I reckon now is a great time for stock seekers to pile into Headlam Group (LSE: HEAD).
The floor coverings specialist has seen its share price descend 18% in less than a month, market appetite sinking following a negative reception to latest trading details. This is despite news of solid sales growth, however — UK like-for-like revenues rose 1.9% in January-April despite strong comparables, while underlying sales on the continent advanced 3%.
And I expect robust construction market conditions across Europe to keep sales at Headlam trekking higher.
Supported by an anticipated 5% earnings rise, the City expects it to keep its progressive dividend policy rolling in 2017, and a 26.3p per share reward is currently anticipated. This would represent a chunky rise from last year’s 22.55p ordinary dividend.
This projection yields 5%, taking out the prospective forward average of 3.5% offered up by the FTSE 100’s blue chips by a vast margin. And the good news does not end here, a predicted 28.4p dividend for 2018 (assisted by an expected 3% profits rise) yielding a brilliant 5.4%.
I believe these forecasts appear pretty rock solid even though dividend coverage may fall a long way short of the so-called security watermark of two times, at 1.5 times through to the close of next year.
However, Headlam has a knack of generating boatloads of cash, and its net cash pile rose by almost a fifth last year to £52.6m. And this allowed the company to pay a 6p per share special dividend.
Those seeking generous dividend yields also need to check out marketing giant Communisis (LSE: CMS).
Even though the Leeds business is expected to suffer a 5% earnings slip in 2017, its ability to create lots and lots of cash (free cash flow soared 7% in 2016, to £12.9m) is expected to keep dividends rolling higher.
Indeed, a 2.6p per share bounty is currently predicted, up from the 2.42p dividend shelled out last year. And the dividend is expected to move to 2.7p in 2018, helped by an anticipated 5% earnings increase.
As a result, Communisis carries weighty yields of 5.4% and 5.6% for 2016 and 2017 respectively. And I reckon the company’s ambitious growth plans should continue to deliver explosive shareholder returns.
These projections are built on extremely solid foundations. Dividend cover rings in at 2.2 times and 2.3 times for this year and next, while the strong balance sheet should soothe the concerns of even the most jittery investors (net debt fell 23% last year, to £30.4m).
Communisis is becoming an increasingly important cog in the marketing strategy of the world’s biggest companies and institutions, and the firm is casting its net far and wide to bring in new business. Consequently revenues generated abroad leapt eight percentage points in 2016, to 26%. And the creation of a US office this summer could prove a significant step in the company’s growth programme.
I reckon both Communisis and Headlam should prove lucrative picks for both growth and income chasers in the years ahead.
Royston Wild has no position in any 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.