At the same time, the prospect of rising interest rates and an uncertain future for the UK economy could mean that the buy-to-let sector becomes less appealing. As such, buying Vodafone, and another dividend share which reported an upbeat update on Tuesday, could be a shrewd move, in my opinion.

Dividend growth potential

The company in question is information technology global professional services provider FDM Group (LSE: FDM). Its trading update for the year to 31 December showed continued strong operational performance, delivering results in line with expectations.

Revenue for the year increased by 5% to £245m, while market demand in all of its operating territories remained strong. It’s also experienced record levels of client engagement and demand and is optimistic for further growth in the current year.

Net profit growth in the 2019 financial year is expected to be 9%. This is due to catalyse the company’s dividend so it has a yield of 4%. If forecasts are met, its dividend payout will have increased at an annualised rate of 36% over the last five years, which suggests that it’s becoming an increasingly appealing income opportunity. As such, FDM Group could deliver improved stock price performance after its decline of 13% in the last year.

Recovery prospects

Also posting a disappointing share price performance over the last year has been Vodafone. The company’s shares are down by over a third during that time, underperforming the FTSE 100 by 23%.

Debt concerns seem to be the main cause of its share price fall. The €19bn acquisition of Liberty Global’s cable networks is expected to lead to further pressure on what is an already highly-indebted balance sheet. And while its management team recently allayed concerns over a dividend cut in the near term, it remains a possibility over the next few years.

Even with a dividend cut, though, Vodafone is likely to continue to offer a higher yield than the wider index. It currently yields 8.8%, versus 4.5% for the FTSE 100. It’s also putting in place an aggressive cost-cutting programme which may help to make the business more flexible and efficient.

Although there are risks facing the company and the world economy, it offers diversity and the potential to obtain a high yield. For long-term investors, therefore, it could offer investment potential from both a value and income perspective. As ever, buying potentially undervalued shares is never without risk. But the rewards that are on offer could make it a much stronger opportunity than a buy-to-let.

The post Forget buy-to-let! The Vodafone share price is where I’d invest today appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Vodafone. 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.

It proved to be the case. Twelve months later, the shares are up almost 9% in value. The other company — Carillion — no longer exists.

In retrospect, it was never a fair contest. Nevertheless, today’s update from the mid-cap — and the renewed interest in owning its stock — is yet another demonstration of why it can sometimes be a good idea to back companies experiencing significant (but temporary) difficulties. Let’s look at those numbers in more detail.

“Successfully stabilised”

Group revenue from continuing operations rose by 8.3% to £233.2m in the year to the end of May. Perhaps more significantly, the company bounced back into profit by the end of the reporting period, registering a gain of £11.9m compared to the £44.8m loss sustained in 2017.  

More good news included a 36% reduction in net debt (to £27.8m). Assuming this continues to fall, it’s likely that dividends — which were maintained at 4.65p per share for the year — will climb higher in time, thus rewarding loyal holders who stuck with the company when its share price fell through the floor in October 2016 and again in February last year.

Following significant changes to management, an organisational restructure and the sale of non-core units of the business (Web Performance and Software Testing), Chairman Chris Stone reflected that the company has been “successfully stabilised“, adding that expectations for adjusted earnings before interest and tax (EBIT) in 2019 “remain unchanged“.

Taking into account the progress that’s been made and the fact that NCC’s markets “remain buoyant“, it’s perhaps unsurprising that this morning’s figures have encouraged investors to reassess the company, resulting in a 10% rise to its share price.

Whether a valuation of 28 times forecast earnings before today represents good value for a company trying to rebuild itself is questionable, but in a world where the demand for cybersecurity services is only likely to grow, at least some investors appear willing to pay up.

Increased demand

Of course, not everyone wants to buy into a recovery story. One company that’s already doing rather well is international professional services provider FDM Group (LSE: FDM).

Although news flow has been pretty quiet over the last few months, April’s pre-AGM update suggested the business looks like meeting its full-year targets. First quarter revenue from its IT consultants (Mounties) was 17% higher in constant currency compared to 2017 with 3,310 stationed at client sites at the time of the announcement (compared to 2,826 the year before). 

Changing hands for almost 29 times earnings, FDM will be of absolutely no interest to value hunters. Indeed, having more than doubled in price in just two years, a lot of growth-focused investors may regard this valuation as rather frothy.

Since trying to guess the short-term trajectory of any company’s share price is arguably a waste of time, it’s probably better to dwell on those things we do know. These include the consistent (mostly double-digit) rises in earnings, huge returns on capital employed, no debt, a near-3% dividend yield and increased demand for its services from businesses needing to be GPDR-compliant.

Based on these qualities, FDM was never going to be cheap. Just be sure you’ve got a head for heights if you’re considering adding it to your portfolio.

The post This battered growth stock is up 10% today. Is the recovery on? appeared first on The Twelfth Magpie.

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• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of NCC. 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 FDM issued a trading update stating “group’s performance for the year to 31st December 2017 will be ahead of its previous expectations.” Revenues for the period are now projected to expand 23% to £233m thanks to an increase in the number of “Mounties” placed on client sites of 17% to 3,170. 

FDM’s ‘Mounties’ are its own permanent IT and business consultants, which it trains and then sends out to work with businesses. 

Global growth 

FDM saw double-digit demand for its services all over the world during 2017 with the most substantial increase in Mounties deployed being in the Asia Pacific region. Here, the number of consultants placed rose 30% year-on-year, although, with only 306 Mounties in Asia, there’s still plenty of room for the group to grow. For comparison, at the end of the year, the firm had 1,744 consultants deployed in the UK. 

Building its presence in Asia seems to be one of the critical objectives for FDM in 2018. Commenting on today’s trading update, CEO Rod Flavell declared “2018 will see the Group continue to invest to deliver long-term, sustainable growth, increasing capacity in existing territories while also building its presence in some of its more nascent territories.” This expansion should underpin further earnings and dividend growth. 

City analysts are already expecting big things from the company. Earnings per share are expected to grow 21% for 2017 and then 10% for 2018. This earnings growth is expected to underpin an astonishing 24% increase in the group’s dividend payout to investors over the next two years. Even though FDM only yields 2.8% at present, its record of dividend growth is enough to qualify it as a dividend champion as over the past four years the payout has grown 200%. With no debt and earnings expanding rapidly, it looks as if this growth is set to continue.

Zero to hero in five years 

Another dividend champion you should consider for your portfolio is Howden Joinery (LSE: HWDN). A kitchen and building supplier that only sells to the trade, Howden has an exciting business model. 

Each of the company’s depots is run as an individual fiefdom where depot managers receive a share of the depot profit, which can be a life-changing sum. Using this model, the firm has been able to grow steadily over the past six years without succumbing to over-expansion or price wars with competitors. Since 2014, earnings per share have increased at a compound annual rate of 17.5%. 

Over the same period, the company’s dividend payout has exploded from 0.5p per share to an estimated 11.3p for 2017. As the payout is covered just under three times by earnings, and as there’s approximately £225m of cash on Howden’s balance sheet, it looks as if this distribution is secure for the foreseeable future. 

Unfortunately, the stock only yields 2.7%, which is around 1% below the FTSE 100 average. Nevertheless, the lower yield is worth it for the security of the payout. What’s more, as Howden continues to grow earnings, the payout should rise further. According to my figures, 10% per annum payout growth implies a yield of 4.1% by 2023. 

The post Two high-growth dividend stocks I’m considering today appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share 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.

Polypipe Group

Polypipe Group (LSE: PLP) is a UK-based manufacturer of plastic piping and energy-efficient ventilation systems for the residential, commercial, civil and infrastructure sectors. Shares in the £748m market-cap group have enjoyed a strong run over the last year, rising from 285p to 399p today, a gain of 40%. Does that rule out further gains in future? I don’t believe so.

Over the last three years, Polypipe has demonstrated impressive momentum. Revenues have increased from £301m to £437m, while adjusted earnings per share have climbed from 10p to 25p. This year, City analysts expect a top-line figure of £466m and earnings of 27p.

A trading update released this morning revealed that the group is on track to achieve management expectations for the full year. Revenue for the 10 months to the end of October was up 8.2% (7.1% on a like-for-like basis) on last year. The group said that it saw “strong organic growth” in its UK residential and mainland Europe segments, which were both assisted by “relatively buoyant” new house building activity. Performance of the mainland Europe commercial and infrastructure systems segment was particularly impressive, with revenue growth of 19.9%. Chief executive Martin Payne commented: “The Group continues to deliver strong organic growth ahead of the overall UK construction market, demonstrating the resilience of its balanced exposure to the different sectors within that market.”

While the threat of a property slowdown in the UK adds an element of risk here, on a forward looking P/E of 14.8, with a prospective dividend yield of 2.7%, the investment case remains attractive, in my view.

FDM Group (Holdings)

Another amazing performer over the last 12 months has been FDM Group (LSE: FDM), which provides IT consultants to its clients, that assist with business analysis, data and operations services and cyber security.

I last covered the stock in late July, when the group had released strong half-year results that sent its share price surging 10%. At the time, I said: “I’m going to keep a close eye on FDM Group shares in the hope that a pull-back creates a more attractive entry point.” Unfortunately, the shares have kept rising. Indeed, they’re now up over 70% in a year. That means £1,000 invested a year ago would have generated a profit of £700. 

Like Polypipe, this is a company with strong momentum. City analysts expect a 22% increase in revenue this year, and forecast a 13% rise in earnings per share to 29.2p. However, after a 70% one-year gain, is there any value left in the stock at the current price? 

FDM currently trades on a punchy forward looking P/E ratio of 32.9. While I don’t think that valuation is entirely unreasonable given the company’s growth prospects and exposure to the tech sector, I’m going to continue to keep the stock on my watchlist for now in the hope of a meaningful correction.

The post 2 FTSE 250 growth stocks making their investors wealthy appeared first on The Twelfth Magpie.

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Edward Sheldon has no position in any 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.

With this in mind, here are two stocks that I believe are worth shelling out for.

Strong sales growth

Today’s set of interim numbers from FTSE 250 engineer Spirax-Sarco (LSE: SPX) goes some way to explaining just why its share price has climbed 28% in the last year. 

Over the first half of 2017, revenue at the £4.1bn cap climbed 25% (or 13% when currency fluctuations are taken into account) to £429m. According to the company, 5% of the sales growth was organic, with both its Steam Specialities business and the Spirax-owned pump manufacturer Watson-Marlow performing well. Importantly, this rate of growth was ahead of that achieved by global industrial production in general. Adjusted operating profit rose to £101m — a 31% increase (or 13% in constant currency). 

Rising over 2% in early trading, shares in Spirax currently change hands for 27 times forecast earnings. That might seem seriously expensive, but I think this valuation can be justified by the company’s market leading positions, geographically diversified operations and the consistently high returns on capital achieved over the years. Spirax’s balance sheet is rock solid and boasts a serious amount of cash. 

Furthermore, the recent acquisitions of Gestra (a global leader in valve and control systems for heat and fluid control) and Chromolax (which supplies electric heat and control products) will be earnings accretive in 2017, suggesting that full-year figures are likely to be even more positive than those announced this morning. 

In demand

Shares in global professional services provider and new FTSE 250 entrant FDM Holdings (LSE: FDM) have also been in fine form, rising 23% over the last month alone following June’s cracking set of interim figures.

In the first half of 2017, revenue climbed 35% to just over £117m with pre-tax profit hitting £20.6m — up 33% on the same period in 2016. Cash flow generated from operations rose 27% to £20m. 

The company’s IT and business consultants (or Mounties) have been in huge demand of late thanks to general concerns over cyber security and new EU data protection rules that come into force next May. Any businesses found to not be complying with these regulations faces being hit with severe financial penalties.

FDM’s presence across the world continues to grow, with “excellent performances” being witnessed in its North American and Asian Pacific markets (revenues rising 56% and 137% respectively). Revenue from Europe, the Middle East and Africa also climbed 12% from the previous period. Collectively, FDM’s overseas revenue now accounts for half of all that generated by the company’s IT consultants, suggesting that its shares should be fairly immune to any Brexit-induced volatility as the March 2019 deadline draws closer. The business welcomed 35 new clients over the interim period and continues to diversify across sectors, with 71% coming from outside financial services.

Like Spirax, buying a slice of FDM doesn’t come cheap. At 33 times earnings, the latter will need to continue performing seriously well to justify its steep valuation. With its board now anticipating that full-year figures will be “comfortably ahead of its previous expectations,” and there doesn’t seem much doubt about this. The recent 29% hike to the interim dividend is another sign of just how confident management appears to be on the company’s future prospects.

The post These high-quality growth stocks could make you 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?

Paul Summers has no position in any 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.

FDM Group

FDM Group (LSE: FDM) is a UK-based professional services firm that provides IT consultants to its clients, assisting with activities such as business analysis, data and operations services and cyber security. With ops in the UK, North America, Europe and Asia Pacific (APAC), and 50% of sales coming from outside the UK, the company is well-diversified geographically.

The technology landscape is changing at a rapid rate and as a result, FDM Group has enjoyed strong demand for its services in recent years. Indeed, revenue has surged from £97m five years ago to £189m last year, and earnings per share have tripled in that time, from 8p to 24p per share. The group released half-year numbers this morning, and the momentum shows no sign of slowing down.

Revenue jumped 35.4% to £117.1m, and profit before tax rose an impressive 32.9% to £20.6m. Cash flow generated from operations increased 27.4% to £20m and the company generated adjusted basic earnings per share of 15.5p, up 34.8%. Growth across the North America and APAC divisions was particularly strong, with revenue in these regions rising 56% and 137% respectively. Chief Executive Rod Flavell stated that the board anticipates the group’s performance for the full year will be “comfortably ahead of its previous expectations.”

After a 44% share price gain over the last year and a 10% spike today, FDM now trades on a forward P/E ratio of 31, meaning that the stock isn’t cheap. Having said that, there’s a lot to like about the business. Demand for its services should remain strong in coming years, cash flow is healthy, and the company even pays a dividend of around 2.5%. Furthermore, the stock recently entered the FTSE 250, which should increase institutional interest. With that in mind, I’m going to keep a close eye on FDM Group shares in the hope that a pull-back creates a more attractive entry point.

dotDigital Group

Another strong performer in the tech space in recent years has been dotDigital Group (LSE: DOTD), a company that specialises in email marketing.

I’ve owned shares in the £208m cap minnow for a few years now, and have been consistently impressed at the growth the company has generated in this time. For example, in the last three years alone, revenue has more than doubled and net profit has rocketed from £0.7m to £6m.

The company released a trading statement on July 18, and the numbers looked good, with overall revenues increasing by 19% to £32m and average revenue per client increasing 24% to £715 per month. The company recorded growth in revenue outside the UK of 48% and had a strong cash balance of £20.4m at June 30.

On a forward P/E ratio of 31, this is another stock that isn’t particularly cheap however, if the company can continue to grow at the current rate, I see no reason why the shares can’t continue to rise in the medium-to-long term.

The post Could these rising tech stocks help you retire early? appeared first on The Twelfth Magpie.

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• 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?

Edward Sheldon owns shares in dotDigital Group. The Motley Fool UK owns shares of and has recommended Alphabet (A shares), Amazon, and Facebook. 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.

Recruitment rising

FDM Group (LSE: FDM) is in the consultancy business, and specialises in “recruiting, training and placing its own permanent IT and business consultants (‘Mounties’) at client sites.” It supplies other contract staff and offers various professional services, but it’s all tied to high-tech stuff.

And it’s been doing pretty well at it, turning in healthy profits since flotation in June 2014. The year just ended in December 2016 was no exception, with the firm growing its number of Mounties to 2,705 from 2,022 a year previously, and boosting the revenue they generated from £119.4m to £167.3m. The result was a 25% rise in adjusted pre-tax profit to £37.5m, with adjusted earnings per share up 23% to 25.8p. The dividend was hiked by 19% to 19.6p, to provide a 2.7% yield on today’s 716.5p share price.

The share price has soared by 124% since flotation, so that was one IPO that was definitely worth getting in on. I reckon there’s more to come over the next few years too, with analysts forecasting EPS rises of 14% in 2017 and 8% in 2018. That would put the P/E at around 23.5, which is relatively high, but I can see future years of earnings justifying it — and it is backed by an absence of debt and £27.8m in cash on the books.

Chief executive Rod Flavell spoke relatively modestly, saying: “I believe the group is well placed to continue to deliver operational and financial progress this year and beyond.” And with the company seeing increasing demand from existing clients while attracting new clients, business looks good.

I do envisage the share price climb slowing now, but I’m optimistic for the long term.

Software success

If you want to see another high flyer reporting today, look no further than Microgen (LSE: MCGN), whose shares are up 150% since their recovery started in August 2015, to 254p. That year saw a return to EPS growth after a few years of falls, and the resumption of dividend rises. And that’s continued into 2016, with the “leading provider of business critical software and services” reporting impressive figures.

Revenue is up 35% to £43m (and up 29% on a constant currency basis), with adjusted operating profit up 26% to £9.5m (or 12%, constant currency) and adjusted EPS up 34% to 12.3p. That allowed the company to lift its full-year dividend by 19% to 5p, confounding the analysts who had expected it to remain flat at 4.2p until 2018.

Chairman Ivan Martin described 2016 as one of “excellent progress“, while highlighting the company’s Aptitude Software for “enabling the business to secure record numbers of significant new business contracts.” The board is apparently “confident that the progress achieved in the past year will continue in 2017..

City forecasts have gone off the boil a little, with no real overall EPS progress predicted for the next two years, so that might take the shine of a P/E that’s up around 21. That would be fine for a stock with EPS growth forecast, but otherwise could be a bit stretching.

But their dividend predictions are already wrong, and I can see forecasts for 2017 and 2018 being uprated now — and I’ll be surprised if we don’t see further underlying earnings growth this year.

The post 2 soaring growth shares that could have further to go 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 shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.