And as one of the UK’s leading healthcare companies, its dividend record should, in my opinion, remain unbroken for some time to come. Indeed, as the world’s population continues to expand and age, demand for the company’s wound care products, knee and hip implants should grow.

That being said, competition in the healthcare sector is only intensifying, which is going to make it harder for Smith & Nephew to maintain its competitive advantage going forward. So, if you are looking for a growth stock, I believe Concurrent Technologies (LSE: CNC) might be a better buy for your portfolio.

Looking to the future

Concurrent describes itself as a “world-leading specialist in the design and manufacture of high-end embedded computer boards for critical applications.” Management believes that the company’s edge and lies in its range of products, such as its new VR E7x/msd processor board, which allows for “improved processing capability, faster connectivity and enhanced digital graphics output.“

Concurrent’s revenue for the year to the end of December fell slightly to £16.2m from £16.4m, but thanks to an increase in the gross margin, profit before tax increased by 2.3% to £3m. 

As well as organic growth management is also on the lookout for acquisitions. In today’s trading update, Chairman Michael Collins noted that the “board continues to look for worldwide acquisition opportunities,” but also sees “opportunities to grow the business organically into new market areas without taking unacceptable risks.” With £8.4m of cash on the balance sheet at the end of the year, it certainly looks as if the company has plenty of firepower to pursue whichever path it chooses to take. 

And the robust balance sheet is also supporting dividend growth. Over the past five years, the payout has grown at a compound annual rate of 5.6% and today, the firm announced a 5% increase in its full-year dividend per share to 2.2p, giving a dividend yield of 2.7%. In comparison, Smith & Nephew’s dividend has contracted by 12% over the same period and the company has £1.3bn of net debt. 

In my view, Concurrent’s growth is only just beginning, and the City seems to agree.  Analysts have pencilled in earnings per share of 7.1p, that’s up nearly 86% from 2017’s figure, and gives a forward P/E of just 11.6. 

In control of its destiny

Concurrent’s growth, combined with the firm’s dividend potential, clearly shows why it is a better buy than Smith & Nephew. 

Trading at a forward P/E of just under 19, the market apparently thinks highly of Smith & Nephew, but the dear valuation leaves the share price vulnerable to any disappointments. Meanwhile, City analysts believe the company’s earnings will grow at a relatively modest rate of approximately 8% per annum for the next two years. 

What’s more, for a long time, the group’s shares have been propped up by takeover talk, although as of yet no concrete deal has been signed.

With this being the case, I’d pick Concurrent over Smith & Nephew no matter how distinguished its dividend record might be as, if a deal fails to emerge, the capital loss could significantly exceed many years of dividend income.

The post 1 Footsie dividend champion I’d dump to buy this monster growth stock appeared first on The Motley Fool UK.

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Rupert Hargreaves owns no 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.

Most investors don’t associate small-cap growth stocks with dividend payments. However, with a little bit of research, it’s possible to find companies that offer both growth potential and a steady stream of dividends. Here’s a look at two such companies I’ve discovered.

Concurrent Technologies

£56m market cap Concurrent Technologies (LSE: CNC) designs electronic products for use in rugged environments. The company’s processor boards and software products are used by customers in the defence, security, aerospace, telecommunications and medical industries.

The firm has enjoyed strong growth in the last three years, with sales increasing from £11.9m to £16.4m, and earnings per share rising from 1.02p to 3.9p. Shareholders have been rewarded with an increased dividend each year, with last year’s payout of 2.1p equating to a dividend yield of 2.9% at the current share price.

Can this momentum continue? Let’s take a look at this morning’s half-year results for a clue.

For the six months to the end of June, Concurrent generated revenue of £7.8m, down from £9m last year. Profit before tax slipped to £1.4m from £1.5m, and earnings per share also declined, falling to 1.84p from 2.12p last year. While these numbers don’t make for great reading, the company did sound relatively upbeat in regard to future prospects. The group invested £1.2m in research and development during the period and it believes this investment will help “safeguard” revenues in future years. Chairman Michael Collins stated: “After a solid performance in the first-half of the year we have started the second-half with an expanding list of customers, many new opportunities and a strong balance sheet. The outlook for the future remains positive.”

The company raised its interim dividend by a generous 12.5%, which signals confidence from management, and a cash balance of £7.9m also gives the firm plenty of firepower going forward. With that in mind, while the market doesn’t like today’s numbers, I wouldn’t write off future growth prospects here just yet.

XLMedia

One small-cap dividend stock with a little more current momentum is online performance marketing company XLMedia (LSE: XLM). Indeed, interim results revealed a 33% surge in revenue to $67.9m, as well as a 23% increase in profit before tax.

The company, which uses proprietary tools and methodologies to drive traffic to its customers’ websites, has been an excellent performer for investors over the last two years, with its share price doubling in this time. The group also paid a well-covered dividend of 7.8 cents last year, a yield of 3.9% at the current exchange rate.

The stock trades on a forward P/E ratio of just 14, which appears to be a steal for a company that is forecast to generate revenue growth of 35% this year. However the low P/E is probably explained by the fact that XLMedia is an Israel-based company, and therefore investors are a little cautious of the stock in light of the performances of other similar international businesses (Globo, Telit Communications etc). As a result, XLMedia is perhaps best suited to more risk-tolerant investors.

The post Two small-cap stars offering growth and dividends appeared first on The Motley Fool UK.

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Edward Sheldon has no position in any 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.

With a market cap of just £58m and a business model built around designing computer boards built to withstand ‘rugged environments’ for defence industry use, its little surprise that Concurrent Technologies (LSE: CNC) has flown under the radar of many investors. But with three straight years of earnings growth behind it, great margins, and a cash-heavy balance sheet, I reckon this hidden growth share is one to watch.

Its strength lies in its ability to design computer boards that can operate in temperatures ranging from minus 40 degrees to as hot as 85 degrees, as well as withstand high levels of vibration and shock. Needless to say, this technology is of great use to militaries, the aerospace industry and telecoms companies, among others.

With a history of turning out high quality, durable products since 1985 and with offices in the UK, US, India and China to serve local customers, the company has built itself a wide moat to entry for competitors. And clients have found that it’s better not to skimp on the company’s mission-critical technology, which means incredible pricing power. The firm’s enviable EBITDA margin of 26.2% in 2016 shows the effects of this pricing power in action.

Margins of this level and low capital needs provide management with plenty of cash flow. At the end of December this cash had built up into a very neat pile of £7.8m, which is plenty considering revenue in the year was only £16.4m. This healthy balance sheet gives management the firepower for bolt-on acquisitions at the same time as paying out a reasonable 2.59% yielding dividend.

The potential for acquisition-led growth and the large addressable market for organic growth, together with high and rising margins, plenty of cash and a reasonable valuation of 12.5 times forward earnings makes Concurrent Technologies a stock I’ll be following closely.

Powering up for high growth 

XP Power (LSE: XPP) is a much larger growth share with a market cap of £475m, but as the developer of fairly obscure power control components for the electronics industry, it’s unsurprisingly little known to the majority of investors. This is a shame, because with four consecutive years of positive earnings growth behind it, high margins and plenty of room to grow its market share, the stock is one to watch.

The key to the company’s success is the bespoke design of power control systems for items such as drug delivery devices, factory machinery, or high-end communications devices. Being able to rely on suppliers for these critical items is obviously of paramount importance for customers, which gives XP high barriers to entry once it is on a customer’s approved vendor list.

As with Concurrent, XP puts this pricing power to work and notched up EBITDA margins of 25.4% last year, which led to impressive free cash flow of £23.6m from £129.8m in total revenue. Sales are also moving in the right direction and in Q1, constant currency revenue bumped up 23% and the order book increased by 36% year-on-year.

With only 6.1% global market share at year-end, XP Power has plenty of room to grow organically and through acquisitions funded by high cash flow. With net cash on the books, a decent 2.9% yielding dividend, and double-digit growth, its stock looks like a good value at 19.5 times forward earnings.

The post 2 under-the-radar growth shares I’d buy today appeared first on The Motley Fool UK.

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Ian Pierce has no position in any shares mentioned. The Motley Fool UK has recommended XP Power. 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.

Today I’m going to take a look at two, including one of Lord Lee’s current holdings. I believe both firm have the potential to outperform the market over the coming years.

Rising profit margins

Software testing specialist SQS Software Quality Systems (LSE: SQS) gained 13% this morning, after revealing a sharp increase in profit margins during the first half of the current year. In its half-year trading update, it said increasing automation of its services had lifted the group’s adjusted operating margin to 7.5%, up from 6.9% for the same period last year.

The company said that it expects second-half revenue to be higher than for H1, thanks to “a number of known business wins starting later in the year”. Management says it has a “stronger pipeline” of sales opportunities than in 2016 and expects to benefit from “a range of emerging growth opportunities”.

In the medium term, SQS expects to be able to deliver an adjusted operating margin of 9% and a corresponding improvement in cash flow. This sounds appealing to me, especially given the stock’s modest valuation.

Investor confidence in the firm was shaken in March and the shares fell from more than 600p to less than 500p. Investors were alarmed by a drop in revenue in the Managed Services division that had showed up in last year’s results.

However, today’s update suggests to me that the steps taken to address these changing business conditions are working well. Evan after today’s gains, the shares are still trading on a modest forecast P/E of 12.7 with a prospective yield of 3.1%. That looks cheap enough to me.

A ‘sticky’ specialist

One of the stock holdings listed by Lord Lee in his parliamentary register of interests is electronics group Concurrent Technologies (LSE: CNC).

This is a specialist business that makes computer boards for critical applications, such as use in harsh environments. Many of the firm’s customers are in the defence sector, but Concurrent products are also used in other markets, including aerospace, telecoms, transportation and industry.

The shares have risen by about 30% since March, when the company reported a 6.2% increase in pre-tax profits and hiked the dividend by 10.5% to 2.1p per share, giving a yield of 2.6%.

The shares now trade on about 17 times trailing earnings, so they aren’t obviously cheap. Despite this, I think Concurrent could remain a smart long-term buy.

The group’s profits have been variable in recent years, perhaps due to the lumpiness of new product introductions and major customer orders. However, the trend in earnings has been upwards and dividend growth has been very consistent, averaging 6% per year since 2011. Net cash rose by 32% to £7.8m at the end of last year, accounting for more than 10% of the company’s £60m market cap.

I believe this business offers good long-term growth opportunities and appears to have a capable and prudent management team. In my view, the shares are definitely worth a closer look.

The post 2 small-cap growth stocks for successful investors appeared first on The Motley Fool UK.

More reading

• Starting with nothing? Here’s why now is the perfect time to start building a passive income
• Decided not to bother with a Stocks and Shares ISA? You might be missing these 3 things!
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• £10,000 invested in easyJet shares at the start of 2026 is now worth…
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Roland Head has no position in any 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.