More often than not, a high dividend yield reflects the market’s view that the payout is unsustainable. So, if you are looking for the best income stocks, it’s crucial to examine the sustainability of the dividend yield on offer.

Sliding profits

With a historic dividend yield of 7%, Low & Bonar (LSE: LWB) immediately looks attractive for income seekers. The big question is, can investors trust this payout?

According to the company’s half-year results for the six months to the end of May, which were published this morning, I’m inclined to believe that they can.

Even though the firm reported a 50% decline in underlying profit before tax, management at the performance materials group declared an interim dividend of 1.05p, unchanged year-on-year, based on the numbers. This might seem like a strange decision, but actually, the underlying business is relatively robust.

It’s all part of the company’s transformation programme. Management is trying to reposition the business for growth in a tight trading environment by doubling down on the areas where it has the most experience and advantage while selling off non-core divisions. Costs associated with the transformation are responsible for the drop in profit during the first half.

Even though EPS declined 49%, the dividend is still covered 1.3 times. What’s more, a keen focus on cash generation means Low & Bonar is on track to reduce net debt by £15m (just over 10%) by the end of the year — that’s on top of its dividend obligations.

These figures lead me to conclude that the dividend is safe for the time being. On top of Low & Bonar’s attractive yield of 7%, shares in the company trade at a tempting forward P/E ratio of just 7.

Slow and steady

City of London Investment Group (LSE: CLIG) manages closed-end investment funds for clients such as large pension funds. With £3.9bn of assets under management, the group is relatively small compared to fund management industry heavyweights.

Still, despite its size, it has been able to grow steadily over the past five years. From 21p in 2014, analysts are projecting EPS of 38p for 2018. Based on these numbers, shares in the asset manager are trading at a tempting forward P/E of 10.6, approximately 28% below the market median P/E of 14.8.

As well as the attractive valuation, City analysts have pencilled in a dividend per share of 27.2p for 2018, up 9% year-on-year, giving a dividend yield of 6.8%.

Not only is this distribution covered 1.4 times by EPS, but it is also backed up by City of London’s rock solid balance sheet. The company has no debt and £16.4m of cash, equivalent to 15% of its current market value, and enough to cover the dividend for two-and-a-half years. And if you factor cash into the group’s valuation, the shares are trading at a cash-adjusted forward P/E of 8.9.

So, if you are looking for a cheap, high-single-digit, sustainable dividend yield, I believe City of London is certainly worthy of further research.

The post Dividend stocks: Two 6%+ yielders 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 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 the FTSE 100 having fallen heavily in recent months, buying shares may not seem like a great idea. After all, many investors may now have portfolios that are worth less than they were at the end of 2017.

However, buying on dips is a popular strategy which can work out well in the long run. While it may mean paper losses in the near term, it can lead to wider margins of safety being found for the long run. And with that in mind, here are two shares which appear to be worth buying right now.

Mixed performance

Reporting its first quarter trading update on Friday was performance materials company Low & Bonar (LSE: LWB). The company’s performance was mixed in the first part of the year, with revenue increasing despite challenging market conditions in Europe and the US. Raw material costs have had a negative impact on the company’s financial performance, while there was an unfavourable product mix.

Looking ahead, the company remains on track to meet its guidance for the full year. But it expects there to be a significant second-half weighting as it seeks to mitigate higher input costs through rising selling prices. As such, investor sentiment has declined, with the company’s shares falling by around 6% following the update.

However, with Low & Bonar still on track to deliver earnings growth of 5% in the current year, followed by further growth of 7% next year, it seems to be in a strong position to generate a rising share price. It trades on a price-to-earnings growth (PEG) ratio of just 1.2, which suggests that it could offer significant upside potential in the long run.

Low valuation

Also offering capital growth potential within the industrials sector is aerospace and defence company Rolls-Royce (LSE: RR). It has experienced a challenging number of years, with its profitability coming under pressure due to a weak strategy and difficult trading conditions.

Now though, it has a refreshed strategy which seems to be working well, while the outlook for the defence industry in particular has improved significantly. A mixture of cost cutting and increased spending on the military by the US and other developed nations could help Rolls-Royce to deliver an improving bottom line. And with it trading on a PEG ratio of just 0.4, it seems to offer excellent value for money.

Certainly, the company faces risks from a slowing global growth outlook. The last few months have shown that global companies could be severely affected by geopolitical risks, as well as problems such as a potential trade war between the US and China and the impact of rising interest rates. But with a sound management team now in place and a strategy which is simple and yet possibly highly effective, the stock appears to have a solid growth outlook for the long run.

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Peter Stephens owns shares of Rolls-Royce. 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.

The main reason I’d plump for HSBC is its geographic diversification, which is far more extensive than Barclays (over 80% of income from just the UK and US). And of course, UK-focused Lloyds and RBS. This diversification means it doesn’t have single-country risk. If one country is in a recession or depression, there are likely to be others elsewhere in the world that are thriving. This gives it a level of stability over the long term, while it also benefits from exposure to faster-growing emerging markets.

Growth and income

Ten years on from the financial crisis, HSBC is now looking set for sustainable revenue growth and with operating costs projected to fall, for strong profit growth too. City analysts are forecasting earnings per share (EPS) of $0.60 for 2017 when it reports its results on 20 February, followed by 17% growth to $0.70 for 2018. This supports expected dividends of $0.51 and $0.52.

At a share price of 760p the forward price-to-earnings (P/E) ratio is 15, which looks undemanding in view of the forecast 17% earnings growth, while a 5% dividend yield only adds to the appeal. As such, HSBC is not only my top Footsie banking pick for its geographical diversification and long-term growth and income prospects, but also a stock I’d buy today due to what I see as its attractive valuation.

Bargain basement rating

Performance materials specialist Low & Bonar (LSE: LWB) may be a far smaller company than HSBC but, like the banking colossus, it has wide geographic diversification. Only Germany (17%) contributes more than 10% to group revenue and the UK contributes less than 5%. Also like HSBC, its profits are rising and its dividend yield is high.

The company today released results for its financial year ended 30 November. The shares are up 11% to 60p, valuing the business at around £200m. Revenue of £446m (up 12% on last year) and underlying EPS of 6.42p (up 7% thanks to favourable exchange rates) both came in slightly ahead of forecasts. The P/E is in the bargain basement at 9.3, while a 3.05p dividend gives a running yield of 5.1%.

Why such a cheap valuation?

Performance was mixed from Low & Bonar’s four divisions and included a hefty crash in profit from one of them and some under-performance within parts of another. One-off non-cash impairments actually pushed the group into a loss on a statutory basis. However, the company, which also announced the appointment of a new permanent chief executive today, laid out the problem areas and its strategy to remedy them with admirable transparency and detail.

The overhaul will be quite extensive but the plan, which includes reducing relatively high net debt of £138m by at least £15m this year, looks eminently credible. With management also having maintained the dividend as a reflection of its confidence, I see Low & Bonar as an attractive value play and on this basis I rate the stock a ‘buy’.

The post HSBC Holdings plc isn’t the only 5%+ yielder I’d buy today appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, HSBC Holdings, Lloyds Banking Group, and Royal Dutch Shell B. 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.

Simpson has been at Low & Bonar since 2014, and during his time performance has been mixed. Indeed, at the time of writing, shares in the group are changing hands at 53p, 44% below the five-year high of 96p recorded at the beginning of 2014. 

Simpson will remain an employee until the end of April but will resign from the board immediately. Non-executive director Trudy Schoolenberg has stepped in to take over the CEO role.

All change 

According to today’s news release on the matter, Schoolenberg has been non-executive at Low & Bonar for four years and has “extensive executive experience in the chemical, technology and petrochemical sectors with significant engineering and product development expertise from over 20 years’ spent at Royal Dutch Shell.” So it looks like Schoolenberg is an excellent pick for CEO. 

Alongside the news of the management reshuffle, Low & Bonar also issued a trading update today in which it noted a “weaker than expected” final quarter due to an adverse product mix and timing of sales. Due to these pressures, the group is expecting pre-tax profit for the year to range £30m and £31m, marginally below City expectations of £32.2m. Net debt is expected to increase to £138m at the end of the period, from £111m.

Although the market dislikes today’s update, I believe the declines are overdone and, as a result, I’m looking to buy into the group’s recovery. 

Starting to look interesting 

Even though the company now expects to miss City expectations for growth for the year, it’s still on-track to grow pre-tax profit substantially year-on-year. For the fiscal year ending 30 November 2016, the firm reported a pre-tax profit of £26m. So, even if profit comes in at the low end of expectations for 2017 (£30m), it is still set to grow by 15% year-on-year. 

And according to my figures, after today’s declines, even with a lower level of profitability, shares in Low & Bonar are trading at a deeply-discounted multiple of around 8.5 times forward earnings. The shares also support a dividend yield of 4.9%, covered twice by earnings per share. 

But it’s not just the low valuation that attracting me to the shares. The company has recently gained the attention of an activist hedge fund Sterling Strategic Value Fund SA.

Sterling claims to “work together with management and other shareholders to initiate change in a concentrated number of companies.” At the beginning of December, Sterling hiked its interest in Low & Bonar to 10.9%, from 6.9% previously, which indicates to me that the firm is looking to shake up the materials business to unlock value for shareholders.

This means that as well as an attractive valuation, steady growth, and market-beating dividend yield, there’s a catalyst that could ultimately unlock value for shareholders. That’s why I’m looking to catch this falling knife today. 

The post Why I’m trying to catch this falling knife after today’s 20% slump appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns shares in Low & Bonar. The Motley Fool UK has recommended Royal Dutch Shell B. 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.

Small-cap investing can be fraught with danger even at the best of times, and when things turn sour, share price movements can be much more pronounced than with their large and mid-cap counterparts. Shareholder concerns can quickly turn to panic, with many investors heading for the exit at the first sign of trouble, leaving a decimated share price in their wake.

High-performance materials

But for those willing to dig deeper and differentiate between short-term issues and more serious underlying problems, there can often be great investment opportunities. I believe international performance materials group Low & Bonar (LSE: LWB) might well offer such an opportunity right now.

The UK-based firm produces advanced, high-performance materials from polymer-based yarns and fibres, which it then weaves and creates into products with exceptional strength and versatility using its own proprietary technologies.

Investors spooked

Low & Bonar’s share price was moving along nicely, up from 65p at the start of the year to around 90p, but things went awry in October, when the group warned that challenging conditions for its Civil Engineering business meant that it was no longer expected to make a profit for the year.

Management stated that although year-on-year revenue was ahead on a constant currency basis, demand for higher value specification projects remains subdued, resulting in an adverse sales mix. Consequently, the expected improvement in financial performance in the second half of the year would not be achieved. Investors were spooked, resulting in a share price drop of 16% following the trading update.

Chinese sales

But I still see Low & Bonar as a solid long-term prospect. The group’s Building & Industrial business unit continues to perform well, as are the Interiors and Transportation divisions, aided by strong sales growth in China.

Despite the recent challenges in the Civil Engineering business, analysts still expect the group to report solid revenue and earnings growth for the full year to November, and pay out an improved dividend. With the forward price-to-earnings ratio now down to just nine for the forthcoming year, and a prospective 4.9% yield, I see Low & Bonar as a bargain growth and income play to tuck away for the long term.

Economic uncertainty

Unfortunately the same can’t be said for another potential turnaround candidate that I’ve been mulling over. In its most recent trading update, the UK’s largest integrated property services group, Countrywide (LSE: CWD), said that the market for housing transactions remained challenging and was likely to be down overall compared with 2016.

The Milton Keynes-based estate agency said that total group revenue for the third quarter was £175.1m, 2% higher than in Q2, but 7% down on the same period a year earlier. Management also warned that it now expected results for the full year to be towards the lower end of market expectations.

The currency economic uncertainty caused by Brexit is clearly having an impact on the number of housing transactions, and until the outlook improves I would be inclined to ignore Countrywide’s cheap valuation which stands at just eight times 2017 earnings.

The post One small-cap turnaround stock I’d buy and one I’d avoid appeared first on The Twelfth Magpie.

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Bilaal Mohamed 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.

In fact, reporting on Monday was a dividend growth stock which declined by over 15% due to a profit warning. Could now be the right time to buy it?

Difficult period

The company in question is international performance materials group Low & Bonar (LSE: LWB). The company’s Civil Engineering business experienced difficult trading conditions in the second half of the financial year. Although year-on-year revenue has moved higher, demand for higher value specification products has been subdued. This has resulted in an adverse sales mix. This has meant that the division is not expected to make a profit for the year, with management set to review its future.

Despite this, the company’s other divisions are continuing to perform relatively well. For example, the operational issues in Coated Technical Textiles are now behind the business, while Interiors & Transportation’s solid performance has continued. The company’s Building & Industrial business unit has also performed as expected during the second half of the year.

With Low & Bonar now having a dividend yield of 5%, it appears to offer greater income appeal following its share price fall. Since dividends are covered more than twice by profit, there is still scope for a fast pace of dividend growth over the medium term. Therefore, while its near-term future may be relatively uncertain, it could prove to be a sound buy for investors seeking strong dividend growth stocks.

Dividend growth

Also offering upbeat dividend growth potential is industrial thread manufacturer Coats Group (LSE: COA). The company has been able to post a rise in its bottom line of 60% over the last two years, and this means it now has greater scope to increase dividends at a rapid rate. The company’s dividend coverage ratio is now over four times, and this suggests that it could become a sound income play over the medium term.

Although Coats Group has a dividend yield of just 1.3% at the present time, it is forecast to increase dividends by over 15% in the next financial year. Since its bottom line is due to rise by 10% next year, such a rapid growth in shareholder payouts appears to be highly affordable and does not put the company’s financial future under pressure.

With the company trading on a price-to-earnings growth (PEG) ratio of just 1.8, it seems to have capital growth potential. This mix of improving financial outlook, low valuation and dividend growth prospects could make the stock appealing to investors at a time when inflation is moving upwards and the FTSE 100 is at a record high. As such, now could be the perfect time to buy it.

The post Is this dividend growth stock a falling knife to catch after dropping 15% today? appeared first on The Twelfth Magpie.

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Peter Stephens 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.

I reckon those on the hunt for delicious dividend yields need to take a close look at Low & Bonar (LSE: LWB), particularly as demand for the performance materials play’s products continues to head through the roof.

The company saw revenues shoot 16.4% higher during December-May, to £210.3m. Although favourable currency movements were responsible for this electric rise, sterling’s ongoing battle was not the only factor — at constant currencies the top line bulged 4.6%.

As a result, pre-tax profit powered 30.1% higher in the period, to £10.8m.

Although Low & Bonar is still battling challenging trading conditions — it noted in July that “we have seen little evidence of a sustained pick-up in demand in our markets” — the company’s ongoing drive to bolster product development and improve its sales processes continue to drive the top line.

And with the company broadening its global scope through vast organic investment and M&A activity, I fully expect sales to continue rocketing.

Hot forecasts

In a further boost to the manufacturer’s investment appeal, City forecasts suggest that Low & Bonar could be too cheap to miss at the current time.

In the year to November 2017, the London firm is predicted to keep its recent run of double-digit earnings increases rolling with an 18% advance. And an extra 14% improvement is predicted for next year.

As a consequence, Low & Bonar sports a forward P/E ratio of 10.7 times — well below the widely-regarded value yardstick of 15 times — as well as a corresponding sub-1 PEG readout of 0.6 times.

And there is also plenty for dividend investors to get excited about. The company’s progressive dividend policy is expected to keep rolling with a payout of 3.3p per share in the current period, up from 3p in fiscal 2016 and yielding an excellent 4.3%. And the yield chugs to 4.5% for 2018 thanks to predictions of a 3.5p dividend.

Transformation on track

Morgan Advanced Materials (LSE: MGAM) is another British stock delivering titanic value at current prices.

Despite predictions of a 6% earnings decline in 2017, the ceramic materials specialist still sports a compelling prospective P/E ratio of 14 times. The company is predicted to get the bottom line moving higher again from next year, and an 11% rise is forecast by the number crunchers.

What’s more, Morgan also offers share-pickers above-average dividend yields during the medium term. The estimated 11.1p per share payment expected this year yields 3.7%, while an 11.4p dividend anticipated for 2018 nudges the dial to 3.8%.

While sales are hardly ripping higher right now, the Windsor-based firm has seen business pick up more recently and organic revenues edged 0.2% higher in the six months to June. Factoring-in currency movements, turnover actually advanced 9.2% to £518.9m, a result that powered operating profit 11.8% higher to £61.6m.

And Morgan’s ongoing transformation strategy should offer plenty of cheer looking further down the line. The company advised in July that “operational improvements are ahead of plan and providing the funds for reinvestment in research and development, sales and infrastructure,” and it is therefore on track to plough an extra £6m into its R&D and sales processes, it declared.

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Royston Wild has no position in any of the companies mentioned. The Motley Fool UK has recommended Morgan Advanced Materials. 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 going to look at two stocks which have both risen by nearly 40% over the last year. Is it time to take profits, or should these winners be allowed to run?

“We remain confident”

Specialist materials group Low & Bonar (LSE: LWB) said this morning that sales rose by 16.4% to £210.3m during the first half of the year. The company’s adjusted pre-tax profit rose by 23.6% to £13.1m, while adjusted earnings rose by 25% to 2.7p per share.

These figures were admittedly flattered by exchange rates, which added about 13% to the firm’s profits and sales during the period. But even at constant currency rates, first-half earnings growth was still 11.1%, a respectable result.

Chairman Martin Flower says that “we remain confident of meeting the Board’s expectations for the full year”. But Mr Flower also warned while further growth is expected, “we do not envisage a sustained pick-up in our markets”.

Broker consensus forecasts before today’s results were for adjusted earnings to rise by 23% to 7.3p per share this year. As was the case last year, the firm’s profits are expected to be heavily weighted to the second half of the year. There should also be a corresponding improvement in cash flow and a reduction in net debt during this period.

In my view there’s nothing in today’s results to suggest that the company will fail to meet its full-year forecasts. The stock currently trades on a forecast P/E of 11 and offers a prospective yield of 3.7%. I believe the shares remain a buy.

US market has huge potential

Home emergency repair group Homeserve (LSE: HSV) has risen by 305% over the last year. The firm’s stock is already worth 16% more than it was at the start of the year, compared to a rise of just 3% for the FTSE 100.

For this momentum to continue, I believe it will need to be supported by strong earnings growth. Is this likely?

Homeserve’s adjusted earnings rose by 24% to 27p per share last year. That gives the stock a trailing P/E of 26.6. Analysts expect earnings to rise by a further 15% to 31.1p per share in 2017/18, giving the stock a forecast P/E of 23.3.

Based on the stock’s gains so far this year, I’d argue that it’s priced about right. However, the group is hoping that rapid expansion in North America will help it to deliver another step change in growth. Customer numbers in North America rose by 28% to 3m last year, while operating profit in the region rose by 75% to £21.2m.

Homeserve has 2.2m customers in the UK, a much smaller and more mature market. Based on this, it seems likely to me that the group’s North American customer base could grow very much larger.

The group’s operating margin seems stable, at about 13%, and its cash generation is good. Although the shares look quite expensive, I think there’s a decent chance that Homeserve can continue to beat the market and remains worth buying.

The post 2 growth stocks I’d buy today after 40%+ gains appeared first on The Twelfth Magpie.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Homeserve. 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.

After hitting 20-month peaks earlier in May, its stock value has since clattered 12% lower. And this is despite the business releasing reassuring financials in which it advised that “trading conditions in the period since the full year are in line with management expectations.”

The Windsor firm advised that sales (on a constant currency basis) fell 0.8% during January-March, with demand declines in Europe and North America dragging sales at its Thermal Products division 2.8% lower. And turnover also dipped at Morgan’s Composites & Defence Systems arm.

In brighter news, however, sales at the engineer’s core Carbon and Technical Ceramics division (responsible for around half of group earnings) rose 1.5% from the corresponding 2016 period.

Transformation plan progressing

While trading conditions in the company’s main end markets remain challenging, Morgan is undergoing huge restructuring to simplify its operations and improve margins, and earlier this year hived off its Electro-Ceramics and Rotary divisions for a combined £80m.

Morgan is also ramping up R&D investment to generate growth. The company paid out an extra £3.8m in 2016, and it plans to shell out an extra £3m this year. The engineer is ultimately to increase investment in its technologies to around 4% of sales within the next few years (up from around 3% at present), moves that should hold it in good stead once the economic cycle improves.

So while Morgan is expected to endure a 5% earnings fall in 2017, the company’s improving bottom-line outlook (a 12% rebound is predicted next year) should propel dividends higher again from next year, according to City analysts. And a mega-low forward P/E ratio of 13.9 times is an added attraction.

The 11p per share payment doled out for 2015 and 2016 is expected to rise to 11.2p this year, a figure that yields an impressive 3.8%. And the yield moves to 3.9% for 2018 thanks to predictions of an 11.7p dividend.

On the cusp of greatness?

I also reckon Low & Bonar (LSE: LWB) could prove a stellar pick for those seeking solid dividend growth in the years ahead.

Supported by predictions of bold earnings growth with rises of 18% and 11% expected in 2017 and 2018 respectively, the polymers play is expect to pay dividends of 3.2p this year and 3.4p in the following period, up from 3p in 2016.

These projections yield 3.6% and 3.8%. And an attractive prospective P/E ratio of 12.1 times is an added sweetener.

Investor demand has ignited since April, the firm touching three-year peaks just today and supported by last month’s trading statement in which it affirmed its belief that 2017 will be a year of “significant progress” and that it remains confident in expectations for the full year.

Low & Bonar’s two-year transformation plan has seen it divest non-core operations, like its artificial grass yarns business, and double-down on its higher-margin operations. And the business is also investing huge sums to expand its geographical footprint, the company opening plants in China and Eastern Europe over the past year and engaging in acquisitions like that of Seattle’s Walflor Industries in January.

I reckon the heavy lifting at both Low & Bonar and Morgan Advanced Materials should produce excellent returns for patient investors.

The post 2 bargain dividend growth shares on my watchlist appeared first on The Twelfth Magpie.

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• 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?

Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Morgan Advanced Materials. 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.

Numis Corporation 

£295m market cap Numis (LSE: NUM) is an independent institutional stockbroker and corporate advisor. The firm offers a broad range of services to its clients including investment research, execution, corporate broking and advisory services.  

Its financials look quite impressive, with the company exhibiting a strong operating margin (29%), excellent return on equity (22%) and low levels of debt. And revenue has increased from £54.2m in FY2011 to £112.3m for FY2016, a compound annual growth rate (CAGR) of 15.7%.

But what really appeals to me about this small-cap company, is its dividend growth track record. Indeed, since paying a maiden dividend of 0.8p in 2000, the company has never cut its payout, even during the Global Financial Crisis. Last year Numis paid out 12p to its shareholders, equating to a yield of a generous 4.6% at the current share price. Furthermore, over the last five years alone, the dividend payout has been increased from 8p to 12p, a CAGR of an impressive 8.5%. And the dividend is covered 1.9 times, indicating a decent margin of safety if profitability was to decline.

FY2016 numbers were good, with revenue jumping 15% on last year, earnings increasing 21% and the company’s cash pile growing from £60m to £90m. However, despite the firm’s impressive numbers, Numis shares can be purchased on a forward-looking P/E ratio of just 10, which looks attractive to me given the company’s impressive dividend history. It’s worth noting that the shares have jumped from just over 200p a year ago to 260p today, but despite the rise, I still think value is on offer.

Low & Bonar

Another company that has done well recently is £265m market cap Low & Bonar (LSE: LWB). While the performance materials group doesn’t have the same kind of impressive recent revenue and earnings growth as Numis, its dividend growth history is still quite virtuous.  

Indeed, the company has grown its dividend payout at a CAGR of 7.4% over the last five years, paying out 3p per share last year – a yield of 3.7% at the current share price. On earnings of 6.15p per share, dividend coverage is a respectable 2.1 times.

The group released a concise trading statement last week for the period since 30 November 2016, stating that it had made a good start to the year and that the board continues to believe that 2017 will be a year of “significant progress.”

The share price shot up as a result and has now risen 34% over the last 12 months, however with City analysts forecasting earnings per share of 7.3p for this year, the stock trades on a P/E ratio of just 11.1, which doesn’t look expensive to me.

The post Two small-cap dividend growth stocks I’m considering buying 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.