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2 super dividend-growth stocks you might regret not buying

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Meeting company directors is often interesting. I believe it’s worth doing, if you get the chance.

Although there’s a risk that you’ll be swayed by a strong sales pitch from an expert communicator — most CEOs fit this description — you can also learn a lot. Certainly when I attended a presentation given by Tracsis (LSE: TRCS) chief executive John McArthur last year, I came away impressed.

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Mr McArthur’s firm specialises in providing software-based systems for the rail industry. Applications include traffic monitoring and data capture, operational planning tools and predictive maintenance systems.

The stock has risen by 10% this morning, thanks to a strong half-year trading update. Revenue rose by 15% to “in excess of £18m” during the six months to 31 January, while earnings before interest, tax, depreciation and amortisation (EBITDA) climbed 22% to £4.3m.

Cash generation remained strong and the group ended the period with net cash of about £18.5m, which is about 12% of the share price. Several new contracts got underway during the six-month period in the UK. The group also secured new work in the US, a potentially transformative growth market.

Why I’d buy

Tracsis sells a portfolio of software systems that it’s developed and acquired. They vary widely but they’re all carefully chosen and are usually very ‘sticky’ — once a client starts using it, they’re unlikely to change.

Mr McArthur’s clear and direct presentational style is matched by the group’s accounts, which are always pleasingly clean and easy to understand. The focus on cash generation and controlled growth works well for me.

After today’s gain, these shares look quite pricey on 22 time forecast earnings. I’d be tempted to wait for the next dip before buying, but I strongly believe that this is a business that should continue to grow steadily for many more years.

A more affordable option

They say you get what you pay for. Tracsis should be fairly safe in recessions, when trading could become trickier for my next stock, Ramsdens Holdings (LSE: RFX).

Best known as a pawnbroker, this group is really a mini financial firm. It has growing profits from foreign currency exchange and personal loans, alongside more traditional pawn broking and jewellery sales activities.

Foreign exchange is a particularly big earner and generated £7.5m of gross profit during the first half of the year, out of a total of £16.1m. This seems to be a business where companies that offer competitive rates have an opportunity to take market share from more complacent rivals.

So far, so good

Ramsdens floated on the stock market one year ago, so it doesn’t yet have a very long record as a public firm. But the story so far is encouraging. Pre-tax profit rose by 63% to £5.2m during the first half of the current year, which ends on 31 March.

The group’s shares have doubled during their first year of trading but their valuation still looks reasonable to me, on 12 times forecast earnings. The balance sheet carried £13m of net cash at the end of September, providing good support for a forecast dividend yield of 3.3%.

A recession could make trading conditions more difficult for Ramsdens, but on the evidence so far, I’d suggest this could be a good dividend growth stock.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Tracsis. 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.

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