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This dividend, value and momentum stock could crush an outperforming FTSE 100

I’m bullish on the prospects for the FTSE 100 over the next few years and believe it could be a good idea to invest in a fund that tracks the index. And even better if you select one that automatically reinvests dividends along the way.

Is there a multi-year bull run on the way?

Some believe that the index is set up for a multi-year bull run after around two decades of consolidation. I think that’s a reasonable theory. Last decade’s credit-crunch was a blow that left the world’s economy and financial system in a big hole that has proved difficult to climb out of. Leading up to the crunch, many firms and individuals were engaged on a spending spree fuelled by borrowings. The world seemed to be living above its means and I see the credit-crunch as the leveller that rebased expectations. I reckon it makes sense that the world’s economy and financial system would take a decade or so to ‘repair.’ But now that the healing process is advanced, why shouldn’t we move into an extended period of prosperity and growth?

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If we do, I think the FTSE 100 will do well. Many of the firms in the index operate in cyclical sectors such as finance, mining, oil & gas, retailing, housebuilding, construction and outsourcing. Macroeconomic wobbles tend to make cyclical companies’ share prices wobble too, so we often see big swings in the index. Yet the possibility of a period of prosperity suggests the potential for the cyclicals to shine and drive the index higher along with other firms in the index as their businesses grow.

Although I’m bullish about the FTSE 100, I’m even more bullish about the prospects for consumer products supplier Norcros (LSE: NXR). The firm scores well against value, quality and momentum indicators, pays a big dividend and could rally from here to outpace the FTSE 100, perhaps driven by a valuation re-rating and decent forward growth projections.

Good trading and a low-looking valuation

Today’s full-year results are encouraging. Constant currency revenue rose 8.6% compared to the prior year, underlying operating cash flow increased 4% and underlying earnings per share moved 6.1% higher. The directors expressed their confidence in the outlook by pushing up the total dividend for the year by 8.3%.

The firm supplies items such as showers, shower enclosures, trays, taps, tiles, bathroom furnishings, accessories and adhesives, and owns brands such as Triton, Merlyn, Vado, Abode, Johnson Tiles and Norcros Adhesives. During the trading year to 31 March, the firmed earned 55% of its operating profit in the UK and 45% in South Africa. There’s no doubt that operations are cyclical, but just as a period of prosperity could drive up the FTSE 100, I think Norcros could thrive too.

The stock is perky today, up around 7% as I write. But even at 213p or so, the forward price-to-earnings rating for the year to March 2020 sits below seven and the forward dividend yield is a tempting-looking 4.2%. On the face of it, there’s plenty of room for a valuation uprating and I think the stock is well worth your further research time.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Norcros. 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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