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This overlooked FTSE 100 dividend and growth stock has been thrashing the index

Information service provider Relx (LSE: REL) is one of those stocks that it is all too easy to overlook. It’s hardly a household name, but with a market cap of almost £35bn, it’s bigger than far better known companies such as Barclays, National Grid, Tesco, BT Group and Aviva. In fact, even I was surprised how big. Then again, I haven’t looked at the stock for two years.

Another good year

This morning it published a trading update that confirmed its full-year outlook is unchanged, with key business trends broadly consistent with last year’s. This puts Relx on course to deliver “another year of underlying growth in revenue and in adjusted operating profit, together with growth in adjusted earnings per share on a constant currency basis”.

Relx, formerly known as Reed Elsevier, is a global provider of information-based analytics and decision tools for professional and business customers, operating in more than 180 countries with offices in 40. It employs more than 30,000 people, roughly half in North America. This gives it a global reach and respite from Brexit uncertainties.

Organic planet

Today’s update said the group continues to focus on the organic development of increasingly sophisticated information-based analytics and decision tools, and is targeting selective acquisitions to support this. It has been active on this front, completing five acquisitions totalling £236m this year alone.

Management is also being generous with shareholders, having recently completed £250m of a £600m share buy-back, with the remaining £350m to be shared out by the end of the year.

Moving on from print

Relx has risen to the challenge of developing information-based analytics tools to counter sliding revenues from its traditional print publishing business. Its share price is up 96% over five years, against growth of just 12% on the FTSE 100 over the same period. 

When I looked at the stock in September 2017, I was a little wary of its low yield, then 2.6%, and high valuation of 20.9 times forecast earnings, and suggested this one might be best to buy on the dips.

Dividend surge

Today the yield is still 2.6%, covered twice, but as Kevin Godbold points out, the group’s impressive revenue, cash flow and earnings growth have driven an almost 70% increase in dividend payments over the past five years. This comes on top of that 96% share price growth.

Last month it suffered a blow when the University of California cancelled its subscriptions with the company’s Dutch-based Elsevier academic journals subsidiary, after it refused to make all articles published by its authors immediately free for readers worldwide.

Open access

That contract was worth just $11m in 2018, a tiny proportion of the group’s total £7.49bn revenues, the worry is that other universities will follow suit. We have seen how the drive towards free information has hit newspapers, and Relx may not be immune.

The group now trades at 18 times forecast revenues, while City analysts expect bullish earnings per share growth of 26% this year, and 7% in 2020. I’d say this is either a buy, or one for your watchlist. GA Chester has no doubt. He would buy and hold it for decades.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, RELX, and Tesco. 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.