Many investors like to focus on finding growth stocks with exciting high-tech stories. But the truth is that the best growth stocks aren’t always sexy. They’re often quite dull.
To show you what I mean, I’m going to look at two FTSE 250 stocks which I believe have the potential to deliver a market-beating mix of growth and income.
Strong profit growth
Marine services group James Fisher & Sons (LSE: FSJ) has been in business for 170 years. But the group has changed greatly over this time. Its main focus is now on providing a range of specialist and essential services for the energy and transport industries.
Despite the oil market crash, Fisher shares have hit all-time highs since 2015. Today’s interim results revealed that the group’s underlying pre-tax profit rose by 6% to £18.6m during the first half. The interim dividend will rise by 10% to 9.4p.
Rising demand
Nick Henry, the group’s chief executive, says that a combination of new renewable energy projects and an increase in oil and gas-related activity means that the second half should be stronger. Mr Henry expects “a good improvement in the result for the year”.
Fisher shares rose by 3% when markets opened this morning. This suggests to me that today’s figures and the firm’s full-year guidance were slightly better than the market expected.
Based on current consensus forecasts, James Fisher stock trades on a forecast P/E of 18 with a prospective yield of 1.9%. Although this isn’t cheap, I believe Fisher is likely to continue performing well and could reward buyers at current levels.
Boring but profitable
The engineering business of Hill & Smith Holdings (LSE: HILS) is even less glamorous than that of James Fisher. But it’s very profitable. This £1bn company specialises in making products used when building roads and utility infrastructure.
Examples include street lighting, crash barriers, steelwork for bridges and fencing. These may sound like generic products, but in many cases they’re required to meet tough regulatory standards. They’re not easily substituted with cheaper alternatives.
The group’s recent half-year results confirm the appeal of its business. Sales rose by 6% on a constant currency basis, while underlying operating profit was 13% higher, at £38.8m. The group’s operating margin rose by 0.8% to 13.3%.
Shareholders were rewarded with an 11% increase in the interim dividend, which rose to 9.4p per share. It’s worth noting that dividend growth at this group has averaged 15% per year since 2011, and the payout has not been cut since at least 2002. It’s a reliable income stock.
Strong outlook
The group gets more than 80% of sales and 87% of its underlying operating profit from the UK and US. Management expects both of these markets to see significant infrastructure investment over the next few years, providing a strong outlook for growth.
City analysts expect Hills & Smith’s underlying earnings to rise by 10% to 72.2p per share this year. This puts the stock on a forecast P/E of 18, with a potential yield of 2.3%. As with James Fisher, I believe it could be worth paying this price now to get access to the long-term growth potential of this quality business.
