Liontrust Asset Management (LSE: LIO) released its annual results today and the board hiked the dividend by 40%. This extends a record of terrific increases in the payout in recent years and with the company also having a bright outlook for further dividend growth, I’d be happy to buy the stock today.
Also on my ‘buy’ list right now is soft drinks firm AG Barr (LSE: BAG). This long-established business (founded in 1875) owns a strong stable of brands, headed by its flagship Irn-Bru, and has increased its dividend fivefold since the turn of the century.
Liontrust today reported forecast-beating results for its financial year ended 31 March. Revenue increased 49% to £77m versus analyst forecasts of £74m and adjusted profit before tax of £27.4m (forecast £24.8m) was up 59%.
The company acquired Alliance Trust Investments during the year, added Sustainable Investment and Global Fixed Income teams to its house and strengthened its distribution team, notably to enhance its business in the institutional segment of the market. Management expressed “great confidence for the future.”
In an article earlier this week, I rated fellow fund manager Polar Capital Holdings a ‘sell’. So why am I so keen on Liontrust? Polar’s price-to-earnings (P/E) ratio wasn’t outrageous at just over 19 on an adjusted diluted earnings per share (EPS) basis and a 4% dividend yield was pretty decent. However, a valuation of 4.9% of its assets under management (AUM) was far too rich for me, this being a metric where I generally look for sub-3% as offering value and a margin of safety.
Liontrust’s shares are currently trading at 605p (3% up on the day), giving a P/E of 14.2 on adjusted diluted EPS of 42.7p and a dividend yield of 3.5% on a 21p payout. The company’s market capitalisation is £306m, which values it at 2.7% of its £11.347bn AUM. As such, I’d be happy to buy this stock at a market cap of up to £340m, currently equivalent to about 670p a share.
Drink to success
AG Barr is a company I’ve long admired. The success of this FTSE 250 firm has been built by the careful stewardship of successive generations of the founding family. The long-term horizon on which the business is managed is ideal for private investors looking to buy and hold a stock for many years. The fact that the company operates in a defensive sector of the market — earnings tend to be pretty resilient through the economic cycle — only adds to the attraction.
In its latest financial year, the company posted EPS of 31.4p, giving a P/E of 21.9 at a current share price of 688p. This compares with 23.6 for FTSE 100 drinks giant Diageo, while Barr’s 15.55p dividend offers the same 2.3% yield. The board increased the dividend by 8% on the prior year, which is only a little lower than the compound annual growth rate that has delivered that fivefold increase in the payout since the turn of the century.
Management said in the results: “We remain confident in our ability to capitalise on the opportunities to grow our business and deliver long-term value to shareholders.” I share the board’s confidence.