Forget buy-to-let! I’d buy shares in this proven dividend-growing company

I think this one could be a decent, cash-generating hold for long-term shareholders.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Since I last wrote about specialist social care services provider CareTech Holdings (LSE: CTH) in December 2018, the share price has risen just over 9%.

Meanwhile, in today’s half-year results report, the directors declared a 7% increase in the interim dividend compared to the equivalent period a year earlier. And a steadily rising dividend is something shareholders are used to with the firm. Over five years it’s up almost 60%, which strikes me as a decent return for income-seeking investors.

A “transformational” acquisition

Today’s share price close to 380p puts the forward-looking dividend yield for the current trading year to September at just over 3%. Given the company’s strong record of growing the annual dividend, I reckon a 3% yield is a decent starting point.

City analysts following the firm anticipate earnings will cover the payment a little over three times. A robust level off cover like that suggests to me the directors anticipate further growth, otherwise they might pay more cash out to shareholders rather than ploughing it back into the business.

The accounts are dominated by the October 2018 acquisition of Cambian Group, which executive chairman Farouq Sheikh describes in the report as beingtransformational” for CareTech. The integration of Cambian is “well underway” and the expected synergies from the enlarged operation are “on track.”

You can get a feel for the scale of the expansion from today’s figures. Overall revenue rose 120% compared to the year-ago number, underlying profit before tax shot up 50%, and the firm’s net asset value rose 58% to £328m. Net debt increased by 99% to £293m.

Things can get a bit blurry in the figures whenever a company first takes on a big acquisition. But like-for-like revenue in the original CareTech business went up 12% in the period and like-for-like EBITDA increased 4%. Meanwhile, underlying earnings per share increased by 7%. It seems to me CareTech is still trading well and growing organically.

The firm commissioned an independent valuation of the enlarged company’s property portfolio back in October on the date of the acquisition, which threw up a figure of £774m. I think the property backing with this share is one of its prominent attractions.

Consolidating the sector

The firm sees itself as something of a consolidator in the sector and there’s no sign it will ease off its plans to continue expanding both organically and by acquisition. As long as the firm remains profitable, keeps its borrowings under control and continues to move the dividend up, I think that’s a good thing.

As well as the benefits of an efficient operation for the firm’s care-users, this one could be a decent, cash-generating hold for long-term shareholders. I’m tempted to pick up a few shares to collect that growing dividend while waiting to see how the growth agenda plays out for shareholders.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any share 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »