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Why I’d put £2,000 into this dividend growth stock for my retirement portfolio

I last looked at the technology company Cohort (LSE: CHRT) in July 2018 when it released its full-year results report. Back then I was impressed by the firm’s record of raising its dividend annually and owned up to being tempted to add the stock to my long-term retirement portfolio.

A touch of Warren Buffett’s philosophy

The firm’s strategy revolves around the theory that small and medium-sized enterprises (SMEs) can flourish within the umbrella of a larger organisation. There’s a touch of Warren Buffett’s philosophy in that approach, in my view. Buffett is known for giving the businesses within his Berkshire Hathaway conglomerate a great deal of autonomy. He hires good managers and lets them get on with it. As long as the cash keeps rolling in, and the enterprises remain prosperous and ethical in their dealings, he’s happy.

Cohort owns five businesses: Chess Technologies offers systems for detecting, tracking, classifying and disrupting naval, land and air threats; EIDmakes advanced communications systems for the defence and security markets; MASS focuses on electronic warfare, information systems and cybersecurity; MCLdesigns and integrates communications and surveillance technology, and offers support and training for UK end-users including the Ministry of Defence (MOD) and other government agencies; and SEA is an electronic systems and software house operating in the defence, transport and offshore energy markets.

The directors insist that each business has “high growth potential.” But last year, Cohort said “strong” pressures on public expenditure in the UK and “in many other markets” were keeping demand for the firm’s services suppressed. Nevertheless, the outlook statement was upbeat with the directors saying that there was a concentration of opportunities for the year ahead that was larger than normal.

A decent outcome and a positive outlook

So here we are a year later and it’s interesting to see how trading actually panned out for the company over the 12-month period to 30 April. Today’s full-year report reveals to us that revenue rose 10% compared to the year before, adjusted earnings per share shot up 16%, and the order book grew 84% to almost £190m. Cohort has been trading well, helped by a better-than-expected contribution from its December 2018 acquisition of a majority stake in Chess Technologies.

The directors slapped 11% on the total dividend for the year, signalling a decent outcome against last year’s expectations. Indeed, the company won “all” the large order opportunities it pitched for, “both renewals and new.” It seems to me that Cohort is good at delivering surprises to the upside for shareholders, and in one reassuring measure, it has managed to increase the dividend every year since it arrived on the stock market in 2006.

Cohort also announced today the winning of a £4.79m contract to supply services for Electronic Warfare Operation Support (EWOS) to an export customer. Operational progress continues at pace, and there is plenty of reason to expect the “strong” order book and pipeline of order prospects to deliver further gains in the year ahead.

At 430p, the share price is just over 20% higher than it was around this time last year, which throws up a forward-looking earnings multiple a little below 12 for the current trading year and an anticipated dividend yield around 2.4%. To me, the stock remains attractive.

Hidden Opportunity

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Cohort. 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.