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2 Neil Woodford dividend growth stocks that could keep rising

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Shares of used car auction group BCA Marketplace (LSE: BCA) were up 9% at the time of writing, after the company said full-year profits should be ahead of previous expectations.

The BCA share price has fallen by 20% over the last six months, as investors fretted that a slower UK market and rising debt levels could limit the group’s profitability. So today’s news should mean that shareholders such as fund manager Neil Woodford can breathe easy, for a while.

I’d like more detail

BCA provided very little detail in today’s trading update. Strong trading seems to have been driven by “a number” of new remarketing contracts plus “continuing renewals”. Remarketing is the group’s main auction business and accounted for around three quarters of operating profit during the first half of the year.

The company didn’t provide any indication of how far profits had risen ahead of forecasts. And while net debt is now expected to be “lower than market forecasts”, there was no indication of what this might mean.

I’m not convinced

I’ve been cautious about BCA in the past, due to what I see as a weak balance sheet. The group’s half-year accounts showed total liabilities of £1,026m versus tangible assets of just £637.1m. This left the group with a negative net tangible asset value, a situation I prefer to avoid.

My view is that recent years’ profits have been boosted by rising volumes of nearly-new cars and add-on services such as “Partner Finance”, which provides credit for customers. With new car sales now falling, maintaining this rate of growth could soon become difficult.

I may be overcautious, but I’m not sure that this is a good time to invest in this business. I’ll be staying away, for now.

Trucking ahead

Another relatively new arrival on the stock market is Eddie Stobart Logistics (LSE: ESL). The trucking and logistics group has a strong brand and works with a wide range of blue chip customers.

Former parent company Stobart Group spun out this business into its own stock market listing back in April last year. Since then, the group’s operational performance has been good, but the shares have flopped. Is this a buying opportunity?

So far, so good

This week’s full-year results contained a fairly large number of adjustments. But if we accept the group’s picture of underlying performance, last year was quite good. Revenue rose by 13.6% to £623.9m, while adjusted pre-tax profit climbed 57.5% to £37.8m.

Thanks to IPO proceeds totalling £118m, Eddie Stobart was able to reduce net debt from £165.5m to £109.5m in 2017 and spend £43.2m on acquisitions. Alongside this, the group paid a maiden dividend of 5.8p per share, giving the stock a trailing yield of 4.6%.

The right time to buy?

My concern is that the business went through a number of changes last year. Seeing through these isn’t that easy, so I’d like to see a ‘clean’ set of accounts before investing.

Despite this, the picture looks reasonably positive to me. Broker forecasts suggest that earnings should climb 22% to 12p per share this year, putting the stock on a forecast P/E of 10.5, with a prospective yield of 5.1%.

I think there’s a good chance that this week’s results will mark the low point for Eddie Stobart’s share price. I’m going to keep this one on my watch list.

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Roland Head has no position in any of the 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.