Hunting for income shares that could help you to pack in the day job? If you answered yes (well, who wouldn’t?), then FTSE 100 share Ashtead Group (LSE: AHT) deserves some considerable attention.
The company may be easy to overlook at first glance though. Ashtead — which provides an assortment of heavy-duty rental equipment in the US, Canada and the UK — has a dividend yield of 1.6% for the year to April 2019, the result of a predicted 36.9p per share dividend. And the 39.7p reward predicted for fiscal 2020 yields just 1.7% too.
However…
That said, the rate at which Ashtead has been growing dividends has been staggering. The London-based business has built an ever-more-generous dividend policy on the back of gobsmacking, double-digit-percentage earnings growth over the past five years (culminating in last year’s 33p reward, up 20% year-on-year). And with City brokers forecasting more of the same, rises of 28% and 13% being predicted for fiscal 2019 and 2020 respectively, you’d be right to expect further stunning dividend rises.
Indeed, Ashtead has previously vowed to maintain “a progressive dividend with consideration to both profitability and cash generation that is sustainable through the cycle.” Latest trading details released today suggest that its shareholders can fully expect more stunning dividend growth on the back of this formula.
Buy-backs booming too
As a regular reporter of Ashtead developments, I’ve become accustomed to bubbly news releases. But Tuesday’s was better than I, like much of the City, had been expecting.
Thanks to what it described as “supportive end markets” the Footsie firm saw rental revenues boom 19% during the first fiscal quarter at constant currencies, to £961m. This result drove pre-tax profits 23% higher (at stable exchange rates, too) to £285.6m.
Because of this robust financial performance, allied with the benefits brought by the ongoing weakness of sterling, Ashtead said that it expects full-year results to stomp past current expectations.
To put the cherry on top for investors, the company also announced that it was extending its share buy-back scheme. It has so far spent £300m under the stock purchase programme declared last December, and it said today that it was extending this to £125m per quarter, resulting in a total spend of £675m under the scheme. Ashtead added that the programme will be extended into next year with an anticipated spend of “at least” £500m.
A brilliant buy
Clearly City analysts will be busy in the next few days upgrading their earnings predictions through to the close of next year, while dividend projections are also likely to receive a dose of rocket fuel after news of the Ashtead’s still-impressive cash generation (free cash flow was strong again at £51m during May-July).
And I’m fully expecting both profits and payout growth to keep on impressive long beyond the medium term. Rampant infrastructure investment in the US promises to keep Ashtead’s hardware in demand, while its well-publicised commitment to acquisitions, which saw it spend another £145m on bolt-on buys during the last quarter alone, should also keep the bottom line chugging northwards.
All things considered, I reckon Ashtead has all the tools to help you make a packet by the time you retire. Considering it can still be picked up at a dirt-cheap forward P/E ratio of 14.4 times, I reckon it is a steal right now.
