If you’re seeking stocks with brilliant dividend growth you might be interested in this bright tech stock.
I recently explained how the explosion in home working could weigh on profits over at former dividend heroes LandSec and British Land in the years ahead. I described how the adoption of home working all over the world could have been hastened by the coronavirus outbreak, lessening the need for expensive office spaces.
It’s a trend that could have had an opposite effect on some software stocks, however. With more and more people working from home, the risks associated with cybersecurity are rising too. And this plays into the hands of stocks like Softcat (LSE: SCT).
This IT services giant estimates that around 52% of the world’s workers operate from home at least once a week. Through its broad range of software solutions this FTSE 250 firm has built platforms for companies to ensure their employees are working efficiently and securely.
Going places
Embracing more flexible work has paid dividends in terms of boosting sales and gross profits at Softcat. During the six months to January these soared 21% and 18% respectively. Its products are in such high demand that the tech titan increased its headcount almost 13% in the first fiscal half versus the same 2019 period.
Its customer base continues to swell and was up more than 4% year-on-year in the period. Meanwhile average gross profit per customer jumped around 12%. The quality of its IT infrastructure is reflected in its hallowed base of corporate partners, a list that includes industry mammoths like Microsoft, Cisco, HP and Lenovo.
Softcat has a long history of annual earnings growth behind it. And City analysts, despite the turbulence created by that coronavirus crisis, expect this record to continue. Consensus suggests that earnings will rise 7% per year over the next two fiscal years (to July 2020 and 2021).
A dividend growth darling
In spite of some recent share price weakness Softcat still trades on an elevated forward price-to-earnings (P/E) ratio of 29.6 times. High ratings like this are part and parcel of investing in tech stocks, however, as they’re shares that are expected to generate eye-popping earnings growth. This high rating certainly wouldn’t put me off.
I would be encouraged to buy on account of its ultra-generous dividend policy, however. Those stunning half-year results saw the half-time payout hiked by a fifth year-on-year to 5.4p per share.
In recent times, Softcat has rewarded its shareholders with meaty hikes in the annual dividend and the distribution of special dividends. There’s nothing to suggest that the company will start disappointing on the income front any time soon, either. Along with that bright profits outlook, the business has a bulletproof balance sheet. No external bank borrowings are in place and it has a large cash balance of around £50m. This is a share I think both growth and income investors need to pay close attention to.
