Up 72% in a year and a decade of dividend growth! Is this my perfect UK stock?

Harvey Jones is on the hunt for his perfect UK stock and is wondering whether he’s now found it in this FTSE 100 dividend growth machine.

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I never thought there could be anything such thing as the perfect UK stock. There are plenty I admire, of course. One or two I’m quite devoted too. But perfection? That’s a big ask. Every stock has its risks. No company guns it forever. Yet one FTSE 100 stock comes pretty close.

Private equity specialist Intermediate Capital Group (LSE: ICG) flies under the radar. I’ve never seen it appear in the top 10 most traded companies. Search engine traffic is relatively light. My fellow Fools only rarely delve into its mysteries. The first time I came across it was on 13 December 2022, when I was dazzled.

I raved about its “unmissable 6.45% yield”, strong balance sheet with £1.3bn of liquidity, and its ability to raise £6bn of funding every six months.

Top FTSE 100 opportunity

With a valuation of just 6.4 times earnings, I concluded it offered “strong share price growth prospects as well”. And how right I was. At the time, its shares were trading at 1,150p. I pledged to buy them after Christmas but stupidly didn’t. Today, I’d have to pay 2,394p. That’s more than twice as much. Over one year, they’re up 71.98%, against growth of 10.54% on the index as a whole.

Now I’ve found one more thing to like about the stock. I was perusing the top 10 holdings in the SPDR S&P UK Dividend Aristocrats UCITS ETF and there it was, right at the top.

The ETF tracks UK companies whose dividends have increased for at least seven consecutive years, making ICG a true dividend aristocrat. In fact, its track record of dividend increases goes back more than a decade.

Sadly, I’ve had to admire Intermediate Capital Group’s qualities from a distance. I’ll also confess that no share is perfect. Private equity profits can be lumpy, depending on purchases and disposals. Its share price has grown over the long term but with plenty of peaks and troughs along the way. It’s at a peak today. A trough could easily follow.

Income hero

As a global alternative asset manager, its job is to supply capital to growing businesses. By rights, it should be finding the going tough, with interest rates expected to stay higher for longer. I keep reading that private equity’s heading for a tough time, but Intermediate Capital Group has bucked that trend, so far.

On Tuesday, it reported a walloping 132% increase in group profit before tax to £258.1m. Performance fee income skyrocketed 276% to £73.7m. And that’s despite a “challenging environment”, with buyout volumes falling for the second year in a row. Fund raising is holding up nicely though.

So should I buy it today? The trailing yield isn’t huge, despite all those dividend hikes, at 3.38%. It’s nicely covered 2.1 times though. Inevitably, the stock isn’t as cheap as it was in December 2022, trading at 14.32 times earnings. That still looks good value to me though.

As a rule, I hate buying stocks after a strong run, as I feel like I’ve missed out on the best bits. But rules are made to be broken. I need this in my portfolio. Maybe it’s not perfect, but I still think it’s an unmissable buy.

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.

Harvey Jones 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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