Special dividends have been a regular fixture at the former Neil Woodford favourite and in the last full fiscal period, the 12 months to July 2017, it forked out a total dividend of 22.5p, up 15% year-on-year, comprising an ordinary dividend of 9p and a supplementary payment of 13.5p.

And the stage appears set for more dividend fireworks, certainly if the latest trading statement is anything to go by. Softcat said in July that “market conditions have been very favourable and growth against prior year has accelerated,” and this means that “adjusted operating profit will be materially ahead of… prior expectations” for fiscal 2018.

Investors should therefore expect more special dividends on top of the ordinary dividend, the latter predicted by City analysts to ring in at 11.2p per share as earnings rise by an anticipated 33%.

The number crunchers expect momentum at the software star to remain positive in the current year, and they are forecasting a 6% profits improvement. As a consequence, the ordinary dividend is expected to advance to 12.1p per share, a figure that yields 1.4%. But of course, this latter figure does not factor-in the strong possibility of more supplementary payouts.

Right now Softcat deals on a premium valuation, a forward P/E ratio of 28.4 times. This is expensive on paper but not in real life, in my opinion, given the rate at which it is growing business.

Hard Grafton

Grafton Group Units (LSE: GFTU) is another FTSE 250 share whose yields may not that be that spectacular right now, but whose impressive profits outlook should guarantee strong and sustained dividend growth for many years ahead.

In the five years to 2017, the annual payout has risen by more than 80%, culminating in last year’s 15.5p per share reward. Earnings have swelled by double-digit percentages during the period and with further solid growth anticipated — rises of 8% in both 2018 and 2019, to be exact — City analysts are also expecting dividends at the building materials giant to keep on rising.

A 17.7p per share payout is estimated for the current year, resulting in a handy yield of 2.2%. And the dial moves to 2.3% for 2019 due to the anticipated 18.4p dividend.

It wouldn’t surprise me, though, if Grafton ends up lifting the shareholder payout beyond these estimates given recent trading performance. It hiked the interim dividend 14% year-on-year to 6p per share after recording a 19% rise in adjusted pre-tax profits during January-June, to £90m.

While market conditions in the UK remained subdued in the first half, operating profit at the Selco owner still rose 13.8% on the back of self-help measures and the contribution of the recently-acquired Leyland.

And thanks to its broad geographic diversity Grafton can expect profits to continue pounding higher. While conditions were tricky in Belgium, favourable markets in Ireland and The Netherlands helped operating profits in these destinations rise 1.2% and 20.5% at constant currencies.

Right now, Grafton carries a forward P/E ratio of 13.2 times. Given its resilience in challenging conditions in its core UK region, and the possibilities for further impressive profits growth overseas in the years ahead, I reckon this reading is far too low. I’d happily buy into the builders’ merchant today.

The post These FTSE 250 dividend growth stocks may help you retire early (like this ex-Neil Woodford favourite) 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 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.

Grafters

I’m pleased with Grafton’s progress because I flagged up the company last year, calling it a spectacular momentum stock with exciting growth prospects. I also warned that Brexit might prove a drag given that more than two-thirds of group revenues hail from the UK, and I’m happy I did as the stock still idles at last year’s levels despite today’s excitement.

Grafton’s half-year report to 30 June shows revenues up 9% to £1.45bn, with adjusted profits before tax up 19% to £90m and earnings per share (EPS) rising by the same percentage to 30.8p. CEO Gavin Slark hailed double-digit profits growth across all segments of the firm and the positive impact of “self-help” measures and development activity. Operations in the Netherlands and Ireland performed well, although demand dipped in Belgium.

Income prospect

Slark did admit that underlying activity in the UK was “relatively flat,” although it was boosted by excellent profit growth at British mortar business CPI EuroMix and a good contribution from new purchase Leyland SDM. 

This £1.9bn FTSE 250 company is on course to meet full-year expectations despite describing the UK outlook as “subdued” and warning of competitive pressure on pricing. We still may have to wait until the Brexit shackles are lifted to see real growth.

Grafton has posted double-digit EPS growth for the last five years but the trend is slowing with City analysts still pencilling in 8% this year and next. Grafton hiked its interim payout by 14% to 6p and although it currently yields 2.2% further progression looks assured, with healthy cover of 3.5. It looks reasonably priced at 13.7 times forward earnings, but maybe wait until Brexit is sorted.

Diary of a Wimpey kid

It’s been a tougher year for FTSE 100-listed Taylor Wimpey (LSE: TW), its share price down around 13% as confidence seeps out of the house building sector. It didn’t help that last month it posted a 1.8% drop in first-half adjusted operating profit to £344m, as poor weather dented building activity and sales.

Despite concerns of a housing market slowdown, its average selling price rose 1.6% to £257,000, although sales fell 2.3% to 6,497 units in total. Management increased its interim payout 6% to 2.44p, while also confirming a special dividend of 10.4p, with a further 10.7p to be paid in July 2019.

Taylor made income

The number that catches the eye is the yield, currently a forecast 9% with cover of 1.4. Its lowly valuation of just 8.1 times earnings also captivates, even if this combination highlights concerns about future growth prospects. It’s another stock to post five consecutive years of double-digit EPS growth with a projection to decline to 4% both in 2018 and 2019. On the plus side, by then the forecast yield is a blistering 10.3%.

You will not be surprised to hear that some are sceptical about prospects for Taylor Wimpey, as interest rates creep up, Brexit bores, and incomes stagnate. While that’s undeniably a concern, its share price and dividend yield still look right to me.

The post £2,000 to invest? The Taylor Wimpey share price and this FTSE 250 dividend growth stock look tempting 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 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.

And even though the stock has hardly budged since my last article was published, I’m still positive on the outlook for the business.

Unfortunately, bad weather during the first few months of 2018 has hit sales, but management remains optimistic that the group will be able to catch full-year targets. According to a trading update issued by the firm today, adverse weather reduced the rate of growth in average daily like-for-like revenue to 1.3% for the period to the end of April. Overall revenue increased by 7% to £907m in the four months and 6.2% in constant currency.

It looks to me as if geographic expansion has been Grafton’s saviour. The company owns the market-leading building merchanting business in Ireland, which delivered constant currency revenue growth of 7.6% for the period, while its business in the Netherlands saw revenue increase by 20.5%. Meanwhile, even though the snow hammered trading at its established UK business, the group acquired Leyland SDM (the largest independent specialist decorators’ merchant in London) on 16 February and this deal helped to increase UK revenue by 5% overall.

On track for growth 

Overall it looks as if, including acquisitions, Grafton’s earnings are set to grow at a high single-digit rate for the full year. City analysts have pencilled in growth of 7% for 2018, followed by an increase of 8% in 2019. Based on these targets, the stock is trading at a forward P/E of 12.8, which does not seem too demanding for a growth stock, even though there is some uncertainty about the state of the construction industry here in the UK. However, with net gearing of only 5.3%, the company seems well placed to weather any market turbulence. 

As well as the company’s attractive valuation, Grafton also has a history of increasing its dividend per share by around 10% per annum. The stock currently supports a dividend yield of 2.2%.

Value hunters 

Another dividend growth stock that has recently popped up on my radar is B&M European Value Retail (LSE: BME). 

It might look expensive as the shares currently trade at a forward P/E of 21.3, but the company is growing rapidly. City analysts are expecting earnings per share growth of 21% for 2018 and 19% for 2019. Based on these estimates, the stock is trading at a PEG ratio of 1.1.

It’s BME’s dividend potential that really gets me excited. The shares currently support a dividend yield of 1.7%, but the company is expected to increase its payout by 46% this year and a further 16% for 2019. Based on these estimates, the shares support a 2018 dividend yield of 2.1%, growing to 2.5% by 2019.

With the payout set be covered 2.3 times by earnings per share, there’s plenty of room for growth in the years ahead, especially if earnings per share continue to rise at a double-digit rate. There’s no reason why they can’t. BME is investing heavily in its value proposition across the UK and Europe and reported strong trading during the last quarter of 2017, underlining the appeal of discount retailers to increasingly budget-conscious consumers.

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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.

Shares in the Grafton Group (LSE: GFTU) are sliding today after the company reported a strong performance for the three months ended 31 October 2017. 

The international merchanting and DIY group reported revenue growth of 9.1% for the 10 months to 31 October. The increase in constant currency terms was 6.9% as the overseas business outperformed domestic ops. Management blamed this on the market environment noting “pricing remains competitive going into the year-end” as demand “softened” in October. Meanwhile, the outlook for the group’s Irish business is only improving as construction is recovering from “a low base,” and it will “require several years for supply to meet ongoing demand.“

For the rest of the year, Grafton’s management believes, “current trading conditions in the UK merchanting business are likely to continue.” 

However, according to Gavin Slark, Chief Executive Officer, as the UK arm struggles, “the Irish and Netherlands businesses should benefit from favourable trading conditions and strong market positions.“

Undervalued growth

So overall, it looks as if the Grafton group will continue to grow steadily in the years ahead, extending its run since 2012. Since year-end 2012 to year-end 2016, earnings per share have surged 216% as pre-tax profit has jumped 356%. For the next two years, City analysts are forecasting earnings growth of 9% per annum as growth in the Irish business offsets sluggish growth elsewhere. 

Based on Grafton’s historical growth, and the company’s future potential, its valuation of 15.9 times forward earnings looks highly attractive to me. The shares also offer a dividend yield of 1.8%, which is covered 3.5 times by forward earnings, giving plenty of room for future rises. 

Hidden growth stock

If Grafton is not for you, Rolls-Royce (LSE: RR) might be a better buy. Rolls-Royce has struggled over the past few years, but the company now looks to be getting back on track to growth. 

Today the group provided a trading update on its performance during the third quarter. Reaffirming comments made at the time of the half-year figures, and Chief Executive Warren East said: “We have made steady progress in the second half of the year. In Civil Aerospace, we continue to achieve our key targets for customer deliveries while managing in-service issues. Defence Aerospace and Power Systems are also performing satisfactorily, although Marine continues to be impacted by weak demand for products and services for the off-shore oil and gas market. Overall, while we have a good deal left to do in the last two months of the year, our performance for 2017, for revenue, profit and free cash, remains on track.“

For the full year, analysts are expecting the company to report earnings per share of 35.5p, up 18% year-on-year. Next year, earnings are expected to expand 11% to 39.4p. Based on these numbers, the shares are trading at a forward P/E of 28.5, which might seem expensive but based on the firm’s double-digit earnings per share growth, and an order book of £83bn (nearly six years of revenues) this valuation appears appropriate. 

That being said, the company’s dividend yield of 1.3% leaves much to be desired, although it’s more than most high-street bank’ offer on savings accounts today. 

The post Why I’d buy Rolls-Royce Holding plc and this growth stock in November 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.