The Motley Fool

Have £1,000 to invest? A FTSE 250 dividend stock that I’d buy and hold for the next two decades

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.

View of Canary Wharf
Image source: Getty Images.

In my opinion, companies that provide a specialist, bespoke service are some of the best investments you can make for the long term. Firms like Sanne (LSE: SNN) for example, which is a specialist global provider of corporate and fund administration services.

Administration services are tedious and time-consuming, but they are also extremely complex and companies can’t afford to get them wrong. With this being the case, I understand it is often more cost effective for businesses to outsource these functions, rather than build their own in-house teams.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Growth charging ahead 

You only need to take a look at Sanne’s historical figures to see just how big this market for outsourced administration is becoming. From just £19m in sales in 2012, the company reported total sales of £113m in 2017.

The City doesn’t expect growth to slow down any time soon. Analysts have already pencilled in potential revenues of £157m for 2019. Alongside its first-half results release, published this morning, the firm confirmed today that it is currently on track to hit full-year growth forecasts. For the six months to the end of June, revenues grew 17%, although due to “an atypical first half weighting of results in 2017,” profit before tax declined 12% year-on-year on a constant currency basis.

And as well as the bespoke and specialist nature of the firm’s business, what I also like about Sanne is its relatively small size and cash generation. For the first half of 2018 for example, it booked an underlying operating profit margin of 30%. 

These figures indicate to me that the company has plenty of capital to reinvest back into the business and expand into new markets. Bolt-on acquisitions in Madrid, Mauritius and Luxembourg show that this is exactly what management is doing.

As Sanne continues to build on its position in the market for administration services, I would be happy to hold the stock for the next two decades. Currently trading at a forward P/E of 21, the shares don’t come cheap, but I believe it is worth paying a premium to take part in Sanne’s growth story.

Bolt-on growth 

Diploma (LSE: DPLM) is a business that I believe has similar qualities. The company produces specialised technical products for industries such as life sciences. This is not the sort of market where any old business can come and quickly grab market share, Diploma has spent decades building its reputation. And like Sanne, the firm is using its cash flow to acquire smaller businesses to help boost growth. 

The latest acquisition was FS Cables, for a total cash consideration of £18m.

A combination of organic growth from its existing ops, as well as complementary growth from acquisitions, has helped turbocharge Diploma’s earnings expansion over the past five years. It doesn’t look as if experts believe this will change any time soon. 

The City is expecting earnings to expand 26% in 2018, leaving the stock trading at a forward P/E multiple of 25. That’s a bit on the expensive side, but once again I believe this specialist business with enormous growth potential is worth a premium valuation. Over the past six years, earnings growth has averaged just under 10% per annum on a compound basis. 

If this continues, it won’t be long before Diploma grows into its valuation.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.