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Forget a Cash ISA! I’d buy this 5% dividend paying growth stock today

It’s been many years since we’ve seen an instant-access ISA cash account paying interest anywhere near 5%, but many shares on the stock market pay an annual dividend of 5% or more.

It’s true that you take on some risk by buying shares because share prices and dividends can fall as well as rise. But in many cases, an underlying business that is performing well can deliver a rising share price and annual increases in the dividend payment. So, as well as taking on the extra risk, by holding shares in companies, you expose yourself to extra opportunities as well.

Good figures and an impressive record

When things click on the stock market, there’s nothing nicer than seeing your capital increase as a stock rises, alongside an income stream from dividends that increases in size a bit each year. One share that I think looks capable of delivering those benefits to shareholders in the coming years is Gateley Holdings  (LSE: GTLY), the professional and legal services company.

I find the figures in today’s full-year results report to be encouraging. Revenue rose just over 20% compared to the previous year and adjusted diluted earnings per share increased by almost 18%. The directors expressed their satisfaction and confidence in the outlook by slapping an extra 14.3% on the total dividend for the year.

Since arriving on the stock market around four years ago, the firm has been making strong operational progress. The dividend is now more than 40% higher than the maiden payment in 2016, and the share price has risen just over 60% since the stock first traded on the stock market in 2015. Those strike me as impressive returns for shareholders so far, and City analysts following the firm expect earnings to advance by a mid-single-digit percentage during the current trading year to April 2020, suggesting further progress ahead.

Trading well and a positive outlook

The year was a busy one for Gateley during which it achieved “record-breaking” revenue above £100m, its highest-ever staff numbers, and three acquisitions. Looking ahead, trading in the current year has started well and the directors are confident of achieving further growth in the business in the years to come.

Despite the robust growth and strong operational momentum, Gateley is maintaining, the valuation doesn’t look stretched to me. With the share price at 165p, the forward-looking price-to-earnings multiple for the trading year to April 2020 runs close to 12 and the anticipated dividend yield is around 5.3%.

Gateley is no giant with its market capitalisation running near £182m, but I’m impressed by its trading record as a public limited company and believe it could grow to become a much larger enterprise. I wouldn’t bet the farm on it, but I think the combination of income and growth that the stock appears to offer makes it eligible for a place in a diversified portfolio.

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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.