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Forget Vodafone! I’d go for this serial dividend-raiser and its solid business instead

Telecommunications giant Vodafone has been struggling to raise its dividend and the shares have been falling. I’d look elsewhere for a rising dividend backed by a decent business.

I wrote in January that Emis Group (LSE: EMIS) has been growing its revenue, normalised earnings, operating cash flow and the dividend for years. There’s a strong balance sheet with a pile of net cash and I reckon the company’s business has some decent defensive characteristics.

Good figures

Operations involve providing software and support services to GP practices, hospitals pharmacies, satellite healthcare centres and “across every major UK healthcare setting.”

And the market likes today’s full-year results report judging by this morning’s uplift in the share price of around 8% as I write.

The figures reveal overall revenue grew 6% during the year and recurring revenue lifted 5%. In terms of the adjusted numbers, net cash from operations moved 10% higher and earnings per share came in flat. The progress showed up on the balance sheet with the firm posting a 12% lift in net cash to £15.6m. This is a positive outcome extending the firm’s record. The directors expressed their approval, and confidence in the outlook, by pushing up the total dividend for the year by 10%.

Chief executive Andy Thorburn said in the report that revenue grew in all the firm’s key segments and much of it can be categorised as ‘recurring’, which I reckon adds to the defensive appeal of the business. The outcome was decent cash generation, which supports the progressive dividend policy and Thorburn thinks the firm is “well positioned” for future expansion.

Planning for growth

The company has been planning and investing for growth and, in 2018, “considerable management time” went into developing the strategy and attracting new talent to the business. The firm made 21 “key senior hires,” which sets it up well for 2019.

Back in January, with the share price around 897p, I said “I’d be happy to dip my toe in the water by buying a few of the company’s shares.” If I’d done so, today’s price close to 1,034p would be showing me a capital gain of just over 15%. However, I think there’s much more potential in Emis and I’d want to tuck some of the shares away for the long haul.

City analysts following the firm have pencilled in earnings increases of around 9% for this year and for 2020. The forward price-to-earnings ratio sits close to 19 two years out, and the predicted dividend yield is running a little under 3.2%. The valuation looks to be up with events, but I reckon the company is worth a premium because of the consistency of its results over several years. To me, Emis is worth keeping a close eye on with a view to buying some of the shares on dips and down-days with a view to holding onto them for the long haul.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Emis Group. 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.