I do my best to keep an eye on every exciting UK growth stock, but sometimes they fly under the radar.
That’s certainly the case with Halma (LSE: HLMA). The FTSE 100 stock hasn’t just delivered steady growth over the years, but it turns out to be a dividend income star too. I honestly don’t know why I haven’t paid it more attention before. Is now the time to consider buying it?
Halma’s roots go back more than a century, but it found its modern identity in the 1970s, transforming into a specialist in safety, health and environmental technologies. It now operates as a global group of businesses, making products ranging from fire detectors and gas analysers to eye health diagnostic tools. It’s a classic example of a company that quietly gets on with the job while delivering solid returns for shareholders.
Halma shares are flying
The yield might look uninspiring at first glance, sitting at just 0.72%. But Halma has increased its annual dividend by at least 5% for an incredible 45 years in a row. Even the pandemic couldn’t derail that upward momentum. Over the last five years, the average increase has been just shy of 7% a year.
It’s not hard to see why the yield is relatively low. The share price has been climbing steadily, rising 20% over the past 12 months and 53% over three years. That’s a solid return, especially in a jittery economic climate.
Latest results, published on 12 June, saw profits hit an all-time high. Revenues for the 12 months to 31 March rose 11% to £2.25bn, while adjusted operating profit increased 15% to £486m.
Low yield, high income
Management said the new financial year had started well, with strong demand and margins forecast to remain above the middle of its guidance range.
There are risks, of course. Net debt stands at £535m, which looks manageable for now. It’s down from £731m last September but still bears watching. Halma is highly international, which means exchange rate movements and global disruptions can hit performance. It also leans heavily on acquisitions for growth, completing more than 160 since 1972, and these always carry some integration risk.
One number that might give people pause is the price-to-earnings (P/E) ratio. The shares trade at more than 32 times earnings. That’s what investors have to pay for quality, I suppose.
It may also explain why it went under my radar for so long. I’ve tended to target super-cheap value stocks trading on single-digit P/Es, especially in the financial sector, which has served me well. But I’ve definitely missed out on my share of growth stories along the way.
This could be one of those precious companies that long-term investors consider buying and tucking away for years. The dividend isn’t huge, but the consistency is remarkable. Analysts are a little cautious in the short term, producing a median price target of 3,180p, slightly below today’s 3,228p. Seven out of 17 call it a Buy, but eight are more cautious and say Hold.
Still, given its history, there’s no guarantee a better buying opportunity will come. If we get a summer pullback, I’ll be watching. But even at today’s valuation, it’s one to consider both for income and growth.
