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I tipped a FTSE 100 bargain and an AIM star to thrash the market. Can they do it again?

Harvey Jones — Fri, 13 Dec 2019 08:47:53 +0000

Exactly a year ago, I backed two very different stocks for two very conflicting reasons, and said both were too exciting to ignore.

It’s been a pleasure to look back since both have seen their share prices rise by a third in the last 12 months. Can they repeat the trick in 2020?

Standard Life Aberdeen

One reason that FTSE 100 asset manager Standard Life Aberdeen (LSE: SLA) caught my eye was a lowly valuation of just 6.7 times earnings, which I thought was far cheaper than it should be, despite the undoubted challenges facing the group. At the time, its share price had collapsed by around half, but this year the only way has been up.

The merger between Standard Life and Aberdeen Asset Management took time to prove its worth, especially since the group lost a £109bn mandate to run funds for Scottish Widows on behalf of Lloyds (an appeal was partially successful).

Stock markets have risen strongly this year, which is always good news for fund managers, and Standard Life Aberdeen posted both a drop in outflows and rise in assets under management. Despite that, first half figures showed profits before tax falling around 10% to £280m, partly offset by a drop in operating expenses.

The £7.17bn group has been strengthening its position by launching new funds and expanding in Asia, but much will depend on how stock markets perform over the year ahead. The going could be tougher, as global growth slows and geopolitical worries mount, although I don’t expect a crash.

Its forward valuation now looks a little toppy at 16.9 times earnings. It does offer an attractive yield of 7% but cover is thin at just 0.8, and low forecast earnings growth completes the mixed picture. Standard Life Aberdeen looked like a buy last year, but a hold today.

RWS Holdings

My other tip was language, intellectual property support, and localisation provider RWS Holdings (LSE: RWS). This was hugely expensive when I tipped it, trading at 26.9 times forward earnings, partly due to a 60% rise in its share price over just two years. However, it has thoroughly justified this valuation, rising 36% since I tipped it.

This acquisition-hungry AIM-listed company had developed the appealing habit of delivering double-digit earnings growth, up 35%, 31%, and 22% in the three years to 30 September 2018. It maintained that performance this year, posting another 22% earnings growth.

December’s full-year results showed record performances across all three of its main businesses, with revenue up 16% to £355.7m, while adjusted operating profit climbed 18% to £78.4m.

The attractive picture was completed by a 43% drop in net debt to £36.8m and a 17% rise in the total dividend for the year to 8.75p. This £1.71bn group may not look like an income seeker’s dream, with a forward yield of 1.7%, but a progressive management attitude and dividend cover of 2.4% means it shouldn’t be underrated.

My worry is that it is even more expensive today, trading at 31.7 times forward earnings, and earnings growth is predicted to slow to ‘just’ 8% this year. Today I’d call RWS a satisfactory hold, rather than a great screaming buy.

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Harvey Jones 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.

I think the dirt-cheap Standard Life share price and its 10% yield is too exciting to ignore

Harvey Jones — Tue, 11 Dec 2018 14:15:00 +0000

How much do stock valuations matter? Should you be deterred from buying a company that has too high a valuation – or too low? And is a cheap stock intrinsically more attractive than an expensive one, or is it the other way around? Of course, it depends on the company.

Price is what you pay

Fund manager Standard Life Aberdeen (LSE: SLA) trades on a lowly valuation of just 6.7 times earnings, well below the 15 times generally seen as fair value. It has been dirt cheap for some time but remains seriously unloved by investors, falling 45% in the last 12 months, and 13% in the last week alone. Is this £5.67bn FTSE 100 firm an unmissable bargain or a value trap? Right now, the market reckons the latter.

On the other hand, intellectual property specialist RWS Holdings (LSE: RWS) trades at a pricey-looking 26.9 times earnings after rising 60% in two years. Is the £1.31bn AIM-listed stock a momentum hero or over-priced and over-rated? Here the market is optimistic, with the stock jumping 2.14% today on publication of its final results for the year to 30 September.

Value is what you get

Investors in RWS have plenty to be happy about, with revenues up 87% to £306m and adjusted profit before tax up 43% to £61.8m. It increased its proposed final dividend by 15% to 6p, with the total dividend also up 15% to 7.5p.

Net debt jumped 222% to £65.1m, due to new loan facilities and its 2017 share placing to fund its 2017 acquisition of Moravia, which enjoyed an excellent second half that contributed to the 22% increase in adjusted earnings per share to 17.4p.

The rights stuff

With growth in sales and profits across the group, chairman Andrew Brode hailed “a remarkable year in which we celebrated our 60th year in business and delivered our 15th year of unbroken growth in revenues, profits and dividends since flotation in November 2003.”

RWS is expensive. But for that you get an acquisition-hungry company with double-digit earnings growth (35%, 31%, 22% in the last three years) and a forecast 17% growth in the year to 30 September 2019. The yield is just 1.5%, but with cover of 2.3 and this year’s 15% hike, it looks progressive. Like Peter Stephens before me, I reckon it looks like a buy despite the price.

Not your Standard Life

RWS is in a very different position to Standard Life, which has been hammered by the slump afflicting its flagship fund Global Absolute Return Strategies Fund, heavy investor net outflows, and the loss of valuable mandates from institutional investors. It is also has a split identity and is in the middle of a sticky transitional period.

Growing anxiety about the end of the 10-year bull market run has cast a shadow over its asset management business, but I still think there are good reasons to buy. First, there’s the massive forecast 9.8% dividend yield. Cover is narrow at just one, but it looks relatively safe for now.

Standard Life’s earnings are forecast to fall 33% this calendar year but should turn positive next year, rising 2%. It also looks like a buy, although this time because of the price, rather than inspite of it.

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harveyj has no position in any of the shares mentioned. The Motley Fool UK has recommended Standard Life Aberdeen. 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.

2 ultra-cheap growth stocks you can buy right now

Royston Wild — Mon, 30 Apr 2018 07:06:07 +0000

RWS Holdings (LSE: RWS) may not be the flavour of the month with investors right now, the business closing at its lowest for almost a year recently thanks to a disappointing trading update. However, I believe this represents a decent opportunity for long-term investors to dip in and grab a bargain.

The language and translation services provider advised last week that, due to the impact of adverse currency movements since the start of the fiscal year — namely the rampant strengthening of the pound — profits have taken a whack. It added that full-year profits may miss expectations should these exchange rate issues persist during the remainder of the period.

I see this as no reason to panic and sell up, though. Firstly, the sterling strength witnessed more recently may be difficult to sustain given that economic deterioration in the UK has shown signs of accelerating more recently, as illustrated by disappointing first-quarter GDP data last Friday.

Irrespective of these near-term currency-related problems, I am convinced that RWS, which has seen sales and profits shoot higher every year for well over a decade, remains in great shape to deliver brilliant earnings expansion. Demand for its products continues to boom and revenues leapt to £139.6m during October-March from £76.6m a year earlier.

Translation titan

Indeed, despite its latest trading statement, the City is still expecting earnings at RWS to keep surging at double-digit percentages and a 25% rise is forecast for the year to September 2018. An extra 11% advance is forecast for fiscal 2019.

And this leads means that the AIM-quoted business can be picked up on a dirt-cheap forward PEG reading of 0.8, comfortably below the accepted value territory of 1 or below.

An added bonus is that RWS’s bright growth prospects, exceptional cash generation and solid balance sheet with net debt coming in at a better-than-expected £84m as of March, mean dividends are expected to continue improving at quite a pace too.

The Square Mile predicts that last year’s total reward of 6.5p per share will jump to 7.3p in the present period, and again to 8.2p in fiscal 2019. These figures yield 2% and 2.2% respectively. I reckon RWS is a brilliant buy today.

A proven growth hero

Like RWS, Restore (LSE: RST) also has a great track record of delivering eye-popping earnings and dividend growth. The bottom line has more than doubled during the past five years and City brokers expect a lot more where that came from.

A 15% advance is forecast for 2018, and an extra 12% rise is predicted for next year. While a consequent prospective PEG reading of 1.5 may sit above that of the languages specialist, this is still great value in my opinion given the rate at which the office services provider continues to win business.

Revenues at AIM-quoted Restore jumped 36% year-on-year during 2017, to £176.2m, the impact of recent acquisition activity helping to swell the top line. And with the company showing no signs of letting up in the hunt for M&A — it splashed out £88m in March to buy TNT Business Solutions to boost its position in the record management segment — I fully expect profits to keep swelling at a terrific rate.

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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.

Is the RWS share price a bigger bargain than this FTSE 100 peer after 15% fall?

Peter Stephens — Tue, 24 Apr 2018 11:00:15 +0000

The share price of language, intellectual property support services and localisation provider RWS (LSE: RWS) declined by around 15% on Tuesday. The company released a half-year trading statement which showed that while it has performed well on an underlying basis, it is being impacted negatively by exchange rate headwinds.

As such, investor sentiment appears to have declined dramatically. Could this make it a stronger investment opportunity than a support services peer which currently resides in the FTSE 100?

Uncertain outlook

In the first half of its financial year, RWS was able to achieve revenue which was in line with expectations. In fact, it increased from £76.6m in the first half of the prior year to £139.6m. The company expects to deliver adjusted pre-tax profit of at least £30m for the first half of the year on a constant currency basis.

However, with the pound strengthening in recent months, it means that the figure could be lower when the impact of currency changes are factored in. An adjusted pre-tax profit of £28.3m is anticipated for the first half of the year when the currency impact is included. Should the currency effect remain as it has been in the first half of the year, the company may miss its profit guidance for the full year.

Despite this, the performance of RWS remains relatively strong. Its acquisition of Moravia has the potential to make a significant impact on its future growth rate. And with growth across its key divisions being strong, it seems to be in a favourable position to generate improving financial performance.

Since the stock is expected to report double-digit earnings growth over the next two years, it appears to be a worthwhile buy. That’s especially the case since it now has a price-to-earnings growth (PEG) ratio of just 1.1. As such, and while its share price could be volatile, it may prove to be a profitable investment.

Solid performance

Also offering upside potential within the support services sector at the present time is G4S (LSE: GFS). The company now seems to be back on track after a challenging period, with its bottom line growing in each of the last two years. More growth is forecast in the current year, with its earnings expected to rise by 8%. This is due to be followed by growth of 9% next year, which puts the stock on a PEG ratio of 1.4. This suggests that it offers good value for money for the long term.

G4S may also prove to be a strong income stock in the long run. It is expected to deliver a 4% dividend yield in the current year. Since dividends are forecast to be covered twice by profit, they seem to be sustainable. And when its growth prospects are factored in, it could become a more desirable income play over the medium term.

As such, and while it may not offer the most exciting business model at a time when investor sentiment is generally upbeat, the company seems to have a solid mix of growth, income and value credentials for those with a long view.

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Peter Stephens owns shares of RWS. 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.

2 soaring growth stocks you might regret not buying

Harvey Jones — Wed, 06 Dec 2017 15:06:39 +0000

RWS Holdings (LSE: RWS) had me from hello, or rather, the moment I saw its share price performance, up 43% in one year and a stirring 243% over five years. I liked it even more when I heard it had delivered 13 unbroken years of profit growth.

Yes to RWS

Today it published final results for the year ended 30 September and market excitement has ebbed, its share price flat at time of writing. This is despite the fact that the language and intellectual property support services provider hailed this as “an outstanding year, strengthening our leading position in Life Sciences.”

Sales rose 34.4% to £164m and adjusted profit before tax jumped 41.5% to £43.3m. Organic growth clocked in at 8%, excluding acquisitions and currency movements, with organic profit growth of 18%. Basic earnings per share (EPS) jumped 22% from 9p to 11p. The total dividend increased 16.1% to 6.5p, continuing an unbroken series of dividend increases since it floated in 2003. Nice.

Pricey, but…

Net debt did multiply from £1.5m to £20.2m, but this was largely due to the £74.8m cost of the acquisitions of LUZ and Article One Partners. Group gross margin improved by 96 basis points to 43.75% after significant gains in 2016, while chairman Andrew Brode has reported a strong first two months of the new financial year.

Perhaps the main reason investors are not jumping up and down with excitement is that they knew all this stuff already, which explains why the stock trades at a forecast 30.7 times earnings. Prospects remain promising, with forecast EPS growth of 26% in 2018, and although the yield underwhelms today at 1.7%, there is plenty of scope for progression. Expensive, but it looks a buy to me. Although you may be tempted by these brilliant bargains instead.

Market swinger

Numis Corporation (LSE: NUM) also reported today after a storming year which has seen its share price rise 33%, while it is up 147% over five years. Again, the market reaction to its preliminary results for the year to 30 September has been muted, with the share price down 0.57%.

Yet it was a good year for the small- and mid-cap broker, with revenue up 16% to a record high £130.1m. Profit before tax rose 18% to £38.3m and EPS were up 17% to 27.4p. What’s not to like, stock market?

The total dividend for the year was maintained at 12p, the same as in 2016. However, the directors have pledged to pay a stable dividend and reinvest in the company, rather than lavishing shareholders with excess cash.

In the pipe

Market conditions provided a positive backdrop to UK equities and co-CEOs Alex Ham and Ross Mitchinson said the group’s “deal pipeline is strong,” while trading in the new financial year has started well. The stock also trades at a bargain 12.3 times earnings while the forecast dividend is a solid 3.9%, covered 2.1 times. If still unconvinced, you may prefer this hot growth stock.

City analysts have some concerns about Numis’s future, forecasting a 19% drop in EPS in 2018, with forthcoming new Mifid II EU regulations no doubt playing a part, but this also looks like one for your watch list.

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Can you afford to pass up this stock with 13 unbroken years of profit growth?

Rupert Hargreaves — Fri, 06 Oct 2017 10:13:12 +0000

According to Professor Richard Foster from Yale University, the average life of a public company today is only 15 years, down from 67 in the 1920s. So, companies that can get past the 15-year high water mark deserve extra attention from investors — clearly, they’re doing something right.

This why I believe that RWS Holdings (LSE: RWS) is one stock investors should not ignore. The firm has chalked up 13 unbroken years of profit, revenue and dividend growth since coming to the market in 2003. And it just reported yet another set of record-beating figures.

Unstoppable growth

RWS is the world leader in translation, intellectual property, life sciences and language support services. Over the past decade-and-a-half, the business has grown organically and through bolt-on acquisitions, which have helped speed up expansion.

For the year ended September 30, the firm now expects revenue to be “not less” than £163m, up 34% from last year’s £122m. Management also believes that pre-tax profit is set to come in “ahead” of market expectations as all divisions have “performed strongly” in the year.

The bulk of this growth has come from the birth of RWS’s new Life Science business, formed by the acquisition and merger of CTi (acquired in November 2015 for $70m) and LUZ Inc (bought in February for $83m).

It looks as if management expects the positive trading environment to continue into the new year. Commenting on today’s trading update, Andrew Brode, Chairman said: “Both our financial and market positions remain strong and we continue to see an interesting pipeline of acquisition opportunities to complement our organic growth.” He continued: “There is strong momentum in the business and we are, therefore, confident of further significant progress in the new financial year.”

Worth paying for?

Unfortunately, RWS’s growth story is well-known, and shares in the company command a premium valuation. Indeed, at the time of writing, the shares trade at a forward P/E of 28.6 (based on current City estimates, which may be out of date considering the above).

This valuation, while dear, is easy to justify considering the firm’s historical growth.

Over the past four years, earnings per share have expanded at a compound annual growth rate of 16.1%. If this rate of growth continues, the firm is on track to earn 25p per share by 2022 and 46.2p by 2026. If the shares continue to trade at a multiple of 28 times, this implies that the stock could be worth 1,294p within eight years, a return of 15% per annum for investors from current prices, excluding dividends.

Overall then, it looks as if shares in RWS are worth paying a premium for today. Over the past 13 years, the company has proved that it has what it takes to survive and produce returns for investors, and I believe that barring any significant slip-ups, this can continue.

As the group continues to expand, investors should be well rewarded.

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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.

2 growth greats that could make you filthy rich

Royston Wild — Tue, 20 Jun 2017 14:01:51 +0000

RWS Holdings (LSE: RWS) tore to new all-time highs in Tuesday trading, the stock rising 4% from the prior close following a welcome response to half-year numbers.

RWS — which provides intellectual property support services — announced that revenues roared 35% higher in the six months to March, to £76.6m. As a result, adjusted profit before tax jumped 39.6% to £19.4m.

And RWS advised that “trading performance in the first two months of the second half has continued in line with our enhanced first half performance, further assisted by favourable currency movements and the LUZ acquisition.” The company snapped up San Francisco-based life sciences translator LUZ for $82.5m in February.

Lauding the results, chairman Andrew Brode commented that “as the premier global supplier of intellectual property support services and now a major force in life sciences, we believe we are exceptionally well positioned to drive further international expansion.

“Both our financial and market positions remain strong and we continue to see an interesting pipeline of niche acquisition opportunities to complement our organic growth,” he added.

Supportive environment

And latest figures from the World Intellectual Property Organisation suggest that RWS’s top line should continue striding higher.

The company, citing figures from the organisation, noted that the number of filings jumped 7.3% during 2016. And the number is likely to keep swelling as economic growth across the US, China and Europe powers ahead.

The City certainly believes RWS has what it takes to deliver dynamite earnings growth, and improvements of 23% and 4% are chalked in for the years to September 2017 and 2018 respectively.

A consequent forward P/E ratio of 30.1 times may appear heady on paper. But I reckon RWS is fully deserving of its premium rating given its ever-growing geographic footprint and aggressive expansion into hot growth areas.

Catwalk corker

Like RWS, fashion giant Ted Baker (LSE: TED) would also appear an unsuitable bet for those seeking stocks offering great bang for their buck, at least from a conventional standpoint.

The number crunchers expect Ted Baker to deliver a 13% earnings improvement in the year to January 2018, a forecast that creates a P/E multiple of 19.5 times.

But I reckon this is still fair value given the probability that Ted Baker can keep its rich record of double-digit earnings expansion running long into the future (indeed, an extra 13% profits advance is chalked in for fiscal 2019 too).

The London business saw total retail revenues boom 14.3% during the 19 weeks to June 10, Ted Baker shrugging off wider pressures in some of its territories. Sales via the company’s online portals continue to detonate, rising 35.9% in the period.

And further store openings in Los Angeles, Paris, Shanghai and Roermond (in the Netherlands), allied with additional department store concessions in Japan, South Korea, France, Germany, the Netherlands and the UK, also helped drive the top line.

The success of Ted Baker’s ongoing global expansion drive illustrates the immense popularity of the brand. And I expect revenues to continue swelling as the business steadily spreads its tentacles across the globe.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Ted Baker plc. 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.

2 under-the-radar growth stocks with huge upside potential

Ian Pierce — Mon, 08 May 2017 11:13:52 +0000

Ensuring concrete floors are laid laser-level is not the most exciting business in the world, but shareholders of Somero Enterprises (LSE: SOM) certainly don’t care because they’ve seen the value of their shares grow over 1,300% in the past five years alone. And with a major competitive advantage over rivals, a huge potential market size and very capable long-standing management team the future is bright for this fast growing small cap.

The key to the company’s success lies in its revolutionary Laser Screed machine it patented in 1986 that ensures concrete floors are laid incredibly level. This may seem mundane but it is critical for the warehouses of end users such as Amazon, Wal-Mart and Tesco as it increases efficiency, lowers maintenance costs and lessens the risk of catastrophic failure such as huge shelving units falling over.

Having pioneered this technology, Somero has built upon its first-mover advantage by continually inventing and patenting better machines and promising customers 24/7 global support from engineers in any major language as well as on-site training and next day in-person support across the globe. This has made the company the Rolls Royce of concrete levelling and built it a huge moat to entry against competitors that has stood for over 30 years.

The growth prospects for the business are also quite impressive. In 2016 $56.6m of the company’s $79.4m in sales came from its home territory of North America and even in this relatively more saturated market the company increased sales by 15% year-on-year. With sales in other huge markets such as Europe and China accounting for only $8m and $6.4m in sales in 2016 it is clear there is space to grow many times over as the company brings on new sales staff to target these regions.

While investing in AIM-listed small caps can be worrying for some investors, Somero’s corporate governance mechanisms and its CEO, who has been at the helm for 20 years of rapid but sustainable growth, reassure me greatly. There’s also the company’s healthy balance sheet with $20m in net cash, EBITDA margins that rose to 31% in 2016 and continued focus on prioritising customers rather than short-term investors. Add in a sane valuation of 14 times forward earnings and a respectable 2.77% dividend yield and Somero is a company I believe has great prospects.

Translating growth into high shareholder returns

A slightly larger, but still relatively unknown, company with similar prospects is patent translator RWS (LSE: RWS). The company works with some of the biggest pharmaceutical makers, law firms, manufacturers and banks to file patents in multiple jurisdictions and accurately translate critical commercial documents and regulatory submissions.

This business has been growing at a steady clip in recent years as companies scramble to protect their intellectual property in many markets at once. On top of steady organic growth the company has bolstered its position through major acquisitions, with two purchases of over $70m in the past year alone. This helped boost sales in the half to March by 33.6% year-on-year to a record £76m and pre-tax profits by a similar amount to £19m.

While the company’s shares are pricey at 26 times forward earnings I’ll be following the company closely thanks to great growth prospects and a balance sheet that provides firepower for further acquisitions.

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Ian Pierce has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended Somero Enterprises, Inc. 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.

Iomart Group plc, Northgate plc and RWS Holdings plc could be 2017’s best income stocks

Kevin Godbold — Tue, 06 Dec 2016 13:50:48 +0000

A steadily rising dividend can really power a firm’s shares. We investors can win twice over with such situations by harvesting a growing income and enjoying capital gains from a rising share price.

That’s why I’m keen to look at Iomart Group (LSE: IOM), Northgate (LSE: NTG) and RWS Holdings (LSE: RWS), each of which has a strong record of rising dividends and is reporting results today.

Turbo-charged compounding

By reinvesting dividends back into shares we can compound our invested funds, but reinvesting a growing dividend into a growing business is like compounding with a turbocharger — it can be an efficient way to build your wealth.

I like the look of these three firms because they smaller than the popular companies we see in the FTSE 100, borrowings seem under control in each case and decent cash inflow supports profits. A smaller business has more room to grow and that can lead to bigger dividend increases year-on-year.

All three firms today delivered positive results and upbeat outlook statements. RWS describes itself as the world’s leading provider of high-quality translation, intellectual property and language support services. Most desirable financial indicators moved firmly in the right direction with these full-year results and the directors pushed up the total dividend by 15%.

With its half-year results, light commercial vehicle hire company Northgate announced its new chief executive as it delivered results in line with previous expectations. The firm’s outlook is upbeat and the directors announced a 12% hike in the interim dividend.

Meanwhile, cloud hosting provider Iomart’s half-year results show double-digit increases in revenue and profit and City analysts following the firm expect the full-year dividend to come in 30% higher than last year’s payout.

High rates of dividend growth

There’s no doubt that these dividends are growing and I think a high rate of dividend growth can be more attractive than a high dividend yield with lower growth. Right now, at a share price of 287p, Iomart’s forward dividend yield runs around 1.6%, at 467p, Northgate’s is close to 3.8%, and at 313p, RWS’s sits at 2% or so.

There’s no sign of any stress for these dividends because the underlying businesses appear to be performing well. RWS, for example, says it’s continuing an unbroken series of dividend increases since the firm floated on the stock market during 2003. If these companies can go on to push dividends up like that in the years ahead, capital gains from their share prices could combine with ever-increasing dividend payouts to produce a very satisfactory total return for shareholders in the long run.

A focus on dividend growth can lead us to some of the stock market’s strongest businesses, I reckon. When considering the potential total investment returns from firms such as Iomart, Northgate and RWS, I think each one is capable of becoming one of 2017’s best income stocks.

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Kevin Godbold 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.

3 Hot Stocks For 2016: Unilever plc, Centamin PLC And RWS Holdings plc

Peter Stephens — Tue, 08 Dec 2015 11:04:53 +0000

Intellectual property support services company RWS Holdings (LSE: RWS) has today released an upbeat set of full-year results which show that it is making encouraging progress. In fact, its pretax profit increased by 6% on a reported basis as its core translation services business continued to deliver strong growth.

This, when combined with impressive performance from RWS’s inovia and PatBase offerings, means that dividends per share have been increased by 6.6%. As a result, dividends have risen in every year since RWS was floated twelve years ago.

Although RWS has posted share price growth of 73% in the last six months, there is still scope for further capital gains. That’s at least partly because the company is expected to increase its bottom line by 17% in the current year, which puts it on a price to earnings growth (PEG) ratio of only 1.3. And, with RWS benefitting from having a niche product with high entry barriers, its long term future appears to be exceptionally bright.

Similarly, Centamin (LSE: CEY) has the potential to soar in 2016 and beyond, with the gold producer in the midst of ramping up production. In fact, Centamin is expected to increase production to 500,000 ounces per annum in 2017 and this has the potential to boost its bottom line over the medium term.

Certainly, the outlook for the gold price is rather uncertain. It hit a five year low this year and, with US interest rates set to rise as soon as next week, the price of the precious metal could come under pressure. That said, if there is uncertainty regarding the global economic outlook then gold could again become en vogue as investors seek a store of wealth.

For Centamin, though, the story is one of increasing production and, while the price of gold is difficult to accurately predict, Centamin is expected to report a bottom line which is 19% higher next year. This, plus a PEG ratio of 0.6, indicates that now could be a good time to buy for the long term.

Also offering upbeat prospects is Unilever (LSE: ULVR). Although the company derives the majority of its revenue from emerging markets, it continues to have a major presence in the developed world and, with the European economy set to deliver an improved 2016 due to the impact of quantitative easing, Unilever’s profit outlook is relatively upbeat.

Allied to its growth potential is Unilever’s stability. It operates in a wide geographical area and has a range of brands in a number of different sectors. As such, it is well-shielded from any future problems in the global economy. With the world’s two largest economies undergoing significant changes in terms of interest rate rises (US) and slowing growth (China), Unilever’s resilience could be a major plus for investors next year. Therefore, with Unilever trading on a PEG ratio of 1.8, it appears to be a bargain buy.

The post 3 Hot Stocks For 2016: Unilever plc, Centamin PLC And RWS Holdings plc appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Centamin, RWS, and Unilever. The Motley Fool UK owns shares of and has recommended Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.