These top secret dividend growth stocks are surging in value. Have you missed the boat?

Royston Wild runs the rule over two little-known shares whose prices have exploded in 2019. Can they keep going?

| 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 investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

On The Beach Group (LSE: OTB) is a little-known share whose price has been going gangbusters in recent weeks. Up 33% since the turn of January, but still trading on a dirt-cheap valuation — a forward PEG ratio of 1.1 — I reckon there’s plenty of scope for it to keep on climbing.

Why so? Well it’s not in response to soaring customer numbers in recent times, sales at the travel operator suffering over the summer because of the extraordinarily hot weather in Europe that prompted citizens to vacation at home.

Instead, the market has been impressed by On The Beach’s online-only model which allows it to dynamically reduce costs in times of declining revenues. This meant that pre-tax profit in the 12 months to September 2018 still surged 24% year-on-year to £26.1m. And with slowing economic growth in the UK and continental Europe threatening to impact holiday bookings over the medium term, this quality is worth its weight in gold.

A sunny selection

Discarding those near-term revenues worries, On The Beach is a share in prime position to lasso the growing number of travellers booking their holidays online as a consequence of the e-commerce phenomenon. It also boasts the flexibility to allow it to react to changing consumer trends more effectively than its traditional high street rivals, and all this is likely to underpin scintillating earnings growth looking ahead.

My view is shared by City analysts who anticipate that earnings will continue to improve by double-digit percentages over the next two years at least. And this leads to predictions that dividends will keep shooting skywards as well, the 3.3p per share reward of fiscal 2018 anticipated to rise to 3.9p this year and 4.7p in the next period.

Subsequent yields of 0.9% and 1.1% for this year and next, respectively, clearly aren’t the biggest on the market. Still, for long-term investors I reckon the rate at which On The Beach is raising dividends, and is likely to continue to do so, makes it a white-hot income share to buy today.

Another recent riser

Lookers (LSE: LOOK) is another company whose appeal to stock pickers has surged since the turn of the year, its market value jumping 12% in that time.

Unlike On The Beach, though, quite why this share is surging is a bit of a mystery to me, I’m afraid. Okay, its prospective P/E multiple of 7.6 times makes it cheap. Predicted dividends of 4.2p and 4.5p for 2019 and 2020 respectively will have made income investors sit up too, because of their subsequent 4% and 4.3% yields.

But the car dealership’s share price rise comes against a backcloth of rising fears over Brexit and whether this will prolong the economic downturn Britain is currently experiencing, a phenomenon that official figures show is pummelling auto sales (SMMT figures showed new car sales dropped 7% in 2018 to 2.37m units). In this environment it’s not difficult to foresee Lookers’ share price reversing sharply again. And for this reason I am prepared to give it a wide berth.

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 assessed. Consider taking independent financial advice.

Royston Wild 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.

More on Investing Articles

Young black colleagues high-fiving each other at work
Investing Articles

Is Legal & General Group one of the FTSE 100’s greatest value shares?

Legal & General shares boast low P/E ratios and massive dividend yields. Could they be one of the London stock…

Read more »

Front view photo of a woman using digital tablet in London
Investing Articles

I’m looking for the best FTSE 100 value stocks to buy now. Have I found them?

Barclays, NatWest, and Imperial Brands shares are recovering strongly. But these FTSE 100 stocks still trade on rock-bottom earnings multiples.

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

Where on earth will Nio stock be in 1 year?

Nio stock has demonstrated extraordinary volatility over the past 12 months, but where will it be in a year's time?…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

6.9% dividend yield! 2 cheap stocks to consider for a £1,380 passive income

Looking for a market-beating passive income? These FTSE 100 and FTSE 250 dividend stocks could provide a healthy second income…

Read more »

Mature black couple enjoying shopping together in UK high street
Investing Articles

Potentially 34% undervalued, should I be watching the boohoo share price?

The boohoo share price has seen a rocky few years, but with signs that the economy is improving, could this…

Read more »

Investing Articles

Is the Amazon share price primed for a drop?

The Amazon share price has been on a tear for the last year, but can this trend continue? Gordon Best…

Read more »

Photo of a man going through financial problems
Investing Articles

Down 15% in a week! What’s gone wrong with the National Grid share price?

The National Grid share price isn't supposed to crash but now it has. Harvey Jones is wondering whether to take…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

Taylor Wimpey just paid me £158.78. I’m aiming to turn that into a £100k yearly second income

Harvey Jones says small, regular dividend payments can turn a few pounds into a mighty second income, if he gives…

Read more »