2 premier picks for growth and dividend chasers

Royston Wild looks at two stocks with brilliant investment potential.

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RM (LSE: RM) found itself dealing at nine-week peaks in Tuesday business, the stock 3% higher on the day and stepping back towards February’s record peaks north of 190p per share.

Investors bought in after the education specialist released its latest set of financials. Revenues dipped 6.9% to £71.3m during the six months to May, it advised, a result that reflected “continued reduction in UK Resources revenues and lower infrastructure and project spend in RM Education.”

As a result RM saw adjusted operating profit rising just 0.2% in the first half, to £7.1m.

Online star

While hardly compelling at face value, investors have clearly taken heart from RM’s assertion that “the board’s expectations for the full year results remain unchanged.” And although school budgets remain under pressure, the steady growth in online learning and increased demand from international markets offers plenty of revenue opportunities for the future.

City analysts expect earnings to rise 4% in the year to November 2017 before revving up thereafter — indeed, an 11% improvement is anticipated for 2018. And these projections also make the Oxfordshire firm a brilliant value pick, the business sporting a P/E ratio of 10 times, which falls inside the broadly-considered value benchmark of 15 times or below.

The abacus bashers also expect dividends to continue shooting higher. Today RM elected to lift the interim dividend by 10%, to 1.65p per share, and the City expects the full-year dividend to rise to 6.3p in fiscal 2017 from 6p last year.

This projection creates a chunky 3.5% yield. And it gets even better for next year, a predicted 6.7p reward driving the yield to 3.7%.

Global giant

Those seeking healthy earnings and dividend growth should also check out advertising ace WPP (LSE: WPP), in my opinion.

Share picker appetite for the FTSE 100 company has deteriorated during 2017 as market conditions have become trickier. Indeed, the Martin Sorrell-steered vehicle has seen its stock price decline 16% since the all-time highs above £19.20 per share punched in March. The company advised that continued tepid economic growth and recent weaker comparative net new business trends” should see like-for-like sales rise just 2% in 2017.

But this recent share price weakness makes WPP splendid value for money in my opinion. Sure, a predicted 9% earnings rise for 2017 would consign the double-digit rises of recent years to history. But this still leaves the marketing mammoth dealing on a forward P/E ratio of 12.9 times.

The trading troubles the Jersey firm is experiencing are not expected to put its long-running growth story to the sword. Another 7% earnings rise is forecast for 2018, and these perky forecasts are expected to protect its reputation as one of the hottest dividend growth stocks out there.

A 62.8p per share dividend is chalked in for this year, up from 56.6p in 2016 and yielding 3.9%. And this moves to 4.2% for 2018 thanks to forecasts of a 67.4p payment.

WPP may have to weather some difficulties in the immediate future. But I am convinced its global presence and huge wingspan across the entire advertising, marketing and public relations sphere (particularly its improving presence in digital) makes it a brilliant long-term selection.

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.

Royston Wild has no position in any 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.

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