Engineering specialist Spirax Group (LSE: SPX) is a superstar dividend stock having increased shareholder payouts every year for decades. It’s storming the FTSE 100 leaderboard this morning (12 August), jumping a staggering 17% on today’s half-year results.
In one of those weird coincidences, I’d literally just made a mental note to take a look at Spirax, formerly Spirax-Sarco Engineering, even before I realised it was results day.
The trigger? An article by a fellow writer on the Fool, Christopher Ruane, published on 8 August. He rated its growth and dividend income prospects highly, but said it looked a little bit expensive with a price-to-earnings ratio of 21.
Big FTSE 100 winner today
Ruane said if we get a stock market dip this summer, as many predict, he’d use it to snap up the stock at a reduced price. Safe to say, he won’t be buying after this morning’s hop.
Spirax actually reported a 30% decline in pre-tax profit to £87.9m, with operating profit down 27%. I’d have expected the shares to drop as a result, but I should have know better than to second-guess the stock market.
Group adjusted operating profit fell 1% on a reported basis to £158.8m but was up 7% organically. It beat estimates of £149.6m, and that may explain today’s jump.
Another reason is that expectations are low. Even after today’s lift, Spirax shares are down 21% over one year and 48% over three.
Spirax specialises in niche industrial and commercial steam systems, with China a crucial market. Inevitably, it’s taken a hit as the world’s second biggest economy slows. Currency headwinds and one-off restructuring costs haven’t helped.
There have been hopes of a recovery, with broker Jefferies claiming in January that Spirax had “been through the worst and can recover nicely over the next two to three years”. Instead, the slide continued. Until today.
Dividend income superstar
But Spirax isn’t just about growth. It’s FTSE 100 dividend royalty, with 55 years of consecutive annual increases to shareholder payouts. And that run looks set to continue, as today the board increased its interim dividend by 2.9% to 48.9p per share.
CEO Nimesh Patel said the results were in line with expectations “despite the challenging macroeconomic environment, demonstrating the strength of the group’s direct sales business model”.
He confirmed full-year guidance with “organic growth in group revenues consistent with that achieved in 2024”, with group adjusted operating profit margin beating last year’s currency-adjusted 19.4%.
Patel also highlighted strong order books and increasing demand from key end markets.
Warning: profit takers
Jumping on a stock just after it’s been some expectations can be risky as profit takers often emerge, driving the shares back down at speed. So I’d advise anybody considering Spirax today to tread carefully today.
The global economy remains unsteady, with inflation sticky, tariffs causing concern, and China still struggling. Spirax’s net debt also climbed by nearly 20% to £597m last year.
But with loyal customers and a solid order book, this could be one to consider buying for investors seeking long-term income with share price recovery prospects too. Although I’d let the dust settle after today’s huge leap.
