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2 bargain growth stocks offering rising dividends too

Marketing communications and PR group Next Fifteen Communications (LSE: NFC) has been doing impressively well on the growth and dividend fronts. EPS has doubled over the past four years, driving the shares up almost fourfold to 420p today.

And in that time, the annual dividend has grown from 2.3p in 2013 to 5.25p for the year to January 2017, with forecasts suggesting rises to 7.2p by 2019 — that would be a trebling in six years. The yield isn’t massive, forecast at under 2%, but that’s down to the soaring share price. And it’s four times covered by earnings, so there’s great potential for a long-term cash-cow future here.

That’s borne out by interim results released Tuesday, which show a 13% rise in pre-tax profit to £12m from a 16% hike in revenue to £93.5m. The shareholders’ bottom line saw diluted earnings per share gain 9% to 11.4p, and the firm proposed a 20% uplift in the first-half dividend to 1.8p per share.

Acquisitions too

In addition, the same day brought news of the acquisition of Charterhouse Research Limited, a “leading specialist financial market research consultancy.” The deal cost £2.75m, so it’s a relatively modest purchase.

Important new client deals, including LG Electronics, Grubhub, Marvell and NTT Data, together with a few canny acquisitions, show both sides of Next Fifteen’s growth potential — organic growth and acquisitions are surely both going to play big parts.

On the valuation front, even the stunning price growth of the past few years has not taken the shares beyond an attractive valuation in my view.

We’re looking at a 2018 P/E of 16, dropping to 14.4 on 2019 forecasts – and I reckon that’s cheap for such a strong growth candidate.

Bigger dividends

If you want bigger dividend yields, S&U (LSE: SUS) could be a good pick.

The sub-prime motor finance lender reminded us today it has achieved “17 consecutive years of increasing profit” as it reported on a first half that brought in a 20% rise in pre-tax profit to £14.3m, which provided a 21% boost for earnings per share to 96p. The interim dividend was lifted by 17% to 28p per share.

Fears of difficulties in collecting on loan payments have left the City’s big investors somewhat bearish towards S&U in the recent past, and we’ve seen an 18% share price drop over the past 12 months — though there’s been a 4.6% rebound to 2,074p on the day.

But those fears do not appear to be materialising, as S&S reported “record monthly Advantage collections of £10m achieved in July,” and chairman Anthony Coombs told us “S&U continues to experience robust and good quality demand.” 

What fears?

In fact, new Advantage motor finance agreements rose by 21% in the first half, which it seems is another new record, with improving “initial quality score.”

The annual dividend almost doubled from 46p to 91p between January 2013 and 2017, and a further increase mooted for the current year would take it to around 102.3p. That’s a twice-covered yield of 5%, which would be pushed as high as 5.7% on next year’s forecasts.

If that’s not enough, the market’s aversion to S&U shares has led to slowly falling P/E multiples — from around 16 in early 2014, current forecasts suggest a meagre 9.5 for the current year — and 8.2 next year.

I can see an upwards re-rating coming soon. But even if we don’t get that, long-term growth potential plus that progressive dividend makes S&U look attractive.

Another great growth candidate...

Next Fifteen and S&U look like great growth candidates to me, but I'd also like to introduce you to another top candidate.

The Motley Fool report, A Top Growth Share, examines a hot FTSE 250 company that has already delivered handsome rewards to shareholders. And with sales expected to top the £1bn mark in the near future, there should be plenty more to come.

Click here for your copy of this exclusive report.  It's 100% free and will be sent immediately to your inbox.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Next Fifteen Communications. 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.