Post-pandemic boom

Kitchen supplier Howdens Joinery (LSE: HWDN) looks a good bet for promotion, especially after today’s well-received update on trading.

Having benefited from the home improvement boom, Howdens announced that this momentum had continued into the second half of its financial year. UK revenue from 13 June to 30 October 2021 was just under 21% higher than in the same period last year. This brings year-to-date revenue growth to a stellar 37.7%.

Positively, this performance wasn’t confined to Howden’s home market either. International sales growth was also strong, up 16.6% over the three quarters and 39.2% year-to-date. 

Based on this, Howdens now believes pre-tax profit for the full year will come in “around the top end of current analyst forecasts”. This would be somewhere in the region on £360m. That all sounds rather good to me. So, would I buy today?

Well, despite having climbed 43% in value over the last 12 months alone, HWDN shares still look pretty fairly valued. A forecast price-to-earnings multiple of 21 before markets opened for a high-quality market leader doesn’t seem excessive. After all, the company regularly posts excellent returns on capital.  

Then again, recent momentum could slow, particularly if consumers begin tightening their purse strings. Indeed, Howdens already expects a “more normalised trading pattern and performance in 2022“. There’s also inflation to ponder, even if the company appears to have been successful in passing on higher costs to its customers so far. 

Whether these headwinds are enough to delay Howden’s entry into the FTSE 100 is hard to say. As a Foolish investor focused on long-term returns, however, I must say that I continue to regard this company as a classy outfit. I’d have no issue taking a position in the stock today.

Primed for FTSE 100 promotion?

Another FTSE 250 growth stock that could potentially be moved to the FTSE 100 in the next reshuffle is industrial and electrical equipment distributor Electrocomponents (LSE: ECM).

Half-year numbers from the £5.3bn market cap company are due on Thursday. As things stand, I don’t expect much in the way of bad news for those already invested. 

Last month, ECM stated that trading had been strong in all regions in which it operates. In fact, total like-for-like revenue growth over the six-month period has already been estimated at 31%. That’s despite the Covid-19 ‘pingdemic’ and cost pressures many businesses are wrestling with. This led the company to predict that full-year revenue growth and adjusted operating profit margin would now be “slightly ahead” of previous guidance.

Shares change hands for almost 26 times forecast earnings. That’s not exactly cheap considering the pretty average margins in this line of work (roughly 8%).

Like Howdens, ECM will face tricky comparatives going forward, too. Profit is also likely to be “more weighted to the first half”. To me, this suggests things are as good as they’re going to get for now. 

Still, I can see why investors have been bidding the price up over the last 12 months. This presents as another well-run company with minimal debt. As such, it’s one I’d at least consider buying regardless of which index it features in. 

The post These classy FTSE 250 growth stocks could be FTSE 100-bound 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 Howden Joinery 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.

With that in mind, here are two FTSE 250 shares that could offer a high rate of dividend growth. As such, now could be the right time to buy them for the long term.

Electrocomponents

Electronic and industrial supplies distributor Electrocomponents (LSE: ECM) released a positive set of results for the 2019 financial year on Tuesday. The company’s revenue increased 10.5% to £1,884.4m, while adjusted operating profit moved 20.8% higher to £220.3m. It was able to post strong market share gains, while its Digital and RS Pro segments outperformed the wider business.

With the company having raised dividends per share by around 7% per year in the last five years, it has a solid track record of improving income returns. Since its dividends are covered 2.4 times by net profit, there appears to be scope for them to rise at a fast pace in the coming years.

With Electrocomponents set to invest in its scalable infrastructure, it has the potential to further improve its efficiency and differentiate itself from sector peers. While also managing its costs in a disciplined manner, this could lead to an improving financial outlook that leads to a rising dividend.

While the stock may yield just 2.5% at present, it appears to offer an improving income outlook alongside the potential to generate impressive capital growth.

Bovis

Housebuilder Bovis (LSE: BVS) is part-way through delivering a revised strategy that’s expected to lead to a stronger business that offers a more sustainable growth outlook for the long run.

It has slowed the rate of growth in completions, instead focusing on improving its customer satisfaction rating. Progress is being made in this area, which could mean it’s able to ramp-up the number of completions over the medium term.

With the stock having a dividend yield of over 10% when its special dividend is included, it already has significant income appeal. Although there may be uncertainty ahead for the housebuilding sector as a result of the economic and political risks facing the UK, a price-to-earnings (P/E) ratio of 9 suggests investors may have factored in many of these risks.

As such, with Bovis having a low valuation and a high income return, it could offer improving total returns. With policies such as Help to Buy expected to continue over the medium term, the company may also benefit from trading conditions that are stronger than many investors currently anticipate. This could lead to an even higher rate of dividend growth, and a more appealing income investing outlook.

The post Two overlooked FTSE 250 dividend growth shares I’d buy today and hold forever appeared first on The Twelfth Magpie.

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Peter Stephens 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.

3 reasons to be cheerful

BP has been through some difficult times over the last 10 years. This is reflected in the group’s share price, which is roughly the same today as it was in early April 2009. However, I think the business is in much better shape today than it was a decade ago.

Firstly, the company is operating with much lower costs than before the 2015/16 oil crash. After years of $100 oil, costs had been inflated to unsustainable levels across the industry. Shareholder returns were limited by weak profit margins and poor return on capital employed.

The 2010 Gulf of Mexico disaster also hit BP hard. The group has spent about $67bn on claims and litigation so far, but these payouts are gradually winding down. Payments totalled $3.2bn in 2018 and are expected to fall to $2bn in 2019.

Finally, despite regional risks in the Middle East and South America, most analysts appear to believe the outlook for oil is likely to see prices remain between $60 and $70 per barrel. At this level, I believe costs and spending will remain disciplined, protecting BP’s profit margins.

Target 600p

At about 550p, BP shares currently offer a dividend yield of 5.5%. As this is a large, mature business that is heavily exposed to commodity prices, I believe investors are always likely to want an above-average yield.

I can see the yield dropping towards 5%, but not any lower than this. Based on the $0.42 per share dividend forecast for this year, my sums suggest a share price of 600p would give a yield of 5.3%. This still seems attractive to me.

To hit my lower limit of 5% yield, BP shares would have to rise to about 650p. Personally, I don’t expect to see this until the firm has shown it can reduce debt levels while maintaining profit growth.

Debt is my only concern here — I’d like to see chief executive Bob Dudley scaling back borrowing while times are good. But despite this risk, I rate BP as an income buy at current levels.

A high-growth alternative

My second pick today is electronic component distributor Electrocomponents (LSE: ECM). This firm’s best-known brand in the UK is RS Components, but it operates globally.

The group’s sales have risen 34% to £1,705m over the last five years, while pre-tax profit has climbed 67% to £169m. Figures released today show that growth is continuing, with global like-for-like sales up 8% during the 12 months to 31 March.

One thing I was particularly pleased to see is that this growth was spread fairly evenly across the business — all regions delivered like-for-like growth of at least 5%. There were no laggards.

Electrocomponents’ size and market share have made it a profitable business. The group’s operating margin is about 10%, while return on capital employed is running at 22%.

A downturn in global consumer spending could hit profits, but I think this is fundamentally a good business. However, the shares look fully priced to me on 17 times 2019 forecast earnings, with a 2.5% dividend yield. I’d wait for the next market dip to consider buying.

The post Why I believe the BP share price could soon return to 600p appeared first on The Twelfth Magpie.

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Roland Head 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.

Compared to the equivalent period the year before, The FTSE 250 firm achieved a 6% increase in like-for-like revenue in the four months to 31 January. Chief executive Lindsley Ruth is optimistic and confident the company can gain a further share of the market “irrespective of market backdrop.”

Operational improvements

We could view Electrocomponents as a turnaround and growth proposition because it is working on developing a “leaner and more scalable” operating model with the aim of achieving higher profit margins. But I’m wary of the shares right now because distributors of all kinds follow the fortunes of the industries they serve. As such, quite a lot of the trading outcome depends on how well their customers are trading, which is outside the distributors’ control.

Yet Electrocomponents is a big player in the market with operations across the world and trading brands that you might have heard of such as RS Components, Allied Electronics and Automation and IESA. The company reckons it supplies more than 500,000 industrial and electronic products, but one of the main challenges, as I see it, is the cyclicality of the business. If we get a world economic slump, I’m sure that demand will likely fall off a cliff, taking Electrocomponents revenues and profits with it.

You can see the volatility in the share-price chart. Profits dived during 2015 but then staged a recovery that propelled the shares more than 300% higher over the next three years, peaking at close to 747p in September 2018. The share price has fallen back since and now trades around 567p, but I think the firm could be overvalued. The forward-looking price-to-earnings multiple sits just above 14 for the trading year to March 2020 and the projected dividend yield is about 2.8%.

Opportunity and threat

It has to be said that City analysts are predicting further increases in earnings this year and next, but I think the valuation assumes that such increases will continue. But they probably won’t. Looked what happened in 2015 when earnings plunged. I think weaker periods like that are part of normal business for cyclical outfits such as Electrocomponents, which brings both opportunity and threat for potential investors. If you caught the rise in the shares from 2015 you’d have done well, but I reckon there’s a lot of risk to the downside now, despite the ongoing improvements in earnings.

One way of attempting to gauge the strength of the business and its outlook is to look at the dividend record. Back in November, the directors pushed up the interim dividend by just under 1%, which looks like a cautious move to me. Meanwhile, over the past five years, the dividend has increased by about 25%, which is welcome, but unspectacular.

I’m not tempted to make a long-term investment in Electrocomponents and I think the time for catching the cyclical up-leg has passed, so I’m looking elsewhere for enduring investments.

The post Is it time to avoid this FTSE 250 company despite its strong progress? 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.

All things Electro

My first faller is Electrocomponents (LSE: ECM) which is down more than 7%, despite reporting first-half revenue growth of 9.8% and market share gains in all three of its regions. However, investors are a forward-looking bunch, and were worried by warnings of slowing growth as it moved into the second half, even though this was largely expected.

Electrocomponents also reported a 1% rise in gross margins to 44.4%, while revenue growth and cost control increased the adjusted operating profit conversion ratio from 22.7% to to 25.7%, and the adjusted operating profit margin climbed from 9.9% to 11.4%. Adjusted earnings per share (EPS) rose 30.5% to 15.9p on a like-for-like basis. All good stuff.

Brexit bother

The £2.52bn company distributes electronic components through the RS Components and Allied Electronics & Automation brands. It is the largest of its kind in Europe and the Asia Pacific region and reported “encouraging” new contract wins so I was initially surprised to see it punished so hard for what appears to be a reasonable set of results.

Investors are no doubt concerned about the “uncertain” external environment in some of its key markets and expensive contingency plans for Brexit, including a £30m inventory build through the second half, and expanding EU warehouse capacity, where possible, in case of no deal. Or maybe they are concerned about its slightly pricey forecast valuation, which is currently 17.6 times earnings. The forecast yield of 2.5% is good but not thrilling. However, my colleague Roland Head puts forward a compelling buy case here.

Viva Aveva

Today’s other faller is FTSE 250-listed engineering and industrial software specialist Aveva Group (LSE: AVV), down almost 4% after its interim results for the six months ended 30 September, despite another set of apparently positive figures.

The results follow its acquisition of Schneider Electric Software with revenue for the combined group growing 10.9% to £343m, and adjusted profit before tax up 54.3% to £60.5m. Recurring revenue rose 18.7% and it served up an interim dividend of 14p per share, whereas this time last year it paid nil.

Software, hard profits

Management said integration remains on track with new organisational structures in place across the group, integrated product solutions developed and showcased to customers, and cost synergy programmes under way. The full-year outlook remains positive.

CEO Craig Hayman said the £4.16bn group “delivered a good performance” with strong sales execution and integration on track, making progress towards its medium-term targets of increasing recurring revenue and improving the adjusted EBIT margin to 30%.

Ooh, pricey

The valuation here is even higher at 32.3 times earnings, which presumably explains the limp market response to these results as Aveva needs to be going gangbusters to justify that heady valuation. With a yield of just 1.7%, and cover of 1.8, I agree with Peter Stephens that it lacks investor appeal right now.

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harveyj 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.

If you’re like me and own a selection of hand-picked stocks, then researching potential investment ideas is usually more profitable than trying to follow the movements of a high-profile index.

Today, I want to look at two potential buying opportunities for growth investors.

Overlooked and undervalued?

CML Microsystems (LSE: CML) makes semiconductor products, such as flash memory and chips, for wireless data applications. This £78m-cap firm is often overlooked by investors, but has a fairly good track record of growth and profitability.

In a statement today, the company said that profits for the six months to 30 September were in line with expectations. Revenue is expected to clock in at £15m for the half year, with a pre-tax profit of £2.3m.

Net cash was £13.5m at the end of September. That’s almost unchanged from £13.8m in March, despite a £1m dividend payment to shareholders in August.

If we exclude net cash, my sums suggest that CML generated a return on capital employed of almost 13% last year. Operating profit margins also look fairly robust, at about 14%. These aren’t bad figures for a manufacturer, in my view.

The shares currently trade on 18 times 2018/19 forecast earnings, but this multiple falls to a P/E of 15 if we ignore the group’s sizeable cash balance (which doesn’t contribute to profits).

With a dividend yield of 1.8% that’s covered three times by earnings, I think CML could be worth a look for growth investors.

A buying opportunity?

The share price of FTSE 250 firm Electrocomponents (LSE: ECM) has doubled over the last 25 months.

The company — which distributes electronic components through the RS Components and Allied Electronics & Automation brands — is the largest firm of its kind in Europe and the Asia Pacific region. By stocking more than 500,000 products from over 2,500 manufacturers, it’s become a one-stop shop for manufacturers, service operations and many other parts buyers.

I’d normally suggest that a distributor such as Electrocomponents only deserves a modest valuation. But in this case I feel the group’s scale and market share suggest that it has a sustainable advantage, at least in its core European market.

The firm’s profitability seems to support this view. Electrocomponents generated a return on capital employed of 24% last year, with an operating margin of 10%. These impressive figures suggest to me that this could be a high-quality business.

I expect further gains

Three quarters of the group’s profits come from Europe, the Middle East and Africa. I’d imagine that most of these come from Europe — so a recession close to home could hit the firm’s bottom line.

However, there’s no sign of this yet. The group’s latest trading update showed that like-for-like sales rose by 10% during the first half of this year.

Analysts expect Electrocomponents’ adjusted earnings per share to rise by 23% during the 2018/19 financial year, putting the stock on a 2018/19 forecast P/E of 17.5. A 13% dividend increase is expected, giving the shares a prospective dividend yield of 2.5%.

I’d continue to hold and would consider buying on any further weakness.

The post Why I think you should stop worrying about the falling FTSE 100 and consider these growth stocks instead appeared first on The Twelfth Magpie.

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Roland Head 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.

Today, I’m looking at two examples of companies where it could be advantageous to stay invested, at least for the time being, despite the high valuations being placed on them. 

Electrifying performance

Today’s update from global service distributor Electrocomponents (LSE: ECM) has been well received with the shares climbing almost 4% in early trading.  It’s not hard to see why.

Thanks to a “positive market backdrop“, the company saw a 10% rise in revenue over the six months to the end of September, with growth achieved in all regions that it operates in. It’s own-brand business — RS Pro — performed even better than the company as a whole with like-for-like revenues moving 12% higher. Recent acquisition IESA was no slouch either, also registering double-digit revenue growth. 

While a 105% gain in just two years isn’t to be sniffed at, I see no reason to part with the stock just yet. 

The post Why I wouldn’t sell these 2 high-flying growth stocks just yet 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 AB Dynamics. 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.

Of course, the company has benefitted significantly from a rising oil price. It has boosted the outlook for a range of oil and gas stocks, and has caused investor sentiment to improve.

Looking ahead, could the company’s share price gain another 25% to reach 150p? Or, is a FTSE 250 stock that offers fast-rising earnings a better investment opportunity for the long run?

Improving outlook

The recent trading update released by Premier Oil showed that the company is performing relatively well. It has been able to increase production and is on track to meet its guidance for the full year. Rising production plus a higher oil price has meant that its financial performance is also on the up. The business expects to generate significant free cash flow in the second half of the year, and this is due to be used to reduce its debt. Doing so could create a stronger business which has a more sustainable growth outlook.

Investment potential

With Premier Oil expected to generate earnings per share of 11p in the current year, it trades on a price-to-earnings (P/E) ratio of just under 11. This suggests that even though its valuation has risen sharply in the last year, it may still offer a wide margin of safety. That’s especially the case since it is forecast to post a rise in net profit of 10% next year. This could stimulate its share price performance and means that even if it surges 25% higher to 150p, it would still offer good value for money.

As a result, the company appears to have further upside potential following an impressive performance in the last year. While the oil price could be volatile, the risk/reward prospects of the stock seem to be positive.

Fast-rising earnings

Also offering an upbeat outlook at the present time is FTSE 250 stock Electrocomponents (LSE: ECM). The multi-channel distributor released an impressive set of full-year results on Thursday which pushed its share price around 10% higher. Its revenue increased by 12.8% to £1.705bn, with all five of its regions delivering double-digit like-for-like growth.

Alongside this, its gross margin increased to 44% as a result of progress on price and discounting initiatives. This helped to push its earnings per share up by 35.2% on an adjusted basis. And with earnings growth of 13% forecast for the current year, followed by growth of 10% next year, it seems to be in the middle of a purple patch.

Electrocomponents also announced the acquisition of IESA, the leading corporate MRO, on Thursday for a total consideration of £88m. It expands the company’s existing e-commerce offer and platform technology capabilities, while also enhancing its service offer to corporate customers. As a result, the prospects for the business seem to be improving, and its share price performance could remain impressive.

The post Can the Premier Oil share price reach 150p in 2018? appeared first on The Twelfth Magpie.

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Peter Stephens 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.

Should you believe that such fears are overdone, however, there still appears to be a decent number of opportunities out there, one of which reported to the market this morning.

Strong revenue growth  

The share price of Electrocomponents (LSE: ECM) rose sharply in early trading as investors buzzed over an encouraging trading update from the FTSE 250 constituent. 

Like-for-like revenue rose a healthy 10% in Q4 to the end of March, with particularly strong growth (15%) seen in the company’s operations in the Asia Pacific region. 

When the whole financial year is taken into account, total revenue climbed 13%, with double-digit growth seen in all the five regions Electrocomponents operates in. Thanks to this, and “better than expected performance in gross margin“, management now believes that full-year adjusted pre-tax profit will come in ahead of the range previously predicted by analysts.

Positively, Electrocomponents confirmed that it had seen “strong year-on-year growth” in free cash flow over the second half of its financial year. Having achieved annualised savings of £30m through the completion of the first phase of its Performance Improvement Plan, the company stated that it would reveal details on how it intends to become even more efficient when it announces full-year results next month.

While a price-to-earnings (P/E) ratio of 21 for the 2017/18 financial year before today suggests that quite a bit of good news is already priced-in, I’m heartened by the company’s continuing efforts to simplify operations, strengthen its balance sheet, grow online sales and develop its RS Pro own-brand business.

Shares are still some way off the 700p highs reached towards the end of last year. If you believe that markets aren’t about to fall off a cliff anytime soon, Electrocomponents warrants attention.

Powering ahead

Another growth stock that is worthy of consideration is critical power control component manufacturer XP Power (LSE: XPP). Since selecting the company as my ‘top pick’ in June last year, the shares have been in decent form — rising 24% in value.

Last month’s record-breaking final results suggest there could be further upside ahead. Revenue climbed 22% in constant currency to £166.8m in 2017 with over three-quarters of this coming from the company’s own-designed products. Adjusted pre-tax profit rose 26% to £36.1m.

According to Chairman James Peters, the company has started 2018 with a “strong order backlog“, even if — in his words — XP Power “cannot be immune from all external economic shocks resulting from cyclicity in the capital equipment markets” it serves. A second production facility in Vietnam is due for completion and the business will also benefit from a full year’s trading from Comdel, the newly-acquired electronic parts supplier.

Aside from recent trading, another thing that I really like about it is the consistently solid returns it has been able to achieve on the capital it invests. At 22% for the last financial year, this is far higher than some industry peers.

Trading at 20 times forecast earnings for the current year, shares in XP certainly aren’t cheap, but this price might just be worth paying if the aforementioned momentum can continue.

The post This FTSE 250 growth stock could be a great buy after today’s news appeared first on The Twelfth Magpie.

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• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended XP Power. 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 smaller companies in the FTSE 250 have collectively outperformed their larger rivals in the big cap FTSE 100. Some individual stocks have done even better. Today I’m looking at two FTSE 250 stocks I believe could beat the market over the next few years.

Can this turnaround deliver?

Defence specialist QinetiQ Group (LSE: QQ) has fallen out of favour with the market over the last year. But I’m starting to think that this sell-off may have gone too far.

A trading update today confirmed expectations for the current year. Broker forecasts were upgraded in November following the group’s interim results, so it’s encouraging to get confirmation that management expects to hit these increased profit figures.

One potential concern is that earnings are expected to be broadly flat next year. The company is in the middle of a programme aimed at reducing its dependency on UK government work and developing a more international client base.

During the first half of the current year, revenue generated from outside the UK increased from 21% to 26%, suggesting progress. The group said today that while the UK remains “challenging”, it’s seeing good growth in Australia and the Middle East.

Risk versus reward

It’s not yet clear to me when QinetiQ’s business will return to growth. But the group benefits from net cash of nearly £200m and an attractively high operating margin of 18%. In my view, these strengths should provide the time and support needed for its turnaround.

For investors, I think the forecast P/E of 12 and prospective yield of 3.3% could be a profitable level to buy. I’ve added this stock to my own watch list.

A proven top performer

If you’re uncomfortable about the situation at QinetiQ, then you may prefer to consider proven growth stock Electrocomponents (LSE: ECM) for your portfolio.

This electronic component distributor operates in 80 countries and ships more than 50,000 parcels a day from a range of more than 500,000 products. Engineers in Europe will recognise the company’s RS Components brand, while in America it operates as Allied Electronics and Automation.

Business has been booming in recent years and underlying revenue rose by 13.3% during the first half of the current year. This momentum appears to have been maintained into the second half, as sales rose by a further 14% during the four months to 31 January.

Non-stop broker upgrades

Brokers’ consensus forecasts for this year’s earnings have risen in 10 out of the last 12 months. The group is now expected to report adjusted earnings of 27.1p per share this year, up from an estimate of 21.9p one year ago.

Core financial metrics are equally impressive. Return on capital employed is running at nearly 20%, and the dividend should be covered comfortably by free cash flow this year. Adjusted earnings are expected to rise by 29% this year, and by a further 13% next year.

Although the shares may look pricey on a 2018/19 forecast P/E of 20, I believe this firm’s strong growth and financial quality suggests the stock could continue to perform well.

The post 2 dividend-growth stocks that could beat the FTSE 100 appeared first on The Twelfth Magpie.

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Roland Head 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.