Now, though, the business seems to be making encouraging progress with the delivery of its growth strategy. This is expected to lead to an improving dividend outlook. Alongside another FTSE 350 company with dividend growth potential that released news on Friday, Tesco could therefore be worth buying right now.

Growth potential

The stock in question is global engineering company Morgan Advanced Materials (LSE: MGAM). Its trading update confirmed that it is performing in line with expectations, and is on target to meet guidance for the full year.

Sales in the first quarter of the year increased by 2% on an organic constant-currency basis. Margins were slightly ahead of the previous year, benefitting from the leverage of organic growth and efficiency actions.

Looking ahead, Morgan Advanced Materials is expected to post a rise in earnings of 9% in the current year. With a price-to-earnings growth (PEG) ratio of 1.5, it seems to offer good value for money.

In terms of its dividend prospects, the company’s current payout is covered 2.4 times by profit. This suggests that there is scope for a rapid rise in dividends, with its dividend yield of 4.4% likely to become increasingly appealing over the long run. As such, now could be a good time to buy the stock.

Changing business

As mentioned, Tesco is making progress with the delivery of its strategy. It is now a very different business to that which entered the financial crisis a decade ago, with it becoming increasingly focused on its core operations of being a UK supermarket. This is enabling it to become increasingly productive and efficient, while also improving the customer experience. This could provide it with an increasingly strong position within a highly competitive market.

With dividends having recommenced in the 2018 financial year, the company is now expected to raise them at a rapid rate. In the current year, Tesco is forecast to have a dividend yield of 3.1%. Although this is behind the FTSE 100’s dividend yield of 4.3%, the company is expected to post a rise in earnings of 20% in the current year. This suggests that further rapid dividend growth could be ahead – especially since shareholder payouts are covered 2.2 times by profit.

Since the stock has a PEG ratio of 0.8, it could offer capital growth potential. With a rising dividend, its total returns could be highly appealing, and may allow it to outperform the FTSE 100. As such, now could be a good time to add the company to a Stocks and Shares ISA, with it having the potential to post impressive total returns.

The post The Tesco share price is a cheap FTSE 100 dividend prospect I’d buy for my ISA today appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Tesco. The Motley Fool UK has recommended Morgan Advanced Materials and Tesco. 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.

Looking ahead, the stock could continue to outperform the wider index. It appears to offer a mix of growth potential, a margin of safety, and improving income prospects. Alongside another stock which reported improving performance on Friday, it could be worth buying for the long term.

Solid performance

The other company in question is global engineering business Morgan Advanced Materials (LSE: MGAM). It released a trading update for the first 10 months of the year, with sales during the period up 7.2% on the previous year. For the four-month period from July to October, sales increased 6.4%. Headline operating margins remain in line with those reported previously for the first half of the financial year.

The company is also on track to meet expectations for the full year. Its sales for the Thermal Products division were 7% up on the first 10 months of the previous year, benefitting from an improved performance in Asia. Meanwhile, the Carbon & Technical Ceramics division recorded sales growth of 9.2%, with growth in Electrical Carbon, Sales & Bearings, and Technical Ceramics being key drivers.

Looking ahead, Morgan Advanced Materials is expected to post a rise in earnings of 11% in the current year, followed by further growth of 9% next year. With its shares trading on a price-to-earnings growth (PEG) ratio of 1.5, they could deliver capital growth over the long run.

Improving prospects

While the GSK share price may have risen significantly in 2018, it also continues to offer a margin of safety. The company has a price-to-earnings (P/E) ratio of 13.9 which, given its size and diversity, could indicate that it offers investment potential.

In terms of its business model, GlaxoSmithKline may become increasingly popular among investors. Given the volatility in the FTSE 100 so far this year, and the uncertainty which faces the world economy at the present time, it would be unsurprising for investors to focus on stocks which offer defensive characteristics. Since the company has a diverse range of operations that span consumer healthcare, vaccines and pharmaceuticals, it may have increasing appeal. That’s especially the case since its financial performance could be less correlated to the wider economy’s outlook than many of its index peers.

With GlaxoSmithKline having a dividend yield of 5.1%, it continues to offer an impressive income outlook. Although dividends have been frozen in recent years, a refreshed strategy could lead to an improving bottom line. This may translate into a higher dividend over the next few years, which could boost the total return potential of the stock and help it to stay ahead of the FTSE 100.

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Peter Stephens owns shares of GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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.

That said, although the FTSE 250 is very near its all-time high, there are a handful of mid-cap stocks that I believe will keep value investors happy with their sane valuations, high and rising dividend payouts, and impressive growth prospects.

Growing scale on both sides of the Atlantic 

First up is food manufacturer Greencore (LSE: GNC), whose shares trade at 12 times forward earnings and kick off a 3.1% dividend yield. The company’s valuation has come unstuck over the last few months as investors have turned negative towards its ability to bounce back from poor trading at its old US factory network.

However, I think these fears are overblown. Yes, the group’s old US factory network is plagued by low usage but management is reacting to this by wisely shuttering under-utilised factories and transitioning towards higher-margin, higher-growth work making branded food products for big names like Kraft Heinz.

This is a market the company now has access to thanks to its acquisition of Peacock Foods in late 2016 that has given it a giant, country-wide factory footprint and industry links into the lucrative American grocery market. And it’s this former Peacock business that offers enormous growth potential that could more than make up for poor trading at Greencore’s legacy US network.

Indeed, in the first nine months of this financial year Greencore US has posted 7.5% like-for-like growth thanks to a 19.4% rise in sales from the newly-acquired business. This was bested by the group’s market-leading position in UK convenience foods that led to an 8.4% sales uptick for this part of the business.

Looking ahead, I think Greencore is well-placed to come out of its recent troubles in good shape. Its core businesses in the UK and US are posting fantastic growth rates and margins should resume trending upwards as low-margin US and UK business lines are shut down. Plus, with net debt down to 2.5 times EBITDA at the end of March, its balance sheet is already improving following the Peacock purchase.

In my eyes, this means Greencore is an attractively-priced growth and dividend option for long-term investors.

Engineering higher returns 

I’m similarly minded towards engineering group Morgan Advanced Materials (LSE: MGAM). The company’s shares currently yield just north of 3% annually and trade at an attractive 14 times forward earnings.

The company, which is a leading designer and manufacturer of advanced carbon and ceramic products for end use in healthcare, energy and industrial markets among others, has spent the past few years investing heavily in ginning up increased growth by investing more in advanced R&D projects, exiting non-core business lines and slashing excess costs.

This strategy is starting to bear fruit with H1 organic sales up 7.8% in constant currency terms and underlying operating profits up 12.4%. With management making the right decisions to get the group on track for long-term results, I see good potential for the company to continue growing strongly as its industrial customers see an uptick in their own trading of late.

Add in a healthy balance sheet that allows for bolt-on acquisitions and I reckon Morgan is an interesting option for long-term, value-focused investors.

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Ian Pierce owns shares of Greencore. The Motley Fool UK owns shares of and has recommended Greencore. 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.

A rising dividend may also be a catalyst on a company’s share price, since it indicates financial strength and confidence in its future. Therefore, these two FTSE 350 dividend stocks could be worth a closer look.

Strong performance

Reporting on Monday was engineering company Morgan Advanced Materials (LSE: MGAM). The first quarter of the year was a relatively positive one for the business, with its sales moving 6.5% higher on an organic constant currency basis.

There was especially strong performance from the Carbon and Technical Ceramics division, where sales were 9% higher than in the previous period. Thermal Products also recorded a rise in sales of 6.2%, although there was a further decline in the performance of the Composites and Defence Systems business. In response, the company will now exit this segment at a cash cost of £6m.

Looking ahead, Morgan Advanced Materials is expected to report a rise in its bottom line of 9% this year, followed by further growth of 7% in the following year. This should support dividend growth, since the stock currently has a payout ratio of around 45%. This suggests that its dividends are highly sustainable and may grow at a faster pace than in the past.

Furthermore, an improving outlook for its key business units means that it could deliver a higher dividend yield than its current 4%. As such, with a price-to-earnings (P/E) ratio of 16, it could produce high total returns over the coming years.

Improving outlook

Also offering income potential within the FTSE 350 at the present time is financial services company Legal & General (LSE: LGEN). The business has a strong track record of dividend growth, with dividends having risen by around two-thirds over the last five years. This impressive level of performance is set to continue, with the company expected to report a rise in shareholder payouts of 12% over the next two years.

Legal & General’s recent results showed that it has continued to deliver high levels of profitability. Its performance in the UK has been sound, while growth opportunities in the US remain relatively widespread. It has focused on improving innovation, which in turn may have helped to improve customer loyalty to some degree.

With a dividend yield of 6% from a shareholder payout that is covered 1.6 times by profit, the company appears to be an enticing income option. Since it trades on a price-to-earnings growth (PEG) ratio of 1.8, it could offer a wide margin of safety. As such, with its profitability now at record levels, it could be the perfect time to buy it for the long term.

The post 2 FTSE 350 dividend stocks yielding 4%+ that I’d buy with £2,000 today appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Legal & General Group. 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.

A robust order book

The upbeat message is one you’ll have become used to over the past few years if you hold the shares. The stock has risen 2,800% or so in nine years, from around 43p in spring 2009 to 1,295p today, driven by generally rising revenue and earnings and a change in investor sentiment since the post-credit-crunch lows of the previous decade. Remember all those ‘millionaire-maker stock’ headlines? Well, it really can happen if you pick the right stocks, and in a relatively short period of time too.

Looking forward, the directors expect a higher second-half weighting to trading and say the firm is experiencing positive overall market conditions with “exceptional” demand for critical components used in microelectronic manufacturing. However, there’s been a dip in demand for high-reliability couplers since the beginning of the year, but the directors think that market will recover in the second half. Meanwhile, the order book is higher than it has ever been at around £85m, some 36% above the figure a year ago at constant currency prices.

More to come?

After such a successful multi-year run, you could be forgiven for thinking it could be all over soon and we’ve missed the investing boat. But the firm is positioning itself for growth and created three technical divisions in a drive to become a “more scalable” organisation that can “accommodate the anticipated growth rates.”  Chief executive Mark Webster said: “G&H remains committed to our strategy of diversification and moving up the value chain.”

Many believe British manufacturing could be set for a long period in the economic sun. If that proves to be the case, I think Gooch & Housego is a good place to start your research. The forward price-to-earnings (P/E) ratio runs close to 22 for the trading year to September 2019, which isn’t cheap, but I see the valuation as a mark of quality in this case.

Turning around

Meanwhile, sector peer Morgan Advanced Materials (LSE: MGAM) is around three times the size of Gooch and Housego with a market capitalisation near £924m. The firm presents us with something of a turnaround proposition and trades at a lower valuation. The recent share price of 321p throws up a forward P/E rating of just over 12 for 2019 and there’s a forward dividend yield running at 3.6%.

After several years of gently shrinking earnings, the firm’s full-year results in February saw a “return to organic growth” during the year, which City analysts predict will continue with earnings advances of 9% during 2018 and 6% in 2019.

The recovery plan includes restructuring, simplification, focus, research & development, staff training and a sales drive – the meat and veg of any serious turnaround. It is a sign that the directors are aiming to carve a lean, modern business from the fat of the old, which has Victorian origins stretching back around 160 years. I think the stock is interesting right now.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Gooch & Housego and 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.

A stronger position

Many industrial firms depend on specialist manufacturers to produce the components they need. Materials engineering specialist Morgan Advanced Materials (LSE: MGAM) is one of these firms, producing high-specification ceramic and electrical parts for use in markets including healthcare, electronics and oil and gas.

The group has been through a series of changes over the last few years, but today’s full-year results confirm that this process is complete and that the company is returning to growth.

Sales rose by 3.3% to £1,021.5m last year, while headline operating profit was 2.4% higher, at £119.7m. These figures give a respectable headline operating margin of 11.7%, broadly unchanged from 11.8% in 2016.

A return to growth?

Income investors may be slightly disappointed that the dividend has been held flat, at 11p per share. A flat dividend sometimes suggests that the payout is becoming unaffordable, but I don’t think that’s the case here.

Last year’s headline earnings of 22.5p covered the 11p per share payout dividend twice. The dividend was also covered by the group’s underlying free cash flow of £54m. I suspect that the board’s priority was to direct surplus cash towards debt reduction before raising the dividend.

The group’s net debt fell by 25% to £181.3m last year. This reduced the group’s borrowing multiple to 1.2 times earnings before interest, tax, depreciation and amortisation (EBITDA) — a fairly comfortable level.

Looking ahead, Morgan Advanced Materials looks well positioned for a return to growth. Adjusted earnings are expected to rise by 12% to 24.2p per share this year and a dividend hike of 2% has been pencilled in by analysts.

These forecasts put the stock on a 2018 P/E of 14, with a prospective yield of 3.4%. In my view, this could be a decent entry point for a long-term position.

One stock I’d hold forever

Morgan Advanced Materials could be vulnerable to cyclical downturns in major industries. I believe my next stock, Smiths Group (LSE: SMIN), may have a more defensive business.

This conglomerate owns a number of companies, but its two biggest divisions are Smiths Medical and Smiths Detection, both of which operate in fairly defensive markets.

Smiths Medical makes a wide range of devices, 82% of which are consumable and disposable, so generate a high level of repeat orders. Smiths Detection makes equipment such as airport security scanners. I expect demand for such equipment  to continue rising and this business also generates a high level of after-market support work.

These two divisions generated 50% of group revenue and about 53% of headline operating profit last year, providing solid support for other parts of the business with greater cyclical exposure.

A stock to buy and hold

In my opinion, Smiths Group is a high quality business, with attractive long-term growth potential. The group generated a return on capital employed of 16% last year and an operating margin of 20%. Both of these figures are well above average.

Earnings are expected to grow by around 10% per year in 2018 and 2019. The shares currently trade on a forecast P/E of 16 with a prospective yield of 2.8%. I think this is a fair price for a good business and rate the stock as a buy.

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Roland Head has no position in any of the 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.

However, there are other companies within the FTSE 350 that could also post high share price growth. Here is one prime example of a stock that could be worth buying right now.

Upbeat performance

Reporting on Monday was engineering specialist Morgan Advanced Materials (LSE: MGAM). Its sales in the first 10 months of the year were 1% higher than in the same period of the previous year at constant currency. This is in line with expectations, with the company making particularly strong progress between July and October.

During this period its organic constant currency sales growth was 2.3%, which reflects an acceleration in the growth rate in the Carbon and Technical Ceramics division since the half year. And while its Thermal Products division saw sales fall by 2.1%, its Carbon and Technical Ceramics division helped to offset this with growth in sales of 5.6%.

Strong outlook

Looking ahead, Morgan Advanced Materials is expected to post a rise in its bottom line of 12% next year. This could help to boost investor sentiment in the company, and also suggests that its current strategy is going well. Despite this, it trades on a price-to-earnings growth (PEG) ratio of just 1.1. This indicates there is a relatively wide margin of safety on offer, which may equate to strong share price growth in the long run.

With the FTSE 100 trading at a record high, Unilever’s valuation may also offer high share price growth potential. The company is expected to raise its earnings by 20% in the current year, which puts it on a PEG ratio of only 1.1. With the company having a range of products and operating across the globe, it seems to have a favourable risk/reward ratio for the long run. That’s because it may offer strong defensive characteristics should one region of the globe experience difficult economic performance, such as Europe following Brexit.

Long-term growth

Certainly, there is scope for some volatility in the short run for both companies. Investor sentiment may change as Brexit moves closer, while monetary policy changes on both sides of the Atlantic may lead to more uncertainty in the minds of investors.

However, with Morgan Advanced Materials and Unilever both performing well, and forecast to continue to do so in future, they appear to be sound businesses. Trading on low valuations, now could be the perfect time to buy them – even at a time when many shares in the FTSE 350 may be viewed as overvalued following recent gains.

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Peter Stephens owns shares in Unilever. The Motley Fool UK owns shares of and has recommended Unilever. 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.

Impressive growth

Mid-range hotel operator PPHE Hotel Group (LSE: PPH) operates the Park Plaza, art’otel and Arena hotel brands. In total the group has 39 hotels in Europe, the Middle East and Africa.

Business appears to be good. Like-for-like revenue has risen by 13.1% to £232m during the nine months to 30 September. Revenue per available room (RevPAR) has risen by 12.2% to £91.7 over the period, helped by a 2.7% increase in occupancy to 76.7%.

The fourth quarter is usually the strongest period of the year, excluding Croatia, and management says it’s confident of meeting full-year expectations.

Why I’d buy

PPHE Hotel’s shares don’t seem especially expensive to me. The stock currently trades at 1.1 times its book value of 986p, on a 2017 forecast P/E of 16. A dividend yield of 2.2%, covered three times by earnings, is expected this year.

Although this valuation may not seem cheap, the company is delivering steady growth and is expected to report a 20% increase in earnings per share next year.

In addition to operating hotels that it owns, the group is also making use of lease and franchise opportunities to deliver faster growth and reduce capital expenditure. This is a strategy that’s been pursued very successfully by some other groups, notably FTSE 100 firm InterContinental Hotels.

PPHE has outperformed the FTSE 100 by 43% over the last year. I believe there could be more to come.

Long-term growth

Another company that’s outperformed the FTSE this year is Morgan Advanced Materials (LSE: MGAM). This company uses ceramics, carbon and composite to make a wide range of products, including insulators, technical ceramics and equipment for foundries.

After several years of flat performance, the outlook appears to be improving. The group’s return on capital employed (ROCE) — an important measure of profitability — rose from 11.8% to 16.4% last year.

A high ROCE is generally attractive to investors, as it increases a company’s ability to fund its own growth without needing to borrow cash. A figure of more than 15% is generally considered to be very good.

Morgan appears to be taking advantage of this growing profitability by increasing spending on research and development. This should help to build the foundations needed for new product ranges and long-term growth.

Another attraction for shareholders is that a high ROCE also tends to correspond with strong free cash flow generation, which supports dividend payments.

Is the price right?

Morgan Advanced Materials currently trades on a 2017 forecast P/E of 14.5, with a prospective yield of 3.5%. These figures seem reasonable to me for a growing business.

If the company can deliver the expected double-digit earnings growth next year, I’d expect the shares to continue performing well. In the meantime, the dividend yield of 3.5% is higher than the FTSE 250 average of 2.7%, providing a worthwhile income.

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Roland Head has no position in any of the 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.

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.

One stock which seems to fall neatly into this category is Morgan Advanced Materials (LSE: MGAM). The engineering specialist reported interim results on Friday, and seems to be a sound buy at the present time.

Improving momentum

The company’s first half results may appear to be somewhat lacklustre a first glance. Revenue was only 0.2% higher than in the same period of the previous year, while headline operating profit edged just 1.5% higher.

But these figures hide the progress being made by the business. For example, it has made continued progress on its strategy implementation, with two divestments having been completed. They have helped to reduce the complexity of the business model and strengthen the balance sheet. Net debt-to-EBITDA (earnings before interest, tax, depreciation and amortisation) is now down to 1.1 times, while the company is on track to make the planned £6m incremental increase in research and development and sales capability.

These changes clearly mean some disruption and uncertainty for the business. However, in the long run they could lead to improved financial performance, as well as a more sustainable growth outlook.

Investment appeal

Looking ahead, Morgan Advanced Materials has a rather mixed outlook. In the current year it is forecast to record a fall in earnings of 6% as it seeks to implement significant changes to its business model. However, next year it is forecast to post a rise in its bottom line of 11%. This has the potential to create a step-change in investor sentiment over the medium term. That’s especially the case since the stock trades on a price-to-earnings growth (PEG) ratio of just 1.1 at the present time.

In addition, the company has a dividend yield of 3.7% from a payout which is covered around twice by earnings. This suggests there is scope for a rapid rise in shareholder payouts, which further enhances the investment appeal of the stock.

Growth potential

Also offering upside potential within the industrial sector is aerospace and defence company BAE (LSE: BA). It has endured a difficult number of years due to the challenges faced within the defence sector. Austerity programmes across the developed world have caused spending on a range of military items to fall, which has impacted on industry-wide demand levels.

In future though, defence spending is likely to rise across the globe. President Trump is seeking to bolster the defence capabilities of the US, while a potential end to austerity could be on the cards across Europe. This could lead to upgrades in BAE’s forecasts. With the company trading on a price-to-earnings (P/E) ratio of 13.9, now could be the perfect time to buy it for the long term.

The post Why Morgan Advanced Materials plc is a surprising growth stock I’d buy today appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of BAE Systems. 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.