Why I’d buy this UK technology growth stock with a decent dividend

There’s a decent dividend to collect from this technology stock, and prospects of growth because of organic advances and future acquisitions.

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Technology company MTI Wireless Edge (LSE: MWE) released its third-quarter results report yesterday. And today, the share price has shot up by more than 5%. To put that move in perspective, with the price now around 81p, the stock is about 60% higher than it was a year ago.

Well-established and growing

The company develops and manufactures “high quality” antennas for commercial, military and radio-frequency identification (RFD) markets. It’s headquartered in Israel, although the stock is listed on the London market.

One of the things I like is that the business has been around for about 50 years and listed on the stock market for about 15. And now it’s grown into an organisation with three divisions: Antennas, Water Control & Management and Distribution & Professional Services.

With so many processes and systems automated these days, I reckon MTI Wireless Edge is operating in a sector relevant to today’s needs. And the firm’s trading and financial record appears to back up that theory. Over the past few years, revenue has been moving at a compound annual growth rate (CAGR) of almost 16% with earnings per share growing at just over 10%.

Another thing I like is the CAGR of the shareholder dividend. It’s running at just under 18%. And at today’s share price level, the forward-looking dividend yield for 2022 is around 2.75%.

I think MTI Wireless Edge is a rare UK technology growth stock because it pays a decent dividend. I’m more used to seeing growth priced at a level that makes the immediate dividend yield paltry.

Strong results so far this year

In yesterday’s trading update, the company said all three divisions traded well in the nine months to 30 September and they’ve been recovering from last year’s pandemic challenges. Revenue grew by 8% compared with the equivalent period a year earlier. And earnings per share increased by 11%. But perhaps the most important figure is that operating cash flow improved by a robust 15%.

I reckon the cash performance of any business is a good indicator of the strength or weakness of the operation. And MTI Wireless Edge has been doing well in terms of cash. The business is “ungeared” and there’s a net cash position on the balance sheet worth around $9.3m.

Looking ahead, chief executive Moni Borovitz said the business is positioned well for ongoing growth from organic advances and from acquisitions. Meanwhile, the forward-looking earnings multiple is around 30 for 2022 when set against analysts’ expectations. That’s not cheap, although it does drop a bit if I account for the firm’s cash pile.

I think the consistency of the financial and trading record combines with the firm’s growth prospects to justify the rich-looking valuation. However, earnings could miss expectations for any number of operational reasons, causing the share price to fall in the future. And I could lose money on the stock.

Nevertheless, I’m watching this one closely and will likely buy some of the shares on dips and down-days to hold for the long term as the growth story rolls out. And while waiting, I’ll collect the income from the dividend.

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 of the shares 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.

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