The Motley Fool

A ‘forgotten’ dividend growth stock I’d buy and hold forever

It’s a mystery to me that, while some of the big housebuilding beasts from the FTSE 100 have continued to climb over the past two months, some of this buoyant investor appetite hasn’t yet filtered down to some of the smaller specialists.

Barratt Developments and Taylor Wimpey, for example, have been supported by the steady stream of positive trading updates from London’s clutch of listed builders. Their share prices have hit record peaks after record peaks in that time but, by comparison, AIM-listed Springfield Properties (LSE: SPR) for one hasn’t seen its market value make any progress in that time.

Great financials

Investors in the Scottish business charged for the exits following interim results of late February and have yet to return. Quite why market appetite eroded to such an extent was a surprise then, and remains so now, given the strength of that release and subsequent ones from its rivals. Springfield advised revenues leapt 25% between June and November to £75.7m, and gross profit margins rose 180 basis points to 17.2%. Profits at the firm almost doubled to £6.1m, prompting it to hike the dividend a juicy 20% to 1.2p per share.

Conditions at the construction colossus appear to be doing anything but weakening, putting a question mark over the reasons behind February’s sell-off. In fact, the company advised that “with the sustained market drivers showing no sign of abating, Springfield is in a stronger position than ever to deliver many of the new private and affordable homes needed in Scotland.”

A robust marketplace

And you needn’t just take Springfield’s word for it. Underlining the strength of homebuyer demand in Britain, a phenomenon facilitated by über generous mortgage products and the government’s Help To Buy scheme, fresh data from UK Finance last week showed the total number of loans for the purpose of house purchase soar 9.3% in March.

What’s more, while house sales have dampened in the London and the South East since the Brexit vote, reflecting increased fears of a long-overpriced market, demand north of the border remains rock solid. Sure, latest HM Land Registry figures may have shown average property values in Scotland fell 0.2% in February, but this was the first fall for almost three years and, more than likely, represents a small blip.

Dividends rocketing higher

City brokers seem confident about the health of the Scottish homes market and are therefore expecting Springfield to follow a predicted 22% earnings rise in the year to May 2019, with a further 15% rise in the following period. And, as a consequence, the builder’s expected to keep supercharging dividends too, meaning that a chunky yield of 4% for the outgoing period leaps to 4.8% for fiscal 2020.

At current prices, Springfield is also attractive in relation to its earnings prospects, the business carrying a forward P/E ratio of just 7.5 times for the year that’s about to start.

All things considered, I reckon this AIM stock is a forgotten hero to buy today and one to cling onto for many years to come, or even forever.

Want To Boost Your Savings?

Do you want to retire early and give up the rat race to enjoy the rest of your life? Of course you do, and to help you accomplish this goal, the Motley Fool has put together this free report titled "The Foolish Guide To Financial Independence", which is packed full of wealth-creating tips as well as ideas for your money.

The report is entirely free and available for download today, so if you're interested in exiting the rat race and achieving financial independence, click here to download the report. What have you got to lose?

Royston Wild owns shares of Barratt Developments and Taylor Wimpey. 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.