As its global sales-boosting programme continues with gusto, I am convinced Devro (LSE: DVO) should provide brilliant shareholder returns in the years ahead.
Thanks to its multi-year Devro 100 growth strategy, designed to supercharge sales growth and slash costs, the business has seen revenues from emerging markets rebound sharply, and especially from China, Russia and South East Asia.
The strong progress the sausage casings maker is seeing in these territories was underlined by latest trading details released this week in which the firm said: “The Devro 100 programme continues to progress well, with actions on track to deliver the targeted cost savings for the year.” It added that it made “good progress” with its productivity and output targets at its US plant, while its China factory continues to “perform well” too.
My optimistic take on Devro’s profits outlook is copper bottomed by City analysts’ consensus, which also suggests strong earnings growth from here. Indeed, rises of 12% are forecast for both 2018 and 2019 respectively.
Current forecasts leave the business dealing on a forward P/E ratio of 15.4 times, a pretty undemanding valuation in my opinion, given that its revenues-boosting plan is clicking through the gears and population increases will likely deliver strong demand growth for its edible collagen tubes.
It is in the dividend stakes where Devro really sets itself apart, however. With the business finally on course for sustained profits growth again, and cash generation also steadily improves, dividends are expected to get moving again after years of being locked at 8.8p per share.
A 9.1p reward is forecast for 2018 and this jumps to 9.4p for next year. As a consequence, yields stand at a chubby 4.2% and 4.4% for this year and next.
Take this advice
Investors on the hunt for punchy payout growth should also pay Gateley Holdings (LSE: GTLY) close attention today.
Supported by broker predictions of further earnings growth with rises of 16% and 7% predicted for the years to April 2018 and 2019, dividends are expected to keep growing as well, keeping yields well above the market average.
A 7.1p per share reward is estimated for the current period, up from 6.6p last year and yielding an impressive 4.5%. And the 7.5p dividend anticipated for next year drives the yield to 4.8%.
An added bonus for those considering Gateley is that the business trades on a forward P/E ratio of 14.4 times, comfortably inside the accepted value terrain of 15 times or below.
And this rating is far too cheap in my opinion. Demand for Gateley’s legal and professional services continues to grow at a splendid rate, and the business remains dedicated to building scale to keep business rolling in (its headcount swelled 6.4% year-on-year during July-December to 763). I reckon the AIM-quoted company is in great shape to deliver solid profits and dividend growth in the years ahead.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Devro. 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.