Ashtead Group (LSE: AHT) has emerged as one of the FTSE 100’s big winners since the start of the month.
In fact, it sits second on the list of blue-chip risers for June, just behind precious metals digger Fresnillo. There’s no shame in this, either, given the electric growth in gold and silver values that’s powered the share prices of London’s mining giants.
Ashtead has actually gained an impressive 20% in value since the month kicked in, and it’s now dealing at levels not seen since last October. It was treading water until the release of full-year financials on the 18th but investor appetite has fizzed on the back of that other brilliant trading release.
Despite these exceptional bouts of buying, though, the business — one of the biggest rental equipment specialists in North America and the largest here in the UK — is still attractively priced, as illustrated by its forward price-to-earnings (P/E) ratio of just 11.1 times.
Throw the added bonus of a 1.9% and 2.1% dividend yield into the bargain, too, and I reckon Ashtead is one of the best buys of the summer.
There’s clearly stocks out there with bigger dividends than Ashtead, but very few with the sort of stunning record of payout growth as the rentals giant has.
It has hiked shareholder rewards by an outstanding 162% over the past five years, culminating in the 42p per share dividend for the financial year ending April 2019, and it appears in great shape to keep on raising them at a jaw-dropping rate.
City analysts are expecting earnings to advance an extra 12% in fiscal 2020, forecasts that are supported by Ashtead’s recent commentary that “our business continues to perform well in supportive end markets” and that “with our business performing well and a strong balance sheet to support our plans [we] look to the medium term with confidence”.
Forecast boosts around the corner?
For this reason I would argue that current dividend predictions from the City, estimates that suggest rewards of 42p per share for this year and 47p for the next period, are actually looking pretty conservative.
Sure, net debt at Ashtead may have risen by almost a billion dollars last year to £3.7bn, an increase that primarily reflected a significant uptick in capex and acquisition-related bills. But the business continues to generate boatloads of cash, something which has encouraged it to embark on at least another £500m worth of share buybacks this year alone.
And I believe current payment projections could well be upgraded in the weeks and months ahead, and potentially to a sizeable extent should first-quarter results for September 11 show that Ashtead continues to make supreme progress on the trading front.
Given the prospect of some sizeable amendments to both profits and dividend estimates, I think there’s plenty of scope for more significant share price gains. And for this reason I think Ashtead is one of the best big caps to buy this summertime.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. 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.