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Should you snap up this FTSE 250 dividend stock after 12% one-day fall?

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My Motley Fool colleague Rupert Hargreaves wrote of his liking for companies that provide a specialist, bespoke service when he examined Sanne (LSE: SNN), a provider of corporate and fund administration services. I share that liking.

Sanne, after years of earnings rises, looks like turning into a cash-cow dividend stock. With annual payments progressing way above inflation, we’re looking at a forecast 2.8% yield for this year, growing to 3.4% by 2020. Twice-covered by forecast earnings, I think it could be the start of a sustained dividend run.

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Those yields, however, are based on the share price as I write on Wednesday, and it’s down a whopping 12% on the day so far. What’s gone wrong?

Trading update

Ahead of full-year results, the company told us it “has seen strong performance in 2018.” Business is weighted towards the second half, and is in line with the board’s expectations.

And that second half brought in record new business, which represents around £13m in additional annualised revenue. Global growth is exceeding expectations, operating margins are improving, and the company sees strong momentum going into 2019.

No problems there

But in other news, chief executive officer Dean Godwin is to retire and will be succeeded by ex-chief commercial officer Martin Schnaier. Mr Goodwin is credited with the company’s rapid success since flotation in 2015, and there may be doubts now over its continued expansion. But Mr Schnaier has played a key part in it too, and I think the company will still be in excellent hands.

With earnings growth forecasts looking strong, I’m seeing a buy here.

Another specialist

Brewin Dolphin Holdings (LSE: BRW) is another I see as being a bit of a services specialist, being one of only a relatively small number of publicly listed stockbrokers and investment managers.

It’s also become a steady income provider through inflation-beating dividend rises — though it has had longer than Sanne, tracing its history as far back as 1762.

Dividend yields are currently forecast at 5.5% for the year to June 2019 and 6.1% the year after, as the firm’s long history of annual earnings rises looks set to continue. Cover of around 1.3 times seems adequate for a company in this sector. And P/E multiples of 14 this year, dropping to 12.5 next, do not look stretching.

First quarter

In a Q1 update the firm spoke of “lower market levels and ongoing macro-economic uncertainty,” which is nothing we didn’t know, but did add that “net discretionary inflows have remained strong and ahead of our 5% target.” Intermediary client activity has, however, slowed due to market uncertainty, and that’s perhaps not a surprise.

During the period, Brewin Dolphin saw total funds fall by 7.7% to £39.5bn, with discretionary funds down by 7.2% to £34.9bn. That might not look great on the face of it, but over a traumatic time when the FTSE 100 lost 10.4% of its value, I’d rate it as a pretty decent performance.

Underpriced

Total income fell a little, by 1.6% to £77.7m, but again I’m not concerned about that in the current investment climate.

Uncertainty and fear has led to the Brewin Dolphin share price losing 20% over 12 months. But when markets are down and investors are running scared, I think that’s exactly the right time to be buying into depressed shares like this.

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Alan Oscroft has no position in any of the shares 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.

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