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Why I think this ‘secret’ dividend grower looks set to shine

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Three years ago, I punched out an article about Speedy Hire  (LSE: SDY), the tools, equipment and plant hire services company. At the time, the share price stood at 31p, which was more than 61% “below the highs achieved at the beginning of the year.”

I argued back then that the firm had cyclical operations dependent on the fortunes of the industries it served. But I thought that trading should have been “robust in this mature stage of the current macro-economic cycle,” concluding that the firm’s problems were internal and the stock was, therefore, a turnaround proposition.

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A turnaround in the making

Indeed, back then, the chief executive pointed to several reasons for the decline in revenues and profits that caused the shares to plunge. Such as a lack of focus on the company’s bread-and-butter small and medium enterprise (SME) customers. On top of that, there had been poor execution of a number of business improvement programmes, including a new IT system, and it all ended up with key products being unavailable in many of the firm’s depots. The top executive went further, explaining there had been a lack of ownership, empowerment and accountability within the business.

I concluded back then that Speedy Hire had been getting the basics of its business wrong, but thought it could “do much, relatively quickly, to put its house in order.”  I owned up that I’d be “surprised” if the directors’ recovery plan didn’t result in the shares rising from where they were. So, let’s check back in to see how the turnaround worked out so far, and what forward prospects look like for Speedy Hire today.

The share price now sits close to 60p, so it has almost doubled over three years, driven by a strong recovery in revenue and earnings. City analysts following the firm expect earnings to advance a further 15% in the current trading year to March 2019, and 15% again the year after that. Meanwhile, if the analysts’ predictions prove to be correct, the dividend will have increased since 2015 by more than 200% by March 2020, which is remarkable, because previously the dividend had been stagnant for years. Based on the figures, it looks like Speedy Hire is set to shine as a dividend-growing investment and the ‘secret’ about the firm’s progress with dividends will soon be out in the open.

Attractive ongoing growth and income

The figures tell us that the turnaround has been successful, and today’s half-year report demonstrates further progress. Continuing revenue rose 6% compared to the equivalent period the year before, and adjusted earnings per share shot up 24%. The directors expressed their confidence in the outlook by pushing up the interim dividend by 20%, which is a big rise, suggesting that the business is now in good health.

The chief executive, Russell Down, said in the report he thinks the results demonstrate the progress made implementing a customer-focused strategy and growing the firm’s SME customer base. He’s “confident” the company will meet full-year expectations. I reckon Speedy Hire has turned itself around and now looks attractive as a dividend and growth proposition, albeit one operating in a cyclical sector.

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Kevin Godbold 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.

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