Forget Cash ISAs! I’d invest in this company for its growing dividend

This company’s valuation looks reasonable to me, and I reckon it has the potential to grow its dividend in the years ahead.


| 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.

I wouldn’t entertain putting money into a Cash ISA because they pay pitifully low rates of interest. Instead, I’d buy the shares of companies such as education specialist RM (LSE: RM) and pocket the stream of growing dividends.

I like the firm’s consistent record of dividend-raising delivered over the past few years. Since 2013, the shareholder payment has risen by more than 112%. And the share price is around 145% higher than it was six years ago too. Shareholders over the period have done well.

Fast-growing international sales

The story behind RM is one of weaker UK sales lately and a fast-growing international operation. Around 17% of overall revenue came from abroad during 2019. The company is engaged in a programme designed to adapt operations to the evolving requirements of the education sector. And at the beginning of 2019, the directors set out four strategic themes, which they believe will help focus the firm and enable the creation of long-term value for shareholders.  

The themes are Intellectual Property & Technology Development, International Growth, Innovation, and Efficiency & Simplicity. I reckon that’s a good list and could help the business grow from where it is today.

Today’s full-year report for the period to 30 November kicks off with the headline: “Steady progress and continued international momentum.”  Overall revenue rose just 1% compared to the year before but, within that figure, revenue from abroad increased by 18%, suggesting decent progress with at least one leg of the list of themes.

Adjusted diluted earnings per share moved 2% higher and the directors pushed up the total dividend for the year by 5%, continuing several years of annual rises in the payment. Chief executive David Brooks said in the report the year has been “solid” with revenue and operating profit being underpinned by a “stronger” performance from the firm’s two technology divisions. However, the third division, Resources, had a “challenging” year.   

Acquisitive growth

During the period, RM acquired Australian company SoNET, which provides Software as a Service platforms mainly to the education and government sectors.  The directors reckon SoNET’s e-testing software “augments” RM’s existing exam e-marking capability. Now the firm can offer end-to-end digital assessment services.  Acquiring SoNET’s technology means RM can explore new market opportunities and “accelerate” the growth of the Results division.

Looking ahead, Brooks reckons RM is “well placed” in the year ahead to address the market opportunities “across each of its divisions.City analysts following the firm expect earnings to increase by a low single-digit percentage in the current trading year to November. And they’ve pencilled in another 5% increase in the dividend.

Meanwhile, with the share price near 280p, the forward-looking earnings multiple for the current year is sitting close to 10.5 and the anticipated dividend yield is about 3%. Those earnings should cover the payment more than three times.

The valuation looks reasonable to me, and I reckon the company has the potential to grow in the years ahead.

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

Investing Articles

Could Premier African Minerals be a millionaire-maker penny stock?

Shares of Premier African Minerals (LSE:PREM) have crashed over the past year. Is this a golden opportunity for me to…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Which FTSE defence stock should I buy? Here’s what the charts say

FTSE shares like BAE Systems have been flying higher over the last couple of years as the geopolitical situation has…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

Here’s why investors should consider buying Scottish Mortgage shares today

After a steady rise in recent times, this Fool thinks Scottish Mortgage shares could be worth considering. Here he explains…

Read more »

Young black man looking at phone while on the London Overground
Growth Shares

This FTSE 250 stock keeps blowing broker forecasts out of the water

Jon Smith considers the ever-increasing share price targets for a FTSE 250 stock that has risen by 120% in the…

Read more »

A mixed ethnicity couple shopping for food in a supermarket
Investing Articles

Marks and Spencer shares could rise 29%, according to this broker

Marks and Spencer shares currently sport a P/E ratio of just 10, and one well-known City broker believes the company…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 of the best FTSE 100 beginner stocks to consider buying

The Footsie offers people just beginning their investment journey some of the best stocks to buy. Here are two to…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Here’s why the Aviva share price suddenly dived

The Aviva share price suddenly dropped by over 6% the other day. But there's a simple explanation for this sudden…

Read more »

Long-term vs short-term investing concept on a staircase
Investing Articles

With no savings, I’d listen to Warren Buffett to aim for long-term wealth

Warren Buffett looks for "1-foot bars" to step over, not "7-foot bars" to jump. Stephen Wright looks at what this…

Read more »