Forget a Cash ISA! I’d buy this 5% dividend paying growth stock today

Despite the robust growth and strong operational momentum this firm maintains, the valuation doesn’t look stretched to me.

| 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.

sdf

It’s been many years since we’ve seen an instant-access ISA cash account paying interest anywhere near 5%, but many shares on the stock market pay an annual dividend of 5% or more.

It’s true that you take on some risk by buying shares because share prices and dividends can fall as well as rise. But in many cases, an underlying business that is performing well can deliver a rising share price and annual increases in the dividend payment. So, as well as taking on the extra risk, by holding shares in companies, you expose yourself to extra opportunities as well.

Good figures and an impressive record

When things click on the stock market, there’s nothing nicer than seeing your capital increase as a stock rises, alongside an income stream from dividends that increases in size a bit each year. One share that I think looks capable of delivering those benefits to shareholders in the coming years is Gateley Holdings (LSE: GTLY), the professional and legal services company.

I find the figures in today’s full-year results report to be encouraging. Revenue rose just over 20% compared to the previous year and adjusted diluted earnings per share increased by almost 18%. The directors expressed their satisfaction and confidence in the outlook by slapping an extra 14.3% on the total dividend for the year.

Since arriving on the stock market around four years ago, the firm has been making strong operational progress. The dividend is now more than 40% higher than the maiden payment in 2016, and the share price has risen just over 60% since the stock first traded on the stock market in 2015. Those strike me as impressive returns for shareholders so far, and City analysts following the firm expect earnings to advance by a mid-single-digit percentage during the current trading year to April 2020, suggesting further progress ahead.

Trading well and a positive outlook

The year was a busy one for Gateley during which it achieved “record-breaking” revenue above £100m, its highest-ever staff numbers, and three acquisitions. Looking ahead, trading in the current year has started well and the directors are confident of achieving further growth in the business in the years to come.

Despite the robust growth and strong operational momentum, Gateley is maintaining, the valuation doesn’t look stretched to me. With the share price at 165p, the forward-looking price-to-earnings multiple for the trading year to April 2020 runs close to 12 and the anticipated dividend yield is around 5.3%.

Gateley is no giant with its market capitalisation running near £182m, but I’m impressed by its trading record as a public limited company and believe it could grow to become a much larger enterprise. I wouldn’t bet the farm on it, but I think the combination of income and growth that the stock appears to offer makes it eligible for a place in a diversified portfolio.

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.

Kevin Godbold has no position in any 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.

More on Investing Articles

Close-up of a woman holding modern polymer ten, twenty and fifty pound notes.
Growth Shares

This FTSE 250 stock has beaten the index by around 10x over the last year

Jon Smith rates a FTSE 250 stock that has smashed the broader index performance and could keep going based on…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

B&M shares are at record lows! Is now the time to consider buying?

The retailer, demoted from the FTSE 100 to the FTSE 250 last year, continues to struggle. But are B&M shares…

Read more »

Investing For Beginners

2 reasons why the stock market could hit 10,000 points by December

Jon Smith explains how the makeup of the UK stock market and the current valuation could support a move towards…

Read more »

Queen Street, one of Cardiff's main shopping streets, busy with Saturday shoppers.
Investing Articles

Why this FTSE 100 rocket is this investment trust’s number 1 holding

A UK investment trust is certainly going against the grain by having this FTSE 100 share as a high-conviction holding…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

These 2 FTSE growth stocks jumped 8% and 4.5% today!

Ben McPoland takes a closer look at a pair of FTSE stocks that are performing really well recently. Why are…

Read more »

Road 2025 to 2032 new year direction concept
Investing Articles

This under‑the‑radar FTSE 100 growth stock is also a secret dividend superstar!

Harvey Jones belatedly wakes up to a brilliant FTSE 100 growth stock that has an equally remarkable track record of…

Read more »

Business manager working at a pub doing the accountancy and some paperwork using a laptop computer
Investing Articles

Barratt Redrow share price plunges 9% on profits hit – time to consider buying?

Harvey Jones says FTSE 100 housebuilders continue to suffer with the Barratt Redrow share price slumping on a profit warning.…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Growth Shares

Why the next month could make or break the Lloyds share price

Jon Smith outlines two key events in coming weeks that could influence the Lloyds share price, leading him to make…

Read more »