2 monster dividend stocks I’d buy and hold today

Can you afford to overlook these stocks for your portfolio?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

RM (LSE: RM) is one of the market’s dark horses. The company flies under the radar of most investors but its returns over the past five years have been nothing short of outstanding. 

Indeed, over the period, the shares have returned 100% excluding dividends. Including dividends, shareholders have seen a return of 125%.

And it looks as if these returns are set to continue as today the company announced, alongside its final results for the period ending 30 November, a 25.9% increase in adjusted diluted earnings per share and a 10% increase in the proposed full-year dividend of 26.6p per share. 

Successful year 

This dividend hike follows a healthy year for the supplier of technology and resources to the education sector. Overall, revenues for the period increased by 11% to £185.9m and adjusted operating margins increased from 11.2% to 11.9%. These operational improvements helped the company deliver adjusted operating profit growth of 17.4%. 

RM’s performance received a substantial boost in the year after the company acquired the education & care business of Connect Group plc for £59m. The acquisition contributed revenues of £27.8m for the period. Even though the group did borrow to acquire this growth, robust cash generation is already allowing it to pay off creditors. Before the acquisition, RM’s net cash balance was £40m. By year-end, net debt had fallen to £13.4m implying a reduction in net debt of £5.6m over the past few months. 

Going forward City analysts are expecting further growth from the company. Following this year’s strong performance, earnings per share growth of 9.1% is projected for 2018 indicating that the shares are trading at a discount forward P/E of only 8.3. A market-beating dividend yield of 4.3% is also on offer. 

So overall, if you’re looking for a cheap growth stock with a dividend growing at a double-digit percentage every year, RM could be the company for you. 

Changing with the times

Another dividend stock that’s on my radar today is NAHL (LSE: NAH). This personal injury-focused law firm has fallen out of favour with investors over the past few years, due to government attempts to clamp down on the sector. However, management has been trying to diversify, and so far this strategy is succeeding, with the group’s critical care division and residential property arm producing steady results.

These efforts are expected to help the company continue to grow in a harsh environment. Over the next two years, City analysts expect revenues to expand by around 9%, although net profit is expected to slide by 25% over the same period. 

Still, NAHL’s discount valuation and high-single-digit dividend yield more than make up for this earnings decline. The shares currently trade at a forward P/E of 9.3 and support a dividend yield of 7.3%. The payout is covered 1.5 times by earnings per share, and the group has a relatively stable balance sheet with net gearing of just 16.2%, leaving plenty of room for manoeuvre. 

It could also be the case that City expectations for the company’s outlook turn out to be too pessimistic. Indeed, only a few weeks ago the firm announced to the market that trading during the fourth quarter had exceeded expectations and, as a result, earnings for the full year would beat City estimates. With this being the case, I’m optimistic about NAHL’s 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 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.

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

1 Warren Buffett stock I’m buying now

Coca-Cola is the fourth-largest holding in Warren Buffett’s Berkshire Hathaway. I’ll explain why I’m following Buffett and buying more.

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

I bought 4,403 Lloyds shares in June and 4,856 in September. Here’s what they’re worth now

Harvey Jones thought he was bagging a FTSE 100 bargain when he bought Lloyds shares on two occasions last year.…

Read more »

Young woman holding up three fingers
Investing Articles

I’m itching to buy these 3 hidden FTSE gems in a Stocks and Shares ISA

Harvey Jones is keen to add these three FTSE 100 companies to his Stocks and Shares ISA before April. Only…

Read more »

Close up of a group of friends enjoying a movie in the cinema
Investing Articles

How I’d try and turn just £1 a day into a fabulous £54,485 passive income for life

By investing small, regular sums in FTSE 100 shares I can potentially generate a huge passive income stream. It won't…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’d aim for a million buying under a dozen shares

Christopher Ruane explains why less could be more when it comes to building a share portfolio if he wants to…

Read more »

Investing Articles

Rolls-Royce shares are up over 1,000% since 2020! Am I too late to buy?

Rolls-Royce shares now cost over tenfold what they did in the firm's 2020 rights issue. Our writer thinks they may…

Read more »

Investing Articles

1 top UK growth stock for my tech portfolio in 2024

Up 30% in just one year, this growth stock looks positioned to continue on the path of substantial gains, according…

Read more »

Buffett at the BRK AGM
Investing Articles

I’d follow Warren Buffett to target effortless passive income

Warren Buffett knows a thing or two about building passive income streams. By learning from the Sage of Omaha, so…

Read more »