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£5k to spend on your ISA? A dividend growth stock I’d hold for the next 10 years

It didn’t surprise me in the slightest that WH Smith (LSE: SMWH) pleased the market with yet another set of sunny financials when it released full-year trading numbers last week.

The UK high street might be under pressure, sure, but thanks to the newsagent’s rampant expansion of its Travel store network — and particularly so in international marketplaces — profits at the firm continue to tick merrily higher. And as I’ve mentioned before, this ambitious growth strategy promises to deliver some mighty bottom-line growth well into the next decade.

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The brilliant earnings potential of WH Smith’s bulging presence in the world’s airports and train stations was laid bare in Thursday’s market update. In it the FTSE 250 firm declared that total Travel revenues boomed 22% in the fiscal year to August 2019, a result that pushed pre-tax profit from the unit 14% higher. This meant profit at group level rose by a not-too-shoddy 7% to £155m.

Sure, WH Smith had the transformative acquisition of airport-based electricals chain InMotion last October to thank for much of this rise. However, even excluding the contribution of its new US asset Travel revenues still climbed 8% year on year. The retailer opened a record number of units last year and now operates from more than 430 outlets across the globe.

More M&A action

It hasn’t been a surprise to see WH Smith’s share price leap again following the release (up 6% on the day) and it was recently trading at 22-month highs above £22 per share. A fresh set of strong financials weren’t the only news the market was toasting, though, as the retail play also announced more exciting news on the acquisition front.

Having made the leap Stateside last year, the company will now spend a cool £312m to snap up Marshall Retail Group, another major retail player in US airports. The move, which will be part-funded by a fresh share issue, will double the size of WH Smith’s International Travel business and provides significant sales synergies with InMotion.

According to AXN Factbook, the airport retail market is worth a whopping $3.2bn (excluding duty free and food and beverages), providing clear rationale for the deal.

A top dividend grower

Geopolitical and macroeconomic turbulence may be affecting shaking earnings forecasts across equity markets but City analysts see no such problems at WH Smith. Little surprise given the relentless rise in global passenger numbers and the retailer’s attempts to capitalise on this through steady expansion.

In fact, with the business also making strides to turn around its High Street division, the number crunchers expect earnings growth in fiscal 2020 to accelerate, a 10% bottom-line rise is currently being estimated. And this means dividends, which have bumped higher for 12 years on the bounce, are expected to rise again (to 64.2p per share from 58.2p last time out). This results in a chunky, inflation-beating 2.8% dividend yield too.

WH Smith offers the perfect blend of earnings and dividend growth and should continue to do so for years. This is why I reckon it’s a top buy for any ISA investor today.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended WH Smith. 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.