I keep a shortlist of about 20-or-so shares as candidates for my next investment. Right now, I’ve an interesting mix of big-dividend FTSE 100 stocks and smaller-caps with growth potential. Here are two I think share the characteristics of both.
Professional insurance services firm Charles Taylor (LSE: CTR) has been providing solidly progressive dividends for some years now, with forecast yields exceeding 5%, and more than twice covered by earnings. Annual increases have been running at around twice the rate of inflation too, and that’s perhaps even more important than a big yield today.
But over the past 12 months, the share price has fallen 20%, and that looks to me like it’s made a tempting investment look even more attractive. But why the fall?
The insurance business will always have short-term ups and downs, and a few exceptional costs last year were expected to lead into a modest dip in earnings in 2019. But analysts have been revising their forecasts upwards over the course of the year, and first-half results look encouraging.
Chief executive David Marock told us the firm’s strategy to grow the business has led to “strong growth in the group’s revenue, adjusted EBITDA and adjusted profit before tax.” After revenue grew 15%, adjusted EBITDA is up 81%, and pre-tax profit rose 26%. The interim dividend was lifted 5% to 3.65p.
The company says it should meet market expectations for the full year, which now suggest a 1% rise in EPS. There’s a further 6% on the cards for 2020. The share price weakness gives us forward P/E multiples of 8.8 this year, and 8.3 next, and that’s strengthened my feeling that Charles Taylor is a ‘buy’.
Back to growth?
Polymer specialist Synthomer (LSE: SYNT) has also caught my attention after it displayed typical early growth-stock characteristics, with a massive price rise to what clearly looks, with hindsight, like exuberant over-valuation. An all-too-familiar collapse followed, extending well into 2019.
But since interim results were released in early August, the share price has been creeping up again. While the half brought an 8.5% fall in revenue, with pre-tax profit down 7.9% in a “challenging H1 2019 environment,” the firm says conditions are improving and that it will enjoy the benefits of additional capacity in the second half.
And according to chairman Neil Johnson, the second quarter “returned to a normalised level marginally ahead of Q2 2018.” Synthomer has also announced the acquisition of US firm Omnova Solutions, which should bring some welcome geographic diversity. I’d say the outlook is brightening.
The share price is up 20% since those results came to light, so have I missed the boat? Well, to put that into context, we’re still looking at a 34% fall over the past 12 months, putting the shares on P/E ratings of only around 10.
Dividend yields aren’t as high as Charles Taylor’s, at the 4% level, but they’re better covered. And, crucially, they’re strongly progressive, with forecasts suggesting this year’s dividend will be up 70% from five years ago.
With such a low share price valuation and that growing and well-covered dividend, Synthomer is another strong buy candidate for me.
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Synthomer. 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.