These ‘secret’ growth & dividend stocks could still help you retire rich

These two hidden dividend and growth stocks have some highly attractive qualities.

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Coats Group (LSE: COA) flies under the radar of most investors, but that doesn’t mean you should avoid the company. Indeed, the world’s leading industrial thread manufacturer is now well positioned to grow in an industry it dominates after having settled the majority of its outstanding pension obligations earlier this year.

Unique position for growth 

Today’s results also showcase its unique position. Group sales for the period from 1 July to 31 October 2017 grew 2% year-on-year, driven by a strong performance in the industrial division, which saw sales expand 5%. Excluding the US crafts business, overall reported sales grew 5-6%. Reported crafts revenue declined 12% during the period. 

Despite those headwinds in the craft division, management still expects the firm to hit City earnings targets for the year. Analysts are projecting earnings per share of 4.9 for the full-year, putting the company on a forward P/E of 17.7. While this multiple might seem expensive, I believe it undervalues the business for two reasons. 

Firstly, Coats dominates its market and second, the business generates a return on capital employed — a measure of how much profit the company produces for each £1 invested — of 30%-plus. Only a handful of business are this productive. Indeed, this ratio indicates that the company’s book value will double every 2.5 years and if management doesn’t decide to reinvest, shareholders will benefit. 

At present, the shares only yield 1.4%, but the payout is covered four times by earnings leaving plenty of room for further growth

Coats is undoubtedly one company I want to keep an eye on.

Growing in a hostile environment 

As well as Coats, I’m highly optimistic about the outlook for Ted Baker (LSE: TED). Over the past five years, shares in the fashion and lifestyle retailer have risen 170% as the company has defied the broader retail sector woes. And it’s showing no signs of slowing down. 

According to the firm’s latest trading update, revenue rose 7.3% year-on-year for the 13 week period from August 13 to November 11, despite “challenging” trading conditions. Total retail sales jumped 19% mostly thanks to a 30% rise in online sales and 14% increase in wholesale revenues. 

Ted Baker now anticipates low double-digit wholesale sales for the full-year having said in July it was expecting to achieve high single-digit growth. 

Bucking the trend 

At a time when the majority of the UK retail sector, especially in fashion, is struggling, the fact that Ted continues to report double-digit sales growth is a testament to its customer appeal and business model.

Although its shares might not be cheap, I believe that there’s still room for further growth in the years ahead. Based on analyst projections, the shares trade at a forward P/E of 21.2 for the year ending 31 January 2018 and yield 2%. The payout is covered twice by earnings per share, and annual double-digit earnings per share growth is projected for the foreseeable future. 

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.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Ted Baker plc. 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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