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A FTSE 100 dividend growth stock I’d hold for the next decade

Intertek Group (LSE: ITRK) is a share whose price took a pasting in the wake of full-year results released in recent days. It might still command a premium rating, in this case a forward P/E ratio of 22.9 times, but I reckon this weakness represents a prime opportunity for dip buyers to grab a slice of the action.

The Footsie business — which tests, inspects and certifies products across a broad host of industries across the globe — has shed a tenth of its value despite reporting another year of strong progress in 2018. Indeed, revenues at constant currencies sprung 4.7% higher last year to £2.8bn, thanks to accelerating organic growth in the latter half of the period (up 4% over the six months to December versus a 3.4% rise reported for the January to June period).

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The result prompted pre-tax profit to rise 4% at actual rates and encouraged management to supercharge the total 2018 dividend, up 39% year-on-year to 99.1p per share.

On the flip side…

Less-encouraging news, however, saw sales at Intertek’s Products division — a unit responsible for 60% of group revenues — slowed during the second half of 2018. And investors are fearful of a slow start to the new year because of the impact of President Trump’s trade wars.

Meanwhile, the Footsie firm’s elevated rating hasn’t done it any favours and intensified fears of further weakness as 2019 progresses. This is quite possible, and particularly in the face of strong comparatives for last year.

However, if you’re a long-term investor I still believe this dip provides a great buying opportunity as it arguably bakes in expectations of a near-term sales slowdown. 

Let’s not forget, Intertek’s outlook for the years ahead is extremely robust. As it said earlier this month: “The growing complexity faced by global corporations, higher quality and sustainability expectations from consumers and increased regulatory demand” means there’s plenty of scope for the huge quality assurance market to keep on swelling.

A great dividend grower

And through its broad international network — it has more than 1,000 facilities spanning 100 countries — Intertek’s well placed to keep winning business, and particularly so as its formidable cash flows bolster its geographical and operational handspan through additional acquisitions. The testing titan made four acquisitions in 2018 and it has the financial strength to embark on more M&A action too (strong free cash flow in 2017 improved an extra 3% last year to £350.6m).

It’s not a shock to see then that City analysts forecast Intertek will record a 4% earnings uplift in 2019 and will improve this to 8% next year. And this means dividends are expected to keep rising through this period too. Last year’s reward is predicted to edge to 102.8p per share in 2019, and again to 110.6p in 2020.

Subsequent yields of 2.1% and 2.3% might not be spectacular, but if you’re seeking strong and sustained dividend growth many years, I reckon Intertek is a great bet. Besides, given the company’s track record of delivering dividend growth above expectations I reckon actual payouts may blast past current predictions.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Intertek. 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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