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2 growth plus dividend stocks I’d buy to beat Brexit

It’s definitely a mistake to think we need to look for big FTSE 100 companies if we want attractive progressive dividends.

Nice yields

FTSE Small Cap member SThree (LSE: STHR) is one example. The IT staffing specialist has been recording impressive growth in recent years, and it kept its dividends flat while it was expanding its business — but it was still yielding 4% to 5%. Then in 2018 the annual payment was lifted 3.6%, and there are rises in excess of 4% forecast for this year and next, so we’re looking at inflation busting with good cover by earnings.

Things are looking good for the full year, with a Q3 update revealing a 4% rise in overall net fees, up to 6% when adjusted for working days. Overseas markets are doing well, with an 8% rise in the Germany, Austria and Switzerland market, USA fees up 5%, and the group’s smaller business in Japan putting on 82%.

Cash generation continues strongly, and net debt dropped to approximately £12m at 31 August, from £24m a year previously.

Geographic spread

Chief Executive Mark Dorman spoke of “a strong performance across all of the group’s international markets which constitute the majority of the group,” and that’s the key strength of SThree right now, as I see it. The UK and Ireland market was responsible for only 14% of the company’s business in the quarter, in third place behind continental Europe and the USA.

I see SThree as being very resistant to Brexit hardship because of that. Saying that, I wouldn’t buy a stock purely because it displayed Brexit defensive characteristics — it would have to be something I’d want to buy anyway.

And with its growth and dividend prospects, and shares on what I see as an unfairly low P/E valuation of 9.2, SThree is on my buy list.

Big in America

I have a few Brexit defensive stocks on my watchlist right  now, and FTSE 100 constituent Ashtead (LSE: AHT) is one of them. It’s in equipment rental, so it has something of a defensive ‘picks and shovel'” characteristic anyway, but what I also like is its geographical spread with around 90% of the firm’s income coming from the other side of the Atlantic.

Ashtead bills its Sunbelt Rentals arm as the second largest equipment rental business in North America, with 861 stores across the USA and Canada, and it’s doing very well there.

While that does make the company essentially immune to Brexit, the Trump-China trade wars really aren’t helping American industry at all. Still, first-quarter results were impressive, showing a 17% rise in underlying revenue, with pre-tax profit up 8%. And there’s an election next year.

Growth forecasts

These figures lend support to the City’s forecast for an 18% rise in EPS for the current year, and there’s a further 11% on the cards for next year. Dividend yields are modest at around the 2% mark, but they’re strongly progressive and growing well ahead of inflation — and they’re more than four times covered by earnings, which gives me confidence in the firm’s conservative management.

With all that going for it, Ashtead’s shares must be highly priced, yes? Well, though they’ve more than doubled over five years, a weak 12 months has seen a forward P/E dropping to 11.4. A great company at a good price? I think so.

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Alan Oscroft has no position in any of the shares 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.