2 ‘under the radar’ growth and income stocks that look tempting

Edward Sheldon profiles two stocks that look to offer considerable long-term potential.

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The FTSE 250 index is home to many under-the-radar stocks that offer investors the fantastic combination of both capital growth prospects and regular dividends. Today, I’m looking at two such stocks, both of which have tempting valuations and healthy dividend yields right now.

Howden Joinery Group

£2.6bn market cap Howden Joinery Group (LSE: HWDN) is a leading supplier of fitted kitchens and joinery to trade customers. Founded in 1995, the company has 658 depots across the UK, and sees scope for up to 800 going forward.

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The kitchen specialist has a strong track record of generating sales growth, with its top line rising from £854m to £1,307m over the last five years. Profits have also expanded at a formidable rate, with earnings per share climbing from 13p to 29p in that time.

The company published a trading update today for the period 12 June to 28 October and indicated that it has seen a “good trading performance” recently, and that it remains on track to meet the board’s expectations for the year. Revenue for the period increased 8.2% on last year, driven mainly by volume growth, and was up 6.3% for the first 44 weeks of 2017. The company noted that it has added 16 new depots so far this year and that it is planning to open more before the end of the period. The market is clearly impressed with the update, with the shares rising 7% today.

Looking at the company’s valuation, Howden appears to offer value, in my view. With analysts forecasting earnings of 28p for this year, the stock trades on a forward P/E ratio of 16.1, which I believe is reasonable given the company’s growth history. A prospective dividend yield of 2.5% also sweetens the investment case. While Brexit adds an element of uncertainty in the short term, I believe the long-term investment case here is compelling.

Close Brothers Group

When investors think of dividend-paying banking stocks, names such as Lloyds Banking Group and HSBC Holdings come to mind.

However, another one that I believe has considerable potential is Close Brothers Group (LSE: CBG), which offers a range of financial services including deposit taking, lending, finance, wealth management and securities trading.

The bank has a fantastic dividend growth history, having increased its dividend substantially over the years. Furthermore, the company did not cut its dividend during the Global Financial Crisis. Yet despite this strong track record, the stock remains under the radar of many dividend investors.

Close Brothers released FY2017 preliminary results in September, and the numbers were solid, with adjusted operating profit rising 13% and adjusted earnings per share rising 3%. The bank rewarded shareholders with a 5% dividend hike.  

Close Brothers’ share price has pulled back by almost 20% over the last six months, and at the current valuation, value is on offer, in my view. Estimated FY2018 earnings of 130.3p place the stock on a forward P/E ratio of just 10.7, and with a dividend yield of a high 4.3% on offer, I believe the bank has the potential to reward long-term investors with both capital gains and powerful dividends in the future. 

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Howden Joinery Group, HSBC Holdings, and Lloyds Banking Group. 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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