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Don’t miss out! A dirt-cheap dividend growth stock I’d buy for my ISA before February

The share price of Morgan Sindall Group (LSE: MGNS) has soared in recent months. Up 42% from the start of October, the stock has seen buyers flock back now the threat of a ‘no deal’ Brexit has been averted (for now).

I think the construction and regeneration firm could keep on rocketing, too. Indeed, I reckon the release of 2019 results on Thursday, 20 February, could encourage more waves of frantic buying.

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Morgan Sindall certainly impressed the last time it updated investors, in November. Back then it said that recent strong trading meant that full-year results would be “slightly above” prior expectations. The company’s secured workload, as of September, was up 10% year on year at £7.3bn. This workload comprised a secured order book of £4.1bn (up 15% on an annual basis) and a regeneration and development pipeline of £3.2bn (up 4%).

Cash machine

The November update also advised that cash generation had been better than previously expected, and Morgan Sindall expected to report average daily cash of above £100m for 2019, up from £99m the year before. This news should come as a particular joy to income-chasers. It suggests that Morgan Sindall’s reputation as a reliable and generous dividend-raiser will remain in tact.

The London-based business has lit a fire under shareholder rewards over the past half decade. Between 2013 and 2018, it hiked total annual dividends by 96%, and last year, it raised them by 18% to 53p per share.

It’s no shock that City analysts are expecting more mighty growth in the medium term. Payouts of 60.8p and 63.5p are estimated for 2020 and 2021 respectively, compared to an expected 57.5p for 2019. These readings of chunky of 3.5% and 3.7% dividend yields also beat the broader 3.3% forward average for UK mid-caps.

Construction sector bouncing back?

It wouldn’t shock me if those dividend estimates were to end up looking a little light. And I would argue the same for Morgan Sindall’s earnings forecasts, where City brokers currently expect bottom-line rises of 5% in 2020 and 4% in 2021.

You might think I’m crazy to suggest that the business could outperform broker estimates. After all, the latest IHS Markit/CIPS Purchasing Managers’ Index (PMI) for the sector dropped to 44.4 in December, down markedly from the 45.3 recorded a month earlier and signalling further market contraction.

However, that PMI gauge gave the likes of Morgan Sindall reasons to be cheerful. Despite that poor headline number, IHS Markit economics associate director Tim Moore says that “construction companies signalled that business optimism has recovered to its strongest for nine months.”

He comments that, following the Conservatives’ thumping victory at December’s general election, respondents to the survey said that they believed “a more predictable domestic political landscape and clarity on Brexit could deliver a much-needed boost to clients’ willingness-to-spend in 2020.”

Signs of a pick-up in the market in Morgan Sindall’s forthcoming update could certainly help its share price to rise. At the moment it trades on a forward price-to-earnings ratio of 10.7 times, a reading that’s low enough to support more strength in the near term. I reckon this is one growth and income hero worthy of serious attention today.

A top income share with a juicy 6% forecast dividend yield

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He even anticipates that the dividend could grow nicely too — as this much-loved household brand continues to rapidly expand its online business — and reinvent itself for the digital age.

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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.