These 2 dividend and growth stocks have completely smashed the FTSE 100

Harvey Jones picks out two stocks that have defied recent FTSE 100 (INDEXFTSE: UKX) volatility.

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An airplane on a runway

Image source: Getty Images.

So many top stocks have taken a battering lately that it’s a relief to find a couple that have actually posted positive growth over the last 12 months. If you’re looking for momentum growth stocks to inject a bit of turbo-fuelled excitement into your portfolio, then maybe you should start with these two British engineering firms.

High flyer

FTSE 250 group Meggitt (LSE: MGGT) is up 20% in the last year against the 1.8% on the FTSE 100, although its stock is idling today despite posting strong growth in orders and revenues for full-year 2018. Organic orders grew 12%, underpinning expectations for long-term revenue growth, while organic revenues climbed 9%, which management said reflects strong performance in growing end-markets.

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Meggitt maintained its underlying operating margin at 17.7%, helped by efficiencies from strategic initiatives and lower new product introduction costs. It remains confident of delivering its 2021 margin target of at least 19.9%. 

Backfired 

The disappointment was a drop in statutory pre-tax profit from 2017’s restated £228.3m to £216.1m. However, this included a £10.1m non-cash loss from the marking to market of financial instruments, principally currency hedges. Earnings per share fell 39% to 23.2p, while free cash flow dipped 15% to £167.4m.

Chief executive Tony Wood nonetheless hailed “a landmark year for Meggitt, with strong performance underpinned by our increased content on new aircraft programmes and growing end-markets.” Management recommended a final dividend of 11.35p a share, taking the full-year dividend to 16.65p, up 5% on the previous year.

The £4.35bn company trades at 15.6 times earnings despite its year of growing strongly, although its PEG is relatively high at 1.7. The yield is now 3.2%, with cover of two, but management policy is progressive. Kevin Godbold recently noted that it has increased its dividend by 24% over the last four years. The earnings outlook seems positive, with forecast growth of 5% in 2019, then another 11% in 2020. Meggitt isn’t quite shooting for the stars, but it’s a steady grower. 

On track

FTSE 100 engineering giant Rolls-Royce Holding (LSE: RR) has given investors an alarmingly bumpy ride in recent years, but things have been less choppy lately, with the stock up 17% in the last 12 months. Chief executive Warren East appears to be getting the show back on the road.

The £18.5bn group publishes its full-year 2018 results in a couple of days, but its accounts aren’t so easy to decipher. Consensus forecasts suggest a dip on sales from £16.3bn in 2017 to £14.8bn, although most of that relates to the adoption of International Financial Reporting Standard IFRS15, which allows the company to recognise revenue on long-term contracts.

Eastern promise

Analysts also predict a sharp drop in pre-tax profits from £4.9bn to £322m but, again, don’t panic, because Rolls booked a massive gain on its forex hedging last year. The important thing is that management has stuck to its full-year guidance throughout, despite technical issues with its Trent 7000 engines.

Roland Head reckons the Rolls-Royce share price crush the FTSE 100 this year, as East looks to double its cash flow to £1bn by 2020. Future earnings growth looks strong, so far you can tell given the IFRS15 issue, but it needs to be, with the group trading at 36 times forward earnings, more than double the FTSE 100 average of 15.67.

With new engine orders from Emirates and the Serious Fraud Office recently closing its investigation, the future looks a little smoother.

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