One dividend stock I’d buy today, and one I’d sell

Do you have trouble deciding whether to chase dividends or seek capital growth? Why choose when you can have both.

The recruitment business is cyclical, and that’s a good reason to look for sustainable dividends even through earnings downturns.

SThree (LSE: STHR) has kept its ordinary dividends at 14p per share right through the mini-downturn that hit in 2012 and 2013, even when it wasn’t covered by earnings in 2013 – and in better times it has paid a special dividend too. The ordinary dividend yield has been pretty good, running between 4.3% and 4.6% over the past five years. And though there’s no dividend uplift expected this year or next, on today’s share price of 309p we’d still be seeing respectable yields of 4.5%.

Growth too

What about growth? From 2014 onwards, EPS has been picking up again, rising from 16.8p per share in 2011 before the dip, to 23.2p in 2016, for overall growth of 38%.

The combination of reliable dividends and steady long-term earnings growth (despite short-term ups and downs) has helped the share price gain 43% over the past five years, and that’s added a bit over 30% to overall returns.

Forecasts for further EPS growth this year and next drop the forward P/E to less than 12.5 by 2018. And if it comes off then I reckon we’re looking at an attractive price right now – a below-average P/E for an above-average dividend yield.

And though UK gross profit for the first quarter this year was hit by the Brexit fallout, strong performances in the USA and continental Europe helped keep overall gross profit flat.

SThree looks like a solid long-term investment to me, at an attractive price.


JZ Capital Partners (LSE: JZCP) saw its previous earnings growth come off the rails after 2014,  resulting in an EPS crash from 44.9 cents to just 6.7 cents for the year to February 2017. There are no consensus forecasts now, but at a share price of 558p, that represents a trailing P/E of 106!

JZ, which invests in US and European micro-cap companies and US real estate, cut its dividend by half this year – while switching its redistribution strategy to buying up its own shares when conditions are favourable. Though we still saw a yield of 2.3%, that’s not very impressive and to invest today I’d want to see clear evidence of some serious earnings growth in the medium term.

Latest update

The company’s first-quarter update on Thursday didn’t do a lot to change my mind. JZ reported a fall in net asset value (NAV) to $833.3m, from $848.8m at the end of the last full year, dropping NAV per share to $9.93. Admittedly, at the equivalent of around 766p, that exceeds the current share price of 558p and so the shares are trading at a discount.

But putting aside real estate, asset values of investments in companies, especially micro-cap ones, can be notoriously difficult to assess accurately.

Having said that, the company does appear to be in a net investing phase at the moment, having ploughed $43.9m into investments during the quarter, against only $16.3m realised from disposals. And earnings will surely be erratic over the long term, as it can take some time for an investment in the kinds of assets JZ goes for to come good.

But for me, there’s just too much uncertainty to consider buying at today’s price levels.

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Alan Oscroft 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.