St Ives plc’s Fast-Growing Dividend Trounces AstraZeneca plc’s And BP plc’s

Dividend growth from St Ives plc (LON: SIV) is more attractive than AstraZeneca plc’s (LON: AZN) and BP plc’s (LON: BP)

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Searching out dividend growth can often lead investors to capital growth as well in the world of investing.

That perfect combination of an expanding income and a rising share price is investing heaven to me. Yet, to find such gems we often need to look down the table of market capitalisations on the share listing pages, to firms smaller than well-known dividend payers such as AstraZeneca (LSE: AZN) and BP (LSE: BP).

I think I’ve found one!

Over four years from 2011 to 2014, FTSE Small Cap company St Ives (LSE: SIV) increased its dividend payout by around 104%, which beats BP’s 88% increase and knocks spots off AstraZeneca’s 9.8% uplift over the period.

Around 50 years ago, St Ives started out as a traditional printing firm but evolved into a marketing business engaged in today’s digital world. The company reckons it diversified by acquiring high-growth outfits led by management teams focused on client service and expansion. In St Ives now, we see a firm offering digital and mobile creativity, intelligent data analysis, research, production, and other services in the marketing and print industry.

It’s hard to argue with progress. Since 2011, earnings are up around 32% and, at today’s 179p or so, the shares are up about 75%. An investor holding St Ives shares from January 2011 through to the end of 2014 will have seen a total return from capital growth and dividends of around 118%, which compares to 76% from AstraZeneca and just under 2% from BP.

More to come?

City analysts following St Ives have around 7% earnings-per-share growth pencilled in for 2016. Yet the current valuation seems undemanding with a forward price-to-earnings (PER) ratio running at just under nine and a dividend yield of around 4.4%. Earnings should cover that payout around 2.6 times when it arrives next year, providing a comfortable cushion of support for investor income from the shares.

There’s no doubt that St Ives’ business has a big element of cyclicality to it. As such, we can’t expect racy valuation multiples at this point in the general macro-economic curve. Investors will be worried about an earnings slow-down at least, or a profit-collapse at worst, when the next economic downturn arrives. So the valuation will likely contract even as profits rise, but how long will the cycle last? Anyone’s guess will do. As long as we keep the nature of the beast in mind, St Ives remains investable on that front — the firm is cyclical, yes, but it’s growing too, and cash generation appears to remain strong.

What now?

St Ives’ shares dropped back a bit recently, which makes them worth researching. The firm’s acquisitive past has left it with a net debt load of around £43 million at the last count, which is around three times the level of last year’s operating profit. As long as the company keeps growing, and as long as the banks keep playing along, that seems fine; however, any macro-economic plunge could make such borrowings problematic.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

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