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Are these two overlooked dividend growth stocks about to enjoy a massive turnaround?

Investors in James Halstead (LSE: JHD) haven’t had much fun lately, with the stock trading 5% lower than three years ago. The international distributor of commercial floor coverings is flat today despite publishing its interims to 30 June headlined “Record turnover and profits with, once again, record dividend”. So are today’s results as good as management claims, or as underwhelming as the dour market response suggests?

Well covered

A 3.6% rise in revenue to £249.5m isn’t too shabby, while profits before tax rose just 0.2% to £46.7m. These are both “records” but nothing to set the world alight. Earnings per share (EPS) rose just 0.6% to 17.7p.

There was some good news for shareholders, with the final dividend jacked up 4.3% to 9.65p, another of those records. Chief executive Mark Halstead made a nod to the global nature of the Bury-based business, proudly noting that recent floor covering contracts include the Forensic Laboratory of The Metropolitan Police in Buenos Aires and the new Schengen area of Athens Airport.

Steady as she goes

Group investment in product, processes and structures should lay the groundwork for continued progress, while weighing on profit growthThe £916m AIM-listed company has zero gearing, and a cash balance of £50.7m.

A company valued at 24.2 times forward earnings should probably be growing faster than this. The forecast yield of 3.2%, with cover of 1.3, looks less exciting in this context, although that cash balance means there is scope for further growth. Forecast EPS growth of 7% in the year to 30 June 2019 underlays a good solid stock, but one that is unlikely to leave you floored.

Good in Leather

International consumer products group PZ Cussons (LSE: PZC) is trading 2.5% higher today after issuing a trading statement reporting that overall results for the quarter to 31 August were in line with expectations. Good performance in Europe and Asia has offset challenging trading conditions in Nigeria, with management hailing its “robust and innovative product pipeline and tight control of costs”.

The £1bn FTSE 250-listed stock has accelerated product launches and boosted consumer engagement across key brands Imperial Leather, Carex and Original Source, and Sanctuary, St Tropez, Charles Worthington and Fudge in its beauty division. It posted solid performance in Australia and Indonesia, but has been struggling in Nigeria amid political uncertainties and subdued consumer disposable income. 

Soft soap

As my Foolish colleague Royston Wild recently noted, the group’s rising debt pile could potentially imperil the dividend. Don’t forget that in March, PZ Cussons saw its shares tumble 15% in a day after issuing a profit warning due to falling sales in Nigeria and the UK. The subsequent recovery has been patchy

It currently trades at a forward valuation of 16.7 times earnings, so is neither overpriced nor cheap. The forecast yield is 3.7%, with cover of 1.6. After four years of negative EPS, City analysts are now pencilling in 4% growth in the year to 31 May 2019, followed by 9% the year after. Revenue projections look sluggish, though. UK economic fears have hardly eased lately, which is a worry for its washing and bathing division. There’s more fun to be had elsewhere.

Capital Gains

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harveyj has no position in any of the shares mentioned. The Motley Fool UK owns shares of PZ Cussons. 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.