It wasn’t a shock to see Bovis Homes Group (LSE: BVS) supply the market with yet another terrific trading update this week. Pre-tax profits hit a record £72.4m in the first half, it reported, up 20% thanks to a combination of solid sales and exceptional margin improvements.
I’ve been lauding the house-builder’s investment case for what seems like aeons. Stagnating property prices in the UK may have put paid to the stratospheric profits growth of yesteryear. But thanks to the country’s colossal homes shortage, and the huge amount of time it’ll take to solve, the likes of Bovis can still expect sales of its new-builds to keep rocketing higher and at relatively stable prices. And thus profits can still be relied upon to keep moving higher (City analysts predict rises of 8% and 10% in 2019 and 2020 respectively).
Of course this is not where the FTSE 250 firm stands out. With predictions of solid profits growth come expectations of more dividend hikes, and thus Bovis offers show-stopping yields of 9.9% and 10.1% for this year and next.
Combine that with a rock-bottom forward price-to-earnings (P/E) ratio of 9.5 times and I reckon the builder’s a top buy at current prices.
The right medicine
Alliance Pharma (LSE: APH), on the other hand, doesn’t offer up yields anywhere near as mighty. In fact its forward yield of 2.4% barely flies over the current rate of CPI inflation in the UK right now (at around 2%), although the figure improves to a better 2.7% for 2020.
What makes it a delicious pick for income investors, however, is the rate at which it’s been growing dividends, and is likely to keep doing so. Last year’s total payout clocked in at 1.46p per share thanks to a 10% year-on-year hike. And this is expected to soar to 1.6p and 1.8p this year and next.
But this is not all. There are plenty of shares offering bigger yields, but few dividend projections look as safe as those of Alliance, with current projections suggesting that payout coverage of 3 times – comfortably above the widely accepted minimum security benchmark of 2 times – will continue through the next couple of years at least.
… for profits AND dividend growth
Such sterling coverage is underpinned by City predictions that earnings at the AIM-quoted firm – which acquires, licences, and distributes medicines and healthcare products all over the world – will keep on surging, by 11% in 2019 and 9% next year. And why wouldn’t they be so optimistic? The last time Alliance updated the market, it advised that revenues ballooned 29% in the six months to June.
Sales are booming on the back of international expansion and a drive toward high-growth consumer healthcare brands, both of which have been serviced by busy takeover activity in recent times. And thankfully the company has plenty of financial strength to keep making progress on these fronts through additional acquisitions.
The healthcare giant’s set to update the market with interim results on Tuesday, September 24. And I’m expecting nothing more than another set of knockout numbers, ones which in combination with the company’s über-low forward P/E multiple of 13.4 times, could help its share price to soar again. I’d happily buy Alliance AND Bovis for my ISA today and hold them for years to come.
