I would be very confident to invest a plump sum into Unite Group (LSE: UTG) and then sit back and relax.
I have long taken a positive tone on the student digs provider as the yawning gap between accommodation demand and supply is likely to remain supportive for future earnings. Indeed, the benefits of this dynamic was laid out in Unite’s full-year update on Wednesday.
The FTSE 250 business declared that, thanks to like-for-like rental growth 3.4% in 2017, pre-tax profit rose 14% to £229.4m.
Unite is in great shape to keep earnings on an upward trajectory, too, with the business noting: “Reservations for the 2018/19 academic year are at record levels for this time of year, supporting our rental growth guidance of 3.0-3.5% on a like-for-like basis.” Reservations for the upcoming academic period now stand at 75%.
The business’s policy of aligning its accommodation portfolio to the “strongest” universities where demand is at its highest is clearly paying off handsomely. And its robust secured development pipeline (7,550 beds are slated for delivery over the next three years alone) gives plenty more reason to expect profits to continue rolling in.
Against this backcloth, it’s not a stretch to understand why City analysts are expecting profits at Unite to keep growing at a terrific pace. In both 2018 and 2019 earnings expansion of 15% is expected.
And these brilliant projections are expected to keep dividends shooting skywards as well (shareholder payouts have risen at a compound annual growth rate of 36.9% during the past five fiscal periods).
This year, a 26.2p per share reward is predicted, up from 22.7p in 2017 and yielding 3.3%. And in 2019, the dividend is expected to march to 30p, resulting in an inflation-stripping yield of 3.8%.
It may be expensive as Unite currently deals on a forward P/E multiple of 22.4 times. But I believe its disciplined growth plan in an expanding marketplace merit a lofty rating.
Homeserve (LSE: HSV) is another FTSE 250 stock that I am confident can, and should, deliver handsome returns to growth hunters in the coming years.
City analysts are also expecting earnings to grow at double digits in the more immediate future. Rises of 19% and 11% are currently being predicted for the periods ending March 2018 and 2019, respectively.
This isn’t the only parallel the emergency callout play shares with Unite, as dividends are also predicted to keep swelling at a pretty pace. Fiscal 2017’s 15.3p per share reward is forecast to rise to 17.9p this year and again to 19.7p next year, creating plump yields of 2.4% and 2.7% respectively.
I have previously commented on the exceptional progress Homeserve is making in North America and ongoing M&A activity is likely to keep business flowing through the doors. Just in October, the company acquired the home assistance cover business of US-based Dominion Products and Services. But the States is not the only story as revenues are also growing in its other territories of the UK, France and Spain.
Homeserve may also be expensive on paper, but its exceptional progress around the globe still makes it worthy of a prospective P/E ratio of 22.8 times, in my opinion.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Homeserve. 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.