The Judges Scientific dividend grew 25% last year. Can it keep going?

Our writer does not think the Judges Scientific dividend growth story is too good to be true. So why won’t he be buying the shares for now?

| 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.

A pastel colored growing graph with rising rocket.

Image source: Getty Images

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.

The business model of Judges Scientific (LSE: JDG) is simple yet successful. It buys up small and medium-sized specialist instrument makers, offers them the benefits of centralised support and largely lets them get on with what they do best. In some ways, it is reminiscent of the business model Warren Buffett uses at Berkshire Hathaway. But while Berkshire does not pay anything out to shareholders, the Judges Scientific dividend has been growing quickly.

Last year, it increased by 25%. That is only the latest in a series of double-digit percentage increases.

Created using TradingView

The future looks bright

I think Judges might only just be getting going. It has proven its business model and is now scaling it up. Its fast-growing revenues pay testament to this.

Created using TradingView

The company has also proven that it can grow profits, not just revenues.

That is important from an income perspective because ultimately to pay dividends, a company needs to be making money. Not only is Judges profitable, it is also cash generative. Free cash flows have been growing healthily.

Created using TradingView

Dividend could keep rising

I think that is good news when it comes to the Judges Scientific dividend. Already, it is well-covered. Indeed, last year the dividend was covered more than four times by earnings. That means that Judges has substantial scope to keep increasing the dividend at a good clip even if earnings are flat.

In fact, though, I expect earnings to grow over the long term. Judges can help acquired companies improve their sales organically, thanks to its wide customer base and marketing prowess. The company also continues to grow through acquisition. Last year saw organic revenue growth of 15% and the company acquired several firms.

The rate of increase may slow over time as the baseline gets bigger (although that remains to be seen). But I see no reason to expect the company to stop growing dividends.

It has the cash to do so and I think dividend growth has been a key part of the investment case for the company thus far. Changing that suddenly could hurt the share price.

Why I’m not buying

There are risks. They could prevent growth, or lead to the dividend falling.

One would be if the firm overstretches itself trying to fund larger acquisitions that do not turn out well. Another is the emergence of competitors aping Judges’ successful business model, making it harder for the business to find attractively priced acquisitions.

Created with Highcharts 11.4.3Judges Scientific Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Still, I like the company and would happily own the shares. But I do not like the valuation at all.

The price-to-earnings ratio of 80 is way too high for my tastes. That high valuation has also served to depress the dividend yield. Despite a growing payout, the yield is just 0.8%.

So unless the valuation becomes more attractive, I will not be buying.

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.

C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Judges Scientific Plc. 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

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »