business. With Reckitt Benckiser having increased dividends per share at an annualised rate of 7% in the last three years, it has a solid track record of inflation-beating income growth.

With the business having a diverse range of brands, as well as a wide geographical spread, its risk may be lower than some of its FTSE 100 peers. This could mean it is a more resilient dividend growth stock than some of its rivals, which may enhance its long-term investing appeal.

The post 2 fast-growing FTSE 100 dividend stocks I’d buy for my Stocks and Shares ISA today appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Reckitt Benckiser. 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.

Latest trading details from the firm have certainly emboldened my optimism, the business last month declaring that operating profits were “significantly ahead” year-on-year in the three months to December. Titanic acquisitions at its LPG and Health & Beauty divisions helped to drive the result but this was not the only story as, despite the impact of mild weather on energy demand and civil disturbance across France it remained resilient on an organic basis too. 

City analysts are predicting earnings rises of 13% and 4% for the years to March 2019 and 2020 respectively, leaving the firm dealing on a forward P/E ratio of 18.4 times. A slightly-toppy rating, sure, but one which is fitting for a share with as strong a growth pedigree as this.

A safe selection

Halma (LSE: HLMA) is another British blue-chip with a brilliant history of earnings growth and therefore another premium rating. In fact, this Footsie health and safety equipment maker’s prospective P/E multiple of 29.6 times soars over the broadly-considered value reservation of 15 times and below. 

Health and safety is big business all over the globe, needless to say, and thanks to its wide geographic footprint straddling major economies across Europe, North America and the US it’s well placed to enjoy strong sales growth in the years ahead.

I’m also encouraged by the fact that its appetite for acquisitions shows no signs of dulling. Following the purchase of British radar surveillance specialist Navtech Radar in November, it was breaking out the chequebook again in January with the takeover of US emergency communications system builder Rath Communications last month.

The number crunchers certainly expect profits at Halma to keep sprinting higher and are anticipating rises of 12% in the year to March 2019 and 9% in fiscal 2020.

A tasty selection

Drinks giant Diageo (LSE: DGE) is a FTSE 100 company that I hold in such high regard that I own shares in the company myself.

Now look, its growth record has been not as good as either Halma or DCC’s over the past half a decade, because of a severe demand-drop off in China due to anti-corruption measures there.

However, through a wide variety of measures, from increasing marketing activities to doubling-down on brand innovation, to expanding its presence in the fast-growing premium segment and restructuring its drinks portfolio through acquisitions and disposals, Diageo has put those past pains behind it. City brokers also think so and are reckoning on bottom-line rises of 8% and 7% in the fiscal years to June 2019 and 2020 respectively.

The drinks giant is always in danger of suffering temporary earnings pressure like that mentioned but, because of the formidable strength of its labels, it’s still in prime position to deliver strong profits growth over the long term. And this quality makes the business worthy of a toppy forward P/E multiple of 23.5 times, in my opinion.

The post 3 top FTSE 100 growth stocks I’d buy right now appeared first on The Twelfth Magpie.

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Royston Wild owns shares of Diageo. The Motley Fool UK has recommended Diageo and 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.

In contrast, the fall in the FTSE 100 over recent months means that stocks such as Barclays (LSE: BARC) may now offer impressive income potential. It has a 5% dividend yield, while its valuation suggests that capital growth could improve in future. Alongside another growth stock which released an update on Tuesday, it could be worth buying, in my opinion.

Improving prospects

The company in question is sales, marketing and support services specialist DCC (LSE: DCC). Its interim management statement for the third quarter showed that operating profit was significantly ahead of the same period from the previous year.

Its LPG division benefitted from the contribution of recent acquisitions, with strong performance being recorded despite milder weather conditions. Growth was also delivered in the company’s Technology, Healthcare and Retail & Oil segments, where organic growth was complemented by the impact of acquisitions.

DCC is due to report a rise in earnings of 16% in the current year, which suggests that its strategy is working well. Despite this, it trades on a price-to-earnings growth (PEG) ratio of just 1.4, which suggests there may be a margin of safety on offer. Although the stock yields just 2% at the present time, its dividends have grown by 12% per year in the last four years. Since they are covered 2.7 times by profit, the company could become an increasingly attractive income opportunity.

Growth potential

As mentioned, the fall in Barclays’ share price could mean that it now offers good value for money. It is forecast to post a rise in net profit of 12% in the current year, which puts it on a PEG ratio of 0.7. At a time when the world economy continues to offer GDP growth forecasts of around 3.5% for the current year, this suggests that the stock could offer a wide margin of safety.

In terms of its income investing potential, Barclays is in the process of increasing dividend payments. Its strategy of cutting shareholder payouts in 2016 now seems to be paying off, since it has been able to strengthen its capital position. This could reduce its overall risk in the long run, while affording it the scope to raise dividends over the next couple of years.

Its forecast dividend payment for 2019 is expected to be covered 2.9 times by profit. Therefore, even if dividends doubled and net profit failed to move higher, it would still have dividend cover of 1.4, which would not appear to be excessively low compared to its banking sector peers.

With a dividend yield of 5%, Barclays appears to have income investing potential at the present time. As such, now could be the right time to buy it, with it seeming to have improving growth prospects over the medium term.

The post Forget buy-to-let! I’d pick up the Barclays share price’s 5% yield appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Barclays. 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.

Eat that!

It was not to be, with the stocks falling 19.8% and 24.9% respectively over the year, according to research from AJ Bell. This kind of unpredictability won’t stop me looking for stock market winners and it won’t stop analysts either – 93% are hailing DCC a ‘buy’ for 2019, the highest percentage across the FTSE 100, although they have cooled on Just Eat.

Both stocks had enjoyed serious success until last year’s hissy fit. DCC is up 130% measured over five years. Just Eat is up 95% measured over three years and both numbers account for recent slippage.

Bit pricey

DCC didn’t do so badly, though, posting a 17.2% rise in interim pre-tax profits in November to £85.9m, as three of its divisions reported higher earnings to offset seasonal weakness in the fourth. Overall, group revenue increased 24.7% to £7.4bn. Investors reaped the benefit, with the interim dividend hiked 10% to 44.98p per share.

The Dublin-headquartered group is growing through acquisitions and is looking to raise up to £650m in an institutional share placing to fund further transactions. Earnings growth seems to be slowing, though, with five years of healthy double-digit growth forecast to shrink to 4% and 3% in 2020 and 2021. This could be a worry given that the stock is priced for growth, with a forecast P/E of 17.2 and PEG of 4, although Royston Wild still reckons this is a fair price.

Hard to swallow

The dividend yield is relatively low at 2.3%, but with generous cover of 2.8. With plenty of exposure to the US and Canada, it does offer some Brexit-proofing. Analysts reckon it will fly this year, but they’ve been wrong before.

Pioneer fast food portal Just Eat looked to have run out of steam and it was demoted from the FTSE 100 in December, at which point investors suddenly regained their appetite. The stock is up 24% measured over the past month despite the exit of CEO Peter Plumb after pressure from US activist investors.

Up and down

Buyers have been put off by growing competition from rivals such as Deliveroo and Uber Eats, amid fears the takeaway delivery market could become saturated with more than just fat. Plus it also has to invest heavily to develop delivery solutions for branded restaurants such as KFC and Burger King.

Back in 2014 its earnings grew a massive 200% but are forecast to drop 8% this year, then rebound 54% in 2020. Revenues of £770m in 2018 are expected to have jumped to £1.23bn by then, suggesting Just Eat can still bring home the bacon.

Comeback kid

Growth will still need to be quick, though, given its pricey looking valuation of 37.7 times forward earnings. A price-to-sales ratio of 4.8 also looks toppy. There’s no dividend in this, its growth phase.

I am impressed by Just Eat’s recent recovery and prospects, but it is vulnerable to tough competition and changing trends. However, its recent fightback is undeniably impressive.

The post These 2 under-performers could be the turnaround stocks of the year appeared first on The Twelfth Magpie.

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harveyj has no position in any of the shares mentioned. The Motley Fool UK has recommended Just Eat. 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 software giant is a share that I’ve long been tipping to jump in value following earlier heavier weakness in 2018. So naturally I’m pleased that the business has continued its share price ascent late last year and hit five-month peaks in the wake of its first-quarter trading statement being released last week.

Sage advised that organic revenues had pumped 7.6% higher between October and December, to £465m, the top line picking up momentum following the 6.8% rise it had reported in the fiscal year to September. It was possible that disappointing licence numbers could have delivered a hammer blow to investor sentiment over the past few months, but reassuring updates in this period have suggested that the firm has finally turned the corner following the disastrous profit warnings of last year.

Big in America

The accountancy specialist’s move to a subscription-based product model is showing tangible signs of paying off. Indeed, sales are really beginning to click through the gears in its key North American territory, where organic revenues rose by double-digit percentages (10.4% in the last fiscal quarter).

It stands to reason that City analysts expect Sage to keep its long-running record of earnings growth running — a 9% rise is forecast for fiscal 2019 — and therefore for dividends to keep rising as well. Last year’s total payout of 16.5p per share is predicted to rise to 17.8p in the present period, allowing investors to enjoy an inflation-mashing 2.9% yield.

Another Brexit-proof pick

Now Sage isn’t exactly cheap, the firm’s forward P/E ratio of 17.9 times sitting outside the widely-considered value benchmark of 15 times and below.

I would consider this a fair price given the huge promise of its subscription-based services across the globe, and I would argue that the same theory applies to DCC (LSE: DCC) which deals on a corresponding P/E multiple of 18.1 times.

A tad toppy on paper, sure, but the rate at which the business, which provides sales and marketing services to the energy, technology and healthcare segments across the globe, has reliably grown profits for many years now makes it worthy of this slight premium in my book. And particularly so in view of most recent financials which showed adjusted operating profit rise 15.9% in the six months to September, to £141.9m, a result that encouraged it to hike the mid-term dividend 10% to 44.98p per share.

For the full year to March 2019, City analysts are predicting a 136p total reward, up from the 122.98p shelled out last year and supported by a 13% earnings rise. A subsequent 2.1% dividend yield may not be the biggest, but for those seeking dividend increases year after year DCC (which has raised annual dividends relentlessly for a quarter of a century) is an unmissable pick today, and particularly given the Brexit-sized shadow threatening profits across much of the FTSE 100.

The post To the Brexit lifeboats! 2 FTSE 100 dividend stocks I think could protect your wealth appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Sage Group. 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.

Distributor DCC (LSE: DCC) might not be the most exciting business in the index, but over the past decade, its growth has left other companies trailing in the dust.

However, I think time could be running out for investors to buy into this growth story and today, I’m looking at why.

Growth superstar 

DCC follows a buy-and-build strategy. Starting small, the business has grown steadily since its founding in 1976, buying up smaller distribution firms in different industries to add to its empire. When bolted on to the larger DCC group, these acquisitions have benefited from economies of scale. 

This strategy has helped the company grow earnings per share at a compound annual growth rate (CAGR) of 16% over the past five years. Meanwhile, the group’s per share dividend to investors has grown at a CAGR of 11% since 2013. 

Today, the firm unveiled further growth for the six months to the end of September. For the period, adjusted operating profit jumped 15.9% year-on-year, helping boost adjusted earnings per share (EPS) by 12.1% to 107.1p. Off the back of these results, management has hiked DCC’s interim dividend payout by 10%, to just under 45p per share (analysts expect a full-year dividend yield of 2.2%).

And I see no reason why this trend cannot continue. Historically, the company has used a mix of both cash from operations and debt to fund deals. Free cash flow from operations was around £180m for the last financial year (although, according to today’s numbers, operating cash flow doubled in the first half of 2018) and, after stripping out cash, DCC’s balance sheet is still relatively clean, with a net-debt-to-equity ratio of just 39%.

On special offer

I believe DCC is one of the FTSE 100’s best businesses, with a long runway for growth ahead of it. 

However, amid the recent market volatility, investors have rushed to dump the stock. Today, it’s trading around 22% (excluding dividends) below its all-time high printed in January. The shares have declined 17% in the past two months alone. 

These declines mean that the stock is now trading at a forward P/E of 17.2, that’s compared to the five-year average of 29.5!

In my opinion, Brexit uncertainty, coupled with volatility in global markets, are responsible for this decline. But I reckon it’s only a matter of time before investors return to the stock, pushing the valuation back to the five-year average. 

You see, over the past few years, DCC has been expanding aggressively in markets around the world (particularly in the highly-defensive fuel trading and distribution industry), and the company is no longer reliant on the UK. Management plans to continue this global expansion drive, which should soften the blow from any negative Brexit impact. 

The bottom line

As DCC pushes ahead with its expansion plans and showcases its global strengths, I think it’s only a matter of time before investors return to the company. So, it looks to me right now that shares in DCC are currently on sale, but it might not be long before the market calls time on the offer.

The post Why I believe time is running out to buy this FTSE 100 dividend growth stock appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no 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.