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Why I’d add this 4.6% dividend growth stock to my portfolio right now

One firm that arrived on the stock market in the summer of 2017 looks attractive to me. Generally, I’m interested in examining stocks when they are new to the market because they often arrive well-financed and with management teams fired up to make their mark. They also often have a relatively low market capitalisation, suggesting plenty of room to grow.

So, it’s great to see that Strix (LSE: KETL) sports some impressive numbers in its record of trading, such as growth in revenue and earnings over the past four years and a dividend that looks set to rise from where it is now.

Big in kettle controls and growing

The firm makes safety controls and components for kettles, and devices involving water heating and temperature control, steam management and water filtration. It claims to be the biggest manufacturer of kettle controls in the world with some 38% share of the market.

Today’s interim report reveals to us that revenue rose 2.5% in the first half of the year compared to the equivalent period last year and diluted earnings per share moved 1.8% higher. The directors increased the interim dividend by 13%, signalling their satisfaction with the trading outcome and optimism about the outlook.

Strix acquired “specific assets” from Halosource Corporation during the period, thereby extending its Research & Development (R&D) capabilities and securing “additional adjacent technologies.” The firm also purchased 50-year land rights in China for £1.7m and plans to build a new manufacturing facility that will be operational by August 2021.

Part of the growth agenda involved the appointment of a chief commercial officer to oversee commercialisation of new products and technologies. However, kettle control volumes came in flat during the first half of the year, but the directors expect the full-year result to be 3% up year on year because of commercial contracts and “incremental specifications” already achieved.

A positive outlook

Chief executive Mark Bartlett explained in the report that Strix had achieved its solid H1 performance despite ongoing challenges in the macro-economic environment. He said the firm managed to hang on to its market share and also experienced “modest” growth from China. Meanwhile, the company preserved its margins with “operational enhancements and cost improvements.”

Looking forward, the directors are “confident” about the outlook and the market’s expectations. City analysts following the firm expect earnings to increase around 2% this year and by a high single-digit percentage in 2020. Meanwhile, the full-year dividend is expected to rise 10% this year to 7.7p.

With the current share price near 168p, the anticipated dividend yield is around 4.6% for 2019 and the forward-looking earnings multiple just below 12. Given the anticipated growth beyond 2019, I think the valuation looks undemanding. I believe the stock is attractive and would add it to my portfolio for its dividend and growth potential.

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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.