I wrote in January that Emis Group (LSE: EMIS) has been growing its revenue, normalised earnings, operating cash flow and the dividend for years. There’s a strong balance sheet with a pile of net cash and I reckon the company’s business has some decent defensive characteristics.

Good figures

Operations involve providing software and support services to GP practices, hospitals pharmacies, satellite healthcare centres and “across every major UK healthcare setting.”

And the market likes today’s full-year results report judging by this morning’s uplift in the share price of around 8% as I write.

The figures reveal overall revenue grew 6% during the year and recurring revenue lifted 5%. In terms of the adjusted numbers, net cash from operations moved 10% higher and earnings per share came in flat. The progress showed up on the balance sheet with the firm posting a 12% lift in net cash to £15.6m. This is a positive outcome extending the firm’s record. The directors expressed their approval, and confidence in the outlook, by pushing up the total dividend for the year by 10%.

Chief executive Andy Thorburn said in the report that revenue grew in all the firm’s key segments and much of it can be categorised as ‘recurring’, which I reckon adds to the defensive appeal of the business. The outcome was decent cash generation, which supports the progressive dividend policy and Thorburn thinks the firm is “well positioned” for future expansion.

Planning for growth

The company has been planning and investing for growth and, in 2018, “considerable management time” went into developing the strategy and attracting new talent to the business. The firm made 21 “key senior hires,” which sets it up well for 2019.

Back in January, with the share price around 897p, I said “I’d be happy to dip my toe in the water by buying a few of the company’s shares.” If I’d done so, today’s price close to 1,034p would be showing me a capital gain of just over 15%. However, I think there’s much more potential in Emis and I’d want to tuck some of the shares away for the long haul.

City analysts following the firm have pencilled in earnings increases of around 9% for this year and for 2020. The forward price-to-earnings ratio sits close to 19 two years out, and the predicted dividend yield is running a little under 3.2%. The valuation looks to be up with events, but I reckon the company is worth a premium because of the consistency of its results over several years. To me, Emis is worth keeping a close eye on with a view to buying some of the shares on dips and down-days with a view to holding onto them for the long haul.

The post Forget Vodafone! I’d go for this serial dividend-raiser and its solid business instead appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Emis 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.

Right off the bat, I’ll acknowledge that although the firm works for a variety of organisations funded by the NHS, there must be an element of single-customer risk. If Emis fails to deliver what the NHS needs, and at the right price, it could drop, or fail to renew, its contracts with Emis in favour of other contractors and suppliers. I can imagine a scenario where it would then be difficult for, say, a GP practice to opt for the services of Emis if the NHS doesn’t like or has blacklisted the firm. After all, I reckon the majority of GPs work to NHS contracts, follow NHS guidelines and see NHS patients. 

Trading well

However, there’s no sign of anything like that happening and the NHS/Emis combination seems to be getting on just fine. And it’s good business for Emis. I like the long record of growing revenue, normalised earnings, and operating cash flow. And I like the steady growth in the dividend that has been going on for years. On top of that, the balance sheet is strong with a pile of net cash. As long as the company keeps its house in order and delivers a good service, I reckon the business has defensive characteristics. Revenues and cash inflows are unlikely to dip because of a general economic slowdown. But profits could fall if Emis makes a mess of things with its service delivery, or if the NHS starts dropping contracts with the firm. So the firm’s future prosperity seems to be in its own hands and today’s trading update for the year is encouraging.

Trading was “in line with the Board’s expectations,” which means full-year revenue came in “ahead” of the previous year’s and the firm “continued to benefit from growing recurring revenues and strong market shares.” I reckon that recurring revenues bolster the case for the company’s defensiveness and it’s good to learn they are expanding.

A positive outlook

All four divisions performed well in the period with growth and contract wins in some areas of operations. Meanwhile, the net cash position increased by more than 11% to £15.6m, suggesting the company is converting its revenue into decent cash earnings. We can find out more with the full-year results due on 20 March, but my impression is that trading has been solid.

City analysts expect earnings to increase by about 8% this year and again in 2020, with the dividend rising a little each year too. The firm is priced fairly, in my view, given the high quality of earnings. Today’s share price close to 897p throws up a forward-looking earnings multiple of just under 17 for 2020, and the forward dividend yield is almost 3.7%. On balance, I’d be happy to dip my toe in the water by buying a few of the company’s shares.

The post Why I’d buy shares in this dividend-growing company today 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 recommended Emis 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.

Aviva’s full-year results had my colleague Rupert Hargreaves asking whether Aviva could be the Footsie buy of the decade, and I share his enthusiasm. Since the resumption of progressive dividends, Aviva has been rapidly ramping up its annual cash payments, while still keeping them adequately covered by growing earnings.

And 2017 was no exception, with the insurance giant upping its dividend by a cracking 18% to 27.4p, for the fourth consecutive year of double-digit growth. The dividend, which yields 5.3% on the current share price, looks to be well supported by earnings, and by cash and liquidity.

Cash

Aviva saw cash remittances rising 33% to £2,398m, with general insurance net written premiums up 11% to £9,141m, and its Solvency II capital surplus improved to £12.2bn. I’m confident that I’m going to carry on receiving my annual dividends.

The firm’s strong cash generation also means it’s paying down debt, is in a strong position to make acquisitions when appropriate, and I think the more focused company presents considerably less risk than it did in the bad days of over-stretching. 

Crucially, I don’t think the reduced risk is yet fully factored into the share price, even bearing in mind that insurance is fundamentally a business built on risk. A forward P/E of only a little over nine, with forecast dividend yields heading above 6%, looks too cheap to me. I think I’ll be using this year’s dividend to buy more shares.

Recovery

I’m alway wary when I see a good dividend payer issue a warning which results in a share price fall, fearing that a cash shortfall and a dividend cut could be just around the corner.

Although a trading update from Emis Group (LSE: EMIS) in January looked solid and it reported a strong balance sheet, a worrying release the same day caused a share price crunch. The company, which specialises in healthcare software and services for GPs, hospitals and pharmacies, told us that its new chief executive had initiated a review of its customer and product support processes. And that it had uncovered “a failure to meet certain service levels and reporting obligations with NHS Digital, relating to the Group’s EMIS Web product for GPs in England.“

Fundamental failures of that nature can have a long-lasting impact, and a recovery to best practice can take some time. But an examination of Emis’s full-year results on Wednesday is convincing me that this has been a one-off problem and that there’s no real threat to the firm’s dividend.

One-off

Reported operating profit fell 55% to £10.6m, in line with expectations, but adjusted operating profit came in only 3% down at £37.4m. With operating cash generation up 17% to £44.4m, the dividend was lifted by an inflation-busting 10% to yield 3.2%.

Chief executive Andy Thorburn described the service failure as “a serious, but isolated incident.” He went on to assert that Emis continues “to lead the way in joined-up healthcare IT, with market-leading positions, high levels of recurring revenue and a strong financial position.“

House broker Numis Securities reckons the Emis share price has fallen too far — which we might expect them to. But I agree.

The post Aviva plc isn’t the only bargain dividend stock I’d buy today appeared first on The Twelfth Magpie.

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Alan Oscroft owns shares in Aviva. The Motley Fool UK has recommended Emis 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.