Headlam Group (LSE: HEAD) is a share that I’m convinced will deliver exceptional shareholder returns over the next decade, even if the news flow has been less encouraging of late.
The floor coverings expert is suffering from the impact of tough trading conditions in the UK, and in its August half-year update advised that like-for-like revenues in its home marketplace tanked 5.2% from January to June. There’s no sign that Headlam’s British territory is about to improve any time soon either.
That said, I am convinced that the small-cap’s push into mainland Europe — a territory that delivered a 1.7% like-for-like revenues improvement in the first-half — should help keep earnings, and thus dividends, rising until the UK improves and then beyond.
The City shares my optimism, and is forecasting profits rises of 1% and 4% in 2018 and 2019 respectively, as well as dividends of 24.9p and 26.5p per share for these periods.
And in my opinion, its mega-low valuation, a forward P/E ratio of 11.1 times, and massive dividend yields of 5.3% for this year and 5.6% for 2019 make Headlam a bargain buy today.
Lighting it up
Investors not favouring Headlam on account of its challenging trading environment may favour buying big-yielder National Grid (LSE: NG) instead.
The capital investment needed to keep the country’s lights on means that profits growth cannot be guaranteed each and every year — to illustrate this, a 3% earnings drop is being predicted for the current year to March 2019.
But as my Foolish colleague Peter Stephens pointed out recently, the FTSE 100 utility looks in great shape to keep delivering solid dividend growth despite this expected hiccup. The diving pound means that yields should remain on quite an impressive upward trajectory in line with its aim of lifting the annual payout “at least in line with the rate of RPI inflation each year for the foreseeable future.”
And over the long term, National Grid’s stranglehold on operating the British electricity network, assisted by its move into power provision on the US Eastern Seaboard, sets the stage for sustained earnings expansion. Indeed, its aim of increasing its asset base both at home and abroad provides an extra reason to expect shareholder returns to keep rising.
National Grid is anticipated to recover from this year’s profits blip with a 3% rise in fiscal 2019, lending further credibility to my argument. And this lays the foundation for City brokers to project a total ordinary dividend of 47.3p per share for this year, up from last year’s 45.93p reward, and another jumbo 48.7p payment next year.
There is some regulatory uncertainty related to National Grid, but I believe these fears are more than baked into its cheap forward earnings multiple of 13.8 times. I actually believe the power play provides plenty of upside at current price levels and this, allied with its mountainous yields of 5.9% for fiscal 2018 and 6.2% for next year, should make it an irresistible selection for those seeking solid, unbroken dividend growth over the next 10 years at least.
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Royston Wild 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.