Why I believe time is running out to buy this FTSE 100 dividend growth stock

Rupert Hargreaves looks at what he believes is one of the best income stocks in the FTSE 100 (INDEXFTSE:UKX) and explains why he’d keep buying.

| 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.

When it comes to FTSE 100 dividend stocks, there’s one company that stands head and shoulders above the rest. 

Distributor DCC (LSE: DCC) might not be the most exciting business in the index, but over the past decade, its growth has left other companies trailing in the dust.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

However, I think time could be running out for investors to buy into this growth story and today, I’m looking at why.

Growth superstar 

DCC follows a buy-and-build strategy. Starting small, the business has grown steadily since its founding in 1976, buying up smaller distribution firms in different industries to add to its empire. When bolted on to the larger DCC group, these acquisitions have benefited from economies of scale. 

This strategy has helped the company grow earnings per share at a compound annual growth rate (CAGR) of 16% over the past five years. Meanwhile, the group’s per share dividend to investors has grown at a CAGR of 11% since 2013. 

Today, the firm unveiled further growth for the six months to the end of September. For the period, adjusted operating profit jumped 15.9% year-on-year, helping boost adjusted earnings per share (EPS) by 12.1% to 107.1p. Off the back of these results, management has hiked DCC’s interim dividend payout by 10%, to just under 45p per share (analysts expect a full-year dividend yield of 2.2%).

And I see no reason why this trend cannot continue. Historically, the company has used a mix of both cash from operations and debt to fund deals. Free cash flow from operations was around £180m for the last financial year (although, according to today’s numbers, operating cash flow doubled in the first half of 2018) and, after stripping out cash, DCC’s balance sheet is still relatively clean, with a net-debt-to-equity ratio of just 39%.

On special offer

I believe DCC is one of the FTSE 100’s best businesses, with a long runway for growth ahead of it. 

However, amid the recent market volatility, investors have rushed to dump the stock. Today, it’s trading around 22% (excluding dividends) below its all-time high printed in January. The shares have declined 17% in the past two months alone. 

These declines mean that the stock is now trading at a forward P/E of 17.2, that’s compared to the five-year average of 29.5!

In my opinion, Brexit uncertainty, coupled with volatility in global markets, are responsible for this decline. But I reckon it’s only a matter of time before investors return to the stock, pushing the valuation back to the five-year average. 

You see, over the past few years, DCC has been expanding aggressively in markets around the world (particularly in the highly-defensive fuel trading and distribution industry), and the company is no longer reliant on the UK. Management plans to continue this global expansion drive, which should soften the blow from any negative Brexit impact. 

The bottom line

As DCC pushes ahead with its expansion plans and showcases its global strengths, I think it’s only a matter of time before investors return to the company. So, it looks to me right now that shares in DCC are currently on sale, but it might not be long before the market calls time on the offer.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

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.

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 considered, so you should consider taking independent financial advice.

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

How I’d apply the Warren Buffett method to buying shares

Learning from billionaire investor Warren Buffett, our writer explains his own approach to investing in shares for his portfolio.

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

This dividend share yields under 1% — but I’d still buy it

This dividend share has a low yield. So why would our writer consider adding it to his income portfolio?

Read more »

Young lady working from home office during coronavirus pandemic.
Investing Articles

Looking for a good share to buy? Here’s how I do it

Here are two approaches our writer uses when hunting for a good share to buy for his portfolio to aim…

Read more »

man in shirt using computer and smiling while working in the office
Investing Articles

One cheap FTSE 100 share I’d buy for a new bull market

This FTSE 100 share is unloved and starting to look seriously cheap, says Roland Head.

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

How I’d invest £500 in UK shares in 2022

Investing a small amount of capital in UK shares can result in high commission costs. Zaven Boyrazian explains how to…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

2 battered FTSE dividend stocks to buy in July!

I'm still searching the FTSE 100 for the best bargains to buy. I think these two big dividend shares are…

Read more »

Woman pulling baffled face
Investing Articles

Can I trust Lloyds’ 6.1% dividend yield?

The Lloyds' share price has sunk in 2022, causing the bank's dividend yield to leap. But can I really trust…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

3 top stocks to buy before the market rebounds

Edward Sheldon highlights three beaten-up stocks he'd buy before global stock markets stage a recovery from their 2022 declines.

Read more »