The Motley Fool

1 Footsie dividend champion I’d dump to buy this monster growth stock

Smith & Nephew (LSE: SN) is one of the FTSE 100’s few dividend aristocrats. The company has paid a dividend on its ordinary shares every year since 1937, which puts it in an elite club.

And as one of the UK’s leading healthcare companies, its dividend record should, in my opinion, remain unbroken for some time to come. Indeed, as the world’s population continues to expand and age, demand for the company’s wound care products, knee and hip implants should grow.

That being said, competition in the healthcare sector is only intensifying, which is going to make it harder for Smith & Nephew to maintain its competitive advantage going forward. So, if you are looking for a growth stock, I believe Concurrent Technologies (LSE: CNC) might be a better buy for your portfolio.

Looking to the future

Concurrent describes itself as a “world-leading specialist in the design and manufacture of high-end embedded computer boards for critical applications.” Management believes that the company’s edge and lies in its range of products, such as its new VR E7x/msd processor board, which allows for “improved processing capability, faster connectivity and enhanced digital graphics output.

Concurrent’s revenue for the year to the end of December fell slightly to £16.2m from £16.4m, but thanks to an increase in the gross margin, profit before tax increased by 2.3% to £3m. 

As well as organic growth management is also on the lookout for acquisitions. In today’s trading update, Chairman Michael Collins noted that the “board continues to look for worldwide acquisition opportunities,” but also sees “opportunities to grow the business organically into new market areas without taking unacceptable risks.With £8.4m of cash on the balance sheet at the end of the year, it certainly looks as if the company has plenty of firepower to pursue whichever path it chooses to take. 

And the robust balance sheet is also supporting dividend growth. Over the past five years, the payout has grown at a compound annual rate of 5.6% and today, the firm announced a 5% increase in its full-year dividend per share to 2.2p, giving a dividend yield of 2.7%. In comparison, Smith & Nephew’s dividend has contracted by 12% over the same period and the company has £1.3bn of net debt. 

In my view, Concurrent’s growth is only just beginning, and the City seems to agree.  Analysts have pencilled in earnings per share of 7.1p, that’s up nearly 86% from 2017’s figure, and gives a forward P/E of just 11.6. 

In control of its destiny

Concurrent’s growth, combined with the firm’s dividend potential, clearly shows why it is a better buy than Smith & Nephew. 

Trading at a forward P/E of just under 19, the market apparently thinks highly of Smith & Nephew, but the dear valuation leaves the share price vulnerable to any disappointments. Meanwhile, City analysts believe the company’s earnings will grow at a relatively modest rate of approximately 8% per annum for the next two years. 

What’s more, for a long time, the group’s shares have been propped up by takeover talk, although as of yet no concrete deal has been signed.

With this being the case, I’d pick Concurrent over Smith & Nephew no matter how distinguished its dividend record might be as, if a deal fails to emerge, the capital loss could significantly exceed many years of dividend income.

Under-The-Radar Investment

There are a number of small-cap stocks that could be worth buying right now, and our investing analysts have written a FREE guide called "1 Top Small-Cap Stock From The Motley Fool".

The company in question may have flown under your investment radar until now, but could help you to build a great income from your investments and retire early, pay off the mortgage, or simply enjoy a more abundant lifestyle. Click here to find out all about it -- it's completely free and comes without any obligation.

Rupert Hargreaves owns no share 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.