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Why I’d buy this recovering dividend stock, but dodge this falling knife

These two stocks have come crashing down to earth recently, but one of them at least is showing signs of recovery.

Stanley’s road

Wealth manager Charles Stanley Group (LSE: CAY) is up more than 3% after reporting continued revenue growth across all divisions, with core business revenue up 5% to £77.7m.  It also announced a 5% increase in funds under management and administration to £25bn, with discretionary funds up by 7.3% to £13.2bn.

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Core business profit before tax rose 5.6% to £5.7m, with profit margins increasing from 8.4% to 9.3%. Charles Stanley also boasted of a “robust balance sheet”, with net assets of £102.8m and cash balances of £67m. It’s also boosted its capital adequacy ratio 177% to 193%, while investors are clearly pleased with the 10% interim dividend increase to 2.75p per share.

Today’s interim results for the six months ended 30 September offer plenty of positives. They also confirm the success of its restructuring progress, after it posted a net loss of of £6.2m in 2015, due to tough competition and lack of volatility.

Up and down

The £152m group now trades at 14.5 times earnings, with a forecast yield of 3.7%. Earnings growth looks healthy too, forecast at 29% for the year to 31 March 2019, then 35% the year after. Charles Stanley expects to make continued progress in the second half of the financial year, although this will partly depend on trading levels which it has less control over. I’ve held this stock before and may be tempted to look at it again.

This hasn’t been such a good day for ground engineering specialists Keller Group (LSE: KLR), which is down 4% after reporting that its outlook for 2019 is “somewhat mixed.” Its trading update said that although its main markets remain healthy and the order book sound, “as previously indicated the contribution from major projects will be lower than this year.”

Going to ground

Last month, Keller’s stock plunged 25% after issuing a profit warning. Its APAC division is on course to make a pre-tax loss of between £12m-£15m in 2018, instead of the small profit expected, due to deteriorating ASEAN market conditions. Following a management review it’s exiting low margin activities in Singapore and Malaysia, with combined revenues of around £60m, to focus on higher-margin sectors where it holds a technological advantage. It hopes this will return its APAC operations to profit in 2019.

Its geotechnical businesses traded in line with expectations in North America, avoiding any material impact from Hurricanes Florence and Michael, although unusually poor weather in Texas in October has adversely affected its Suncoast business, already hit by rising steel prices.

Not my bag

Growth in Keller’s core European, Middle Eastern and North African markets has “continued to be offset by challenging market conditions in Brazil and South Africa, reflecting the geo-political environment in those countries.”

Somewhat mixed is an understatement. Trading at 595p, Keller has lost half its value since peaking at 1,281p in February 2014. You could take a punt on its tempting forecast valuation of 5.8 times earnings and forward yield of 5.8%, with cover of 2.3, but I won’t be joining you.

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harveyj 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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