2 unknown but brilliant stocks I think could help you achieve financial independence

Paul Summers looks at two reliable performers that rarely make the headlines.

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You might think stocks that have performed well over the long term would be very familiar to retail investors.

But as far as AIM-listed floor product manufacturer and distributor James Halstead (LSE: JHD) is concerned, I’d argue this simply isn’t the case. 

While I don’t see this situation changing anytime soon (retail investors have a habit of gravitating to exciting ‘story’ stocks over profitable plodders), today’s positive interim numbers were more evidence that the firm is continuing to deliver for those that are aware of its existence. 

Quality stock

At £126m, revenue was unchanged over the six months to the end of December compared to the same period a year ago. Pre-tax profit came in 3.3% higher to £24.5m, leading CEO Mark Halstead to say the company had experienced a “satisfying first half“.  

There was more positive news for shareholders as far as dividends were concerned with the interim payout raised to a record 4p per share.

Before this morning, analysts had penciled in a cash return of 14.5p in the current financial year, which would represent a 7% increase on that returned in 2017/18. Based on the share price at the time of writing (450p), that equates to a yield of 3.2%.

That may not seem great in comparison to some of the high-yielding stocks that can be found elsewhere in the market, but I’d argue that Halstead’s long history of successive hikes to its cash returns is more important for those looking to secure financial independence through their investments.

Indeed, research has shown that those companies offering relatively low but consistently rising dividends tend to outperform those whose payouts, while large, hardly budge and are barely covered by profits.

Other things that attract me to James Halstead include a net cash position of £62.8m and the fact that it remains a family-run firm. The latter reassures me that management’s interests should continue to align with those of shareholders. 

At almost 24 times earnings forward earnings, it’s clear the £930m-cap won’t appeal to committed value investors. Nevertheless, I wouldn’t dismiss the stock simply because it trades on a high multiple. Sometimes, it’s worth paying up to acquire the best stocks for your portfolio. 

Powering back to form

Another company that has strongly rewarded shareholders over the long term but remains fairly unknown is critical power solutions provider XP Power (LSE: XPP).

The stock was out of favour during the second half of 2018 on concerns over a temporary shortage of components needed by the company. But recent news suggests that a recovery might now be on.

In its latest set of full-year numbers (released earlier this month), XP revealed 17% rises in revenue and pre-tax profit to £195.1m and £37.6m, respectively. 

Perhaps more importantly, chairman James Peters said the company was “encouraged” by its start to the new financial year alongside its “healthy order book.

Although weighted to the second half and supported by a recent acquisition, the firm predicts that revenue will continue growing in 2019. 

Despite bouncing back to form in recent weeks off the back of this, XPP’s shares still look cheap on 13 times earnings and come with a secure 3.7% yield.

I’m so confident the company will fully regain its mojo in time, I’ve added it to my own ISA portfolio in March. 

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.

Paul Summers owns shares in XP Power. The Motley Fool UK has recommended XP Power. 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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