Do you struggle to decide whether to go for growth shares or for dividend income? Here are two that are offering both.
Where there’s bricks
Forterra (LSE: FORT) only floated on the stock market in April 2016, and just a couple of months later its shares were on a Brexit-induced slide. But investors thinking that leaving the UK would damage the prospects for a company that makes bricks, concrete and other building products, while we’re facing our toughest housing shortage for a generation, must have been barmy.
The price recovered quickly, and 2016 results released Wednesday were in line with the firm’s expectations at IPO time. Pre-tax profit before exceptionals was up 3.8% to £54.3m with EPS on the same basis up 4.4% to 21.5p.
Impressively, pre-exceptional operating cash flow climbed by 29.7% to £69.8m, which helped get debt down ahead of the firm’s plan — net debt of £92.3m at the end of December represented 1.3 times adjusted EBITDA.
Forterra’s maiden dividend came in at 5.8p for a yield of 2.8% on the current share price of 206p, which is a pretty decent start.
Chief executive Stephen Harrison told us that “2017 has started well… with brick volumes for the first two months ahead of last year.” He added that the company “continues to see strong activity levels from the major housebuilders and positive indications from these customers for at least the first half of the year.“
EPS forecasts suggest modest growth this year and next, giving us P/E multiples of 9.1 and 8.3 — and a progressive dividend should yield 4.6% and then 5.2%.
On top of a solid, if unexciting, business, I’d rate that as a buy — though I would like to see that debt coming down further.
A great decade
Shares in Brooks Macdonald Group (LSE: BRK) are turning into a great long-term investment, bringing home a 630% gain over the past 10 years, plus modest dividends.
At 2,017p today, we’re looking at forecast P/E ratios of around 19 for this year and 16 next, which is higher than the FTSE 100 long-term average of about 14, so does that mean the shares are a bit too expensive now? After examining the investment manager’s first-half results, I don’t think so.
The £9.33bn in discretionary funds under management at December 2016 was 19% ahead of the same stage in 2015, and revenue was up 17% to £45.34m. Underlying pre-tax profit gained 24% to £8.87m, with underlying earnings per share putting on 22% to 51.83p. The interim dividend was lifted by 25% to 15p.
For the full year, there’s a 2.2% dividend yield on the cards. And though that’s not a high one, it would be 23% above last year’s, and there’s a further 19% uplift pencilled-in for 2018. That’s strongly progressive and way ahead of inflation, and it’s the kind of dividend I really like to see.
There is a bit of uncertainty ahead as founder and chief executive Chris Macdonald is to step down in April — chairman Chris Knight described him as the “principal architect of the group’s success.” We’ll have to wait and see what new boss Caroline Connellan brings, but hopefully the transition should be a smooth one.
The City doesn’t seem perturbed, putting out EPS growth forecasts of 20% this year and 18% next, for a PEG of an attractive 0.9. That adds healthy growth to what I see as an attractive long-term dividend, and I think that makes for a bargain.
