FTSE 100 share Ferguson (LSE: FERG) is a top income stock whose share price could boom this week, though potential investors here need to be quick about it – first-quarter trading details are slated for tomorrow (Tuesday, 3 December) and I’m thinking that another robust release is in the offing.
The plumbing and heating product specialist has seen its share price ascend 33% so far in 2019, an indication of its resilience in tough market conditions. Investors have been impressed by the impact that ongoing acquisition activity continues to have on the top and bottom lines, the business advising last time out in October that revenues and profit were up 6% and 12% during the 12 months to July 2019.
And encouragingly the Footsie firm is showing no signs of slowing down on this front. Ferguson snapped up heating, ventilation, and air conditioning (HVAC) firm S.W. Anderson in mid-November, a supplier to both residential and commercial markets in the New York metropolitan area. This follows the whopping $657m that the engineering giant shelled out to bring an extra 15 businesses under its umbrella last year.
Market conditions improving
City consensus suggests that Ferguson’s earnings will duck fractionally in the current financial year, though I think the number crunchers are being a little too pessimistic here. Not only does the company have a proven track record of outperforming the wider market, but signs of some improvement in market conditions should give investors extra cause to be chipper, too.
Latest Commerce Department data showed that building work started on a seasonally-adjusted 1.31m new private homes in October, up 3.8% from the previous month. But this wasn’t the news that grabbed the headlines – rather, it was the 5% increase in building permits last month, not to mention the 1.46m authorisations for new private dwellings. This represented the highest amount since 2007.
There is a strong likelihood that those brokers’ insipid earnings forecasts could receive a dose of rocket fuel in the weeks and months ahead, then, and quite possibly as soon as when those first-quarter financials are unpacked tomorrow. A forward price-to-earnings ratio of 16.7 times certainly doesn’t appear too expensive given the likelihood of current profits estimates being upgraded.
A great dividend grower
But don’t just buy Ferguson on speculation that earnings forecasts could be bumped up. I’d argue that income hunters need to give the business serious attention as its bright profits prospects through the 2020s, allied with its strong balance sheet (cash generated from operations soared almost $300m in fiscal 2019 to $1.61bn), turbocharges dividend growth.
Ferguson raised the full-year dividend 10% year on year last time out to 208.2 US cents per share, and the number crunchers expect payouts to soar again to 224 US cents in the current financial period. There’s bigger yields out there than a consequent one of 2.5%, though the prospect of some seriously meaty dividend cheques in the years to come still makes Ferguson a great income pick today. I’d happily buy it today and hold it for a decade.
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Royston Wild 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.