2 ‘hidden’ income shares to boost your wealth

Bilaal Mohamed discovers two mid-cap shares with attractive levels of dividend growth.

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Specialist engineering firm IMI (LSE: IMI) last week issued a trading update for the third quarter of its financial year saying foreign exchange movements were likely to have a significant effect on full-year results. The FTSE 250 firm expects full-year sales and profits to reflect a gain of about 12% from the weakening of sterling against the US dollar and the Euro. I think members of the board who voted for Brexit may have cracked a smile when they heard the news.

The specialist

The Birmingham-based engineering company designs, manufactures and services highly engineered products that control the precise movement of fluids. I for one would regard its activities as fairly niche, and I see that as a good thing. When it comes to investing, I like niche, because it usually means less competition, and very often higher profit margins.

IMI’s management admitted that economic and market conditions continued to be challenging during the three months to the end of September, with organic revenues actually 8% lower than for the same period in 2015. The company does however, expect both organic revenues and margins to be better in the second half, compared to the first.

Cutting costs

Despite difficult market conditions, the group continues to invest in new product development to fuel growth, while also trying to improve operational performance to increase competiveness, and remains committed to modernising its IT infrastructure. Like many firms, IMI is trying to mitigate the impact of current market weakness by considering cost-cutting initiatives, but what I like in particular is that it’s trying to achieve this without compromising its long-term growth strategy.

IMI’s financial year doesn’t end until 31 December, but analysts reckon that full-year revenues will come in higher at £1.62bn, with a further improvement to £1.67bn predicted for next year. But what I like the most about the Midlands engineering firm is its superb record of dividend growth, with the company increasing its dividend payouts without fail for the last 15 years. This year’s expected payout of 38.69p per share is adequately covered by future earnings, giving a prospective yield of 4.2%, with the prospect of further growth in the future.

Rise of the dividends

Another mid-cap firm with an excellent record of dividend growth is specialist materials manufacturer Morgan Advanced Materials (LSE: MGAM). The Windsor-based firm designs and supplies a range of products made from carbon, ceramic and magnetic materials used in industries as diverse as transport, telecoms, fire protection and medical instruments.

The specialist manufacturer formerly known as Morgan Crucible remains on track to deliver revenue growth of around £45m this year to £957m, with the figure expected to hit almost £1bn by the end of next year. Those all-important dividends have been rising steadily since 2006, and at current levels this year’s estimated payout of 11.05p per share means a healthy 4.1% for those looking for dividend growth from outside the well-trodden FTSE 100 index.

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.

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended IMI and Morgan Advanced Materials. 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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