Personally, I’m also partial to looking further down the market spectrum for my dividend fix, particularly as these companies also have at least the potential to grow revenue and profit at a far more rapid rate than your average FTSE 100 beast.

With this in mind, here are three examples of market minnows that rarely grab the headlines but offer decent payouts to investors.

Cheap income

Clearly, anyone considering buying a slice of a business involved in the volatile mining industry must go in with their eyes wide open, especially given current concerns over slowing global growth. Nevertheless, my first pick is Central Asia Metals (LSE: CAML).

One big attraction of this copper, zinc and lead-focused firm is that it’s a great source of dividends (in sharp contrast to many of its smaller peers). A mooted 14p per share total return in 2019 equates to a stonking 7.5% yield based on last Friday’s closing price. Normally, I’d be wary of such a sizeable cash return but cover of 1.8 times by profit suggests holders should be able to sleep at night. 

The shares are down 30% since April, not helped by the ongoing trade friction between Donald Trump and China. Should a resolution be found in the near future, we could see a bounce. In the meantime, prospective investors will only be paying a little under 8 times earnings to acquire the stock.

Another company that pays great dividends is logistics firm Wincanton (LSE: WIN). After a tricky few years of trading, the Chippenham-based business appears to be in a far better place with May’s full-year results including a 28.2% rise in pre-tax profit and a 34.6% reduction in net debt. More recently, the company announced that it had won a five-year contract with Morrisons to provide transportation services from three distribution centres to the latter’s stores.

It might not shoot the lights out in terms of capital growth, but a mooted 11.7p per share cash return this year leaves Wincanton yielding 5.1%. Again, the fact that this is likely to be covered almost three times by earnings means anyone holding probably won’t need to question the sustainability of these payouts for a while. 

Despite operating in a low-margin industry, one might also argue that Wincanton’s stock is simply too cheap. A forward price-to-earnings (P/E) ratio of a little less than 7 gives a decent margin of safety in my book. 

A final stock that I think warrants further attention from income investors is publisher Bloomsbury (LSE: BMY), best known for introducing Harry Potter to the world. 

Following a decent couple of years in which its share price has climbed 37%, Bloomsbury isn’t quite the bargain it once was and now changes hands at 14 times forecast FY2020 earnings. That’s not ludicrously expensive, but it is fairly high relative to others in the industry.

The dividends still look attractive though. An 8.4p per share return in the current financial would mean a yield of 3.6% covered twice by profits. Bloomsbury also has no debt (appealing in the unpredictable world that is publishing) and, with the next illustrated version of JK Rowling’s still-outrageously-lucrative series due in October, should enjoy a good end to 2019.

The post 3 small-cap dividend stocks I think you may be overlooking appeared first on The Motley Fool UK.

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Paul Summers 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.

The firm started off in milk haulage as far back as 1925 but now provides transport and logistics services for several industries including things such as automated high bay, high capacity warehousing, supply chain management services for businesses, and container transportation and storage and other related services. The company has come a long way from its origins and seems to be embracing the demands of the modern world.

Decent figures

Things are going well, and today’s full-year figures tell the story of an enterprise that is flourishing. Although revenue eased back by 2.6% compared to the previous year, underlying earnings per share rose almost 9%, net debt plummeted by nearly 35%. The directors expressed their confidence in recent trading and the outlook by pushing up the total dividend for the year by 10%.

And the dividend is one of the chief attractions for me. The current share price around 261p means today’s declaration leads to a yield of just over 4%. Wincanton has been recovering since a patch of difficult trading a few years back, but since dividend payments were restored in 2016, the payment has almost doubled over three years, which strikes me as great progress. Another attraction is the low-looking valuation. The price-to-earnings multiple is running around eight and is forecast to drop on improved earnings going forward.

Wincanton deals with some hefty clients and the report today trumpets decent new business contract wins from well-known names such as EDF Energy, Weetabix, Co-op, HMRC, Aggregate Industries, Roper Rhodes and others. The directors also said in the report that “high customer satisfaction” led to renewals from other big organisations such as Asda, Loaf.com, Halfords, Ibstock, British Sugar and others.

Some defensive qualities

It seems to me that Wincanton is a trusted partner of many ‘essential’ consumer businesses and, as such, operations could offer a degree of defensive, cash-generating appeal, which is good for ongoing dividend payments to Wincanton’s shareholders.

Another feature I like is that chief executive Adrian Coleman plans to step down to be succeeded by James Wroath “no later than the end of October.” Generally, I think a change at the top in any business can usher in a new period of determination, enthusiasm and vigour from a management team, which can be good for the enterprise and the share price.

The outlook is positive, but one thing to keep an eye on is the size of Wincanton’s pension obligations. Today’s report reveals that the company generated just over £57m in cash during the period but was left with just under £25m after settling its pension deficit payment for the year. Pension payments vary from year to year and can be unpredictable. Overall, though, I like the look of Wincanton today.

The post I’d buy this 4%-plus yielder alongside GlaxoSmithKline and Imperial Brands appeared first on The Motley Fool UK.

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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.

One way to generate a second income stream is to build a portfolio of dividend stocks. Carefully selected, these should be able to provide you with a rising income over many years.

Today I’m going to look at two possible examples, starting with FTSE 100 retailer Wm Morrison Supermarkets (LSE: MRW).

Defensive quality?

Supermarkets should be fairly defensive businesses. Our shopping habits don’t change much, even during a recession. Over long periods, supermarkets’ sales — and hopefully their dividends — should keep pace with inflation. But discounter pressures have caused problems for some, yet I believe Morrisons is one of the more attractive businesses in this sector today.

Although the Bradford-based firm isn’t the biggest supermarket, its food production business means that it’s able to produce a lot of goods in-house. In turn, this means that more of the profit from each sale stays within the firm, rather than being paid to external suppliers.

Producing its own food also means that Morrisons has been able to expand into wholesale, with a deal to supply 1,300 McColl’s convenience stores. This has opened a new channel of growth without requiring much investment.

The numbers keep improving

The firm’s recent half-year results showed that group revenue rose by 4.5% to £8.8bn during the first half of the year. Underlying pre-tax profit rose by 9% to £193m, backed by free cash flow of £242m.

Some of this cash will be used to increase this year’s interim dividend by 11.4% to 1.85p per share. Shareholders will also receive a 2p per share special interim dividend, taking the total half-year payout to 3.85p.

Analysts expect Morrisons’ earnings to rise by 7.5% to 13.1p per share in 2018/19. This puts the stock on a forecast price/earnings ratio of 20, with a prospective dividend yield of 3.1%. Although I remain bullish about this business, this share price seems fairly full to me. I’d hold for now and consider buying on the dips.

Trucking ahead

Logistics group Wincanton (LSE: WIN) has defied a number of headwinds to deliver reliable growth. Last year, for example, the firm’s underlying pre-tax profit rose by 11.8% to £46.4m. The dividend was increased by 9% to 9.9p per share, giving the stock a historic yield of 4.4%

Wincanton’s speciality is “supply chain solutions”. This means that it operates warehouses and lorries to supply stock to retailers and deliver products to customers. Among the group’s largest clients are food producers, retailers and supermarkets.

A cause for concern?

These shares have looked consistently cheap in recent years. They still do today, with a forecast P/E of 7.1 and a forward dividend yield of 4.7%.

The main reason for this low valuation is probably Wincanton’s £190m pension deficit — nearly six times last year’s profits.  To try and reduce this shortfall, the group has agreed deficit reduction payments of £17.3m per year until 2021, and then £24.3m per year until 2027.

These payments mean that roughly half the firm’s profits are being used to reduce its pension deficit. I expect the P/E to stay below 10 while this situation continues, but I do think that this business could be a decent buy for patient long-term investors.

The post Forget the State Pension, FTSE 100 dividend stock Morrisons may be all you need appeared first on The Motley Fool UK.

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Roland Head 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.

Reaching the magic million milestone may feel like a distant dream to many. But buying stock in companies offering juicy dividends (and then re-investing them) is as good a way as any for getting there, albeit slowly.

Today, I’m taking a look at three less-well-known stocks, all of whom provide a great source of income to their owners at the current time.

Under the radar

Small-cap ceramic tableware, cookware, giftware and tabletop accessory provider Portmeirion Group (LSE: PMP) might not raise pulses, but it’s done no harm at all to the wealth of its owners. Those who purchased the stock just one year ago would now be sitting on a 26% capital gain. 

Having delivered a “strong first half trading performance” — during which revenue and pre-tax profit grew by 11.4% and 29.1%, respectively — it looks likely this positive momentum will continue.

But Portmeirion is also no slouch when it comes to returning cash to its owners. While the forecast 3.3% yield for 2019 isn’t the biggest, it’s worth highlighting that the business boasts a solid history of hiking its payouts. As seasoned Fools will know, a consistently rising dividend is usually preferable to a large but stagnant one.

At 16 times forecast earnings, Portmeirion isn’t cheap, but returns on capital are invariably high, its finances look sound, and the decision to diversify into new markets should mean it continues growing. One to capture on general market sell-offs, perhaps. 

Next up is fellow AIM-listed stock Character (LSE: CCT) — a designer and distributor of toys for a number of established brands including Peppa Pig and Teletubbies.

Earlier this month, the market minnow released a reassuring trading update in which it highlighted “a return to its previous growth pattern during the second half.” Having recovered quickly from the administration of Toys R Us (a big customer), sales in the UK are at record levels, allowing the company to state that it will “comfortably reach market expectations” for the full year. 

Like Portmeirion, Character also generates high returns on the capital it invests. Unlike Portmeirion, its stock is on sale for a more-than-palatable 10 times forecast earnings. For those who dislike firms loaded with debt, the £110m-cap boasts a net cash position. 

Character’s shares come with a fairly tasty forecast 4.5% yield at the current share price. With a habit of raising dividends by double-digit percentages, I suspect it will continue to be a reliable source of income going forward. 

A final stock that would likely pass many dividend hunters by is supply chain solutions provider Wincanton (LSE: WIN). 

Never one to shout from the rooftops, things have been fairly quiet on the news front since the company last reported on trading in late June. Back then, it was revealed that the £278m-cap continued to perform in line with expectations, with a new contract win with EDF Energy complementing a number of renewals.

While the business appears to be ticking along nicely, it’s the dividend stream I like most.

Wincanton is likely to return 10.5p per share this year — equating to an attractive 4.7% yield at its current share price. Having now resolved issues relating to its pension fund, there appears to be little preventing management from increasing payouts in the future.

The stock currently trades on an inviting price-to-earnings (P/E) ratio of 7 for the year ending 31 March. 

The post 3 unknown but great dividend stocks that could help you make a million appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Portmeirion Group. 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.

The company has accomplished these returns through a combination of organic growth and bolt-on acquisitions. According to its annual results for the year ended 31 December 2017, the firm spent £616m acquiring 15 businesses during the period (apparently one of its busiest years ever for deals), which helped produce reported revenue growth of 16% year-on-year. On a constant currency basis, revenue grew at only 10% and adjusted earnings per share rose 7%. 

Looking at these figures, you could be forgiven for thinking all of Bunzl’s growth for the period came from acquisitions, and the underlying business is struggling. However, that is not the case. Organic revenue growth for the year to the end of December was 4.3%, “the highest level since 2006” according to management. Unfortunately, the company’s operating profit margin contracted by 20 basis points due to “the impact of the significant additional business won in North America” for the year, but this is a small price to pay for the revenue growth achieved. 

Going forward, management expects to continue on its current trajectory of reinvesting earnings back into operations to drive organic and bolt-on growth in what it believes is a fragmented distribution market.

Too expensive? 

Despite Bunzl’s bright outlook, I’m concerned about its investment potential. Right now the shares trade at a forward P/E of 16.2, which is high for a low-margin distribution business. The wider market is trading at a forward P/E of 13.9. 

It seems to me that investors are placing a huge growth premium on Bunzl, which is fine as long as it can continue to live up to expectations, but if the business stumbles, the shares could tumble. 

With this being the case, I’m much more positive on the outlook for smaller peer Wincanton (LSE: WIN). This company may not have the growth record of Bunzl, but its valuation is much more appropriate. The shares currently trade at a forward P/E of 7.3, making it one of the cheapest stocks around. 

That being said, analysts are much more cautious on the growth outlook for this company. Compared to Bunzl, the City expects Wincanton to grow earnings per share at between 1% and 4% for the next two years. This lower growth rate does deserve a lower valuation, although I would say a multiple of around 10 times earnings is more appropriate, not 7.3, which is around half the market average. And as well as this depressed valuation, the shares also support a market-beating dividend yield of 4.7%. With the payout covered nearly three times by earnings per share, it looks to me as if this payout is here to stay for the foreseeable future.

The other thing to consider with Wincanton is the firm’s debt. This is around £44m and shareholder equity is -£134m, a troubling figure, although over the past five years management has been working hard to improve the balance sheet and has cut net debt by more than 70% since 2012.

The post Why I’d sell Bunzl plc to buy this hidden 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.

Go one step further

But savvy income-focused investors go one step further. They seek out companies whose shareholder payouts rise year-on-year, and reinvest those proceeds to unleash the full power of compounding – what’s known as the snowball effect.

It’s true that the vast majority of dividend hunters are primarily focused on the perceived safety of the large multi-nationals listed on London’s top tier FTSE 100 index, but I reckon these investors could be missing out on possible bargains among the companies lower down the pecking order of market capitalisation.

While some of the more popular large-cap income stocks can sometimes command a premium valuation, their smaller counterparts are often found to be trading at far more attractive prices. I believe Headlam Group (LSE: HEAD) falls into this category quite nicely. Despite being Europe’s largest distributor of floor coverings, with a market capitalisation of £490m, the Birmingham-based group isn’t large enough to be included in the FTSE 100 or mid-cap FTSE 250 indices, but I believe it could be just a matter of time.

Shrewd acquisition

At the end of 2017 the group announced the acquisition of Domus, the UK’s leading specification consultant and supplier of hard surfaces for premium construction and refurbishment projects, in a deal potentially worth more than £35m. I believe the acquisition will help diversify and broaden Headlam’s overall position in the floor coverings market as it gives it an entry into ceramics and an increased weighting in engineered wood, LVT and laminate, incorporating product lines that continue to achieve ongoing growth in the market.

The acquisition should also significantly increase the group’s presence in the commercial specification market and bring in considerable expertise, providing a platform to pursue further domestic and international growth opportunities. With this in mind I think Headlam’s shares are a steal at just 13 times forward earnings, with a rising dividend that currently yields no less than 4.7%.

Irresistible

Another high-yielding small-cap that looks attractively priced at the moment is Wincanton (LSE: WIN). The Wiltshire-based logistics firm is the UK and Ireland’s leading provider of supply chain solutions, operating from over 200 locations right across the British Isles.

The group’s share price breached 300p last summer, reflecting stellar growth over the last few years, but a sharp pull-back in recent months seems to have presented a buying opportunity for income-focused investors with one eye on capital growth.

Since being reinstated back in 2016, Wincanton’s dividend payouts have risen sharply, with analysts forecasting further increases this year and next, leaving the shares offering a solid yield of 4.6%. Furthermore, a bargain basement valuation of just seven times earnings for the current year to the end of March makes the shares even more irresistible.

The post 2 overlooked dividend stocks I’d buy in February appeared first on The Motley Fool UK.

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Bilaal Mohamed 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.

Largest British logistics firm

You’ll often find analysts and commentators recommending shares that offer good levels of income in the form of dividends, or are significantly undervalued relative to their long-term prospects. Yet it’s less often that you’ll find quality stocks that serve up both at the same time, especially not in the small-cap arena. But guess what? I reckon Wincanton fits the bill perfectly.

The Wiltshire-based group may be the largest British logistics firm, but at just over £300m it still doesn’t command a market capitalisation large enough to be considered as even a medium-sized listed company. A small-cap it may be, but Wincanton can in no way be considered a small-fry business, providing supply chain consultancy and solutions to some of the world’s most admired brands, operating from 200+ locations, with 3,600 vehicles and 6.6m sq ft of warehousing right across the British Isles.

Venerable business

This 90-year-old business started out delivering just milk and dairy products, but has since expanded to provide supply chain solutions across a wide range of sectors including retail, construction, defence and energy. The company designs and implements services that range from setting up and operating distribution networks through to bonded warehouses, technology hosting, container transport and storage.

Wincanton has delivered double-digit earnings growth in each of the last four years, and reinstated its dividends in 2016, which at current levels provide a rock-solid yield of 4%. But it’s the valuation that I’m baffled about. The company’s shares trade on a bargain-basement earnings multiple of just nine, which leads me to believe that investors currently have a great opportunity to buy in to future growth with a lower level of risk than many of its small-cap peers.

Unaffected by Brexit

But wait. Wincanton isn’t the only cheap high-yield stock I’m considering today. FTSE 250 building and civil engineering contractor Kier (LSE: KIE) is offering an even higher yield. With its share price drifting a third lower since March, the Bedfordshire-based group is serving up a tasty dividend that yields no less than 6.7%.

But as always, we need to be sceptical about such high yields and ensure the company in question is in good shape and able to afford its generous shareholder treats. With that in mind we can look back to September’s full-year results, which gave shareholders lots to cheer about, as the group reported an 8% uplift in pre-tax profits to £126m, helped along by a 5% rise in revenues to £4.27bn.

With a growing order book of approximately £9.5bn and solid long-term fundamentals, I think it’s safe to say the business has been relatively unaffected by Brexit, which just leaves me say the shares are trading far too cheaply on a price-to-earnings multiple of just nine for FY2018.

The post 2 cheap, high-yield stocks I’d buy in November appeared first on The Motley Fool UK.

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Bilaal Mohamed 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.

However, Wincanton (LSE: WIN) and Photo-Me (LSE: PHTM) are two companies that don’t fit this mould. Over the past five years, shares in these businesses have returned 250% and 270% respectively, excluding dividends. Including dividends, returns are closer to 300% and what’s more, it looks as if this growth is set to continue. 

Room for further growth 

Both Wincanton and Photo-Me have been written-off by investors in the past, yet both have gone on to defy expectations. 

For example, Wincanton plunged into a loss for 2012 and the firm’s weak balance sheet led to many investors writing-off the business. Five years on and things could not be more different. If the company hits City earnings targets for this year, earnings per share will have doubled from 13.3p for 2013 to 26.6p for the fiscal year ending 31 March 2017. At the same time, net debt has fallen from £131m to £32m. Net gearing has come down to 13%. 

Despite these improvements, shares in Wincanton are still cheap. The shares are trading at a forward P/E of 10.2 falling to 9.8 for 2018. Meanwhile, the business is valued at an enterprise value-to-earnings before interest, tax, depreciation and amortisation multiple of 3.7 compared to the industry average of 8.3. 

As Wincanton moves from its recovery to growth phase, the market should continue to re-rate the shares and take advantage of the low earnings multiple.

Cash cow

There’s no other way of putting it, Photo-Me is a cash cow. The firm has used its dominant position in the world of fixed high-margin photo booths to expand into new markets including washing machines and car washes with reasonably attractive returns. 

Earnings per share have risen from 4p in 2012 to 9.2p for the year ending 30 April 2017. Over the same period, the company is on track to have paid out 26.5p per share in dividends to investors, around 65% of total earnings per share since 2012. As well as Photo-Me’s cash returns, the firm has amassed a cash pile of £77.2m, almost twice annual net profit. 

Shares in Photo-Me are currently trading at a forward P/E of 18, which may seem expensive, but for the past five years, the company has achieved an average return on capital of around 25%. For some comparison, last year tech giant Apple produced a return on capital of 24%. 

City analysts expect Photo-Me’s earnings per share to grow by a steady high single-digit percentage for the next three years. And assuming the shares continue to trade at today’s multiple, this indicates a capital gain in the region of 5% to 10% per annum. 

Add-in Photo-Me’s dividend yield of 4.2%, and the shares look to be an extremely attractive investment indeed.

The post These ‘hidden’ growth shares are up 300% (and there should be more to come) appeared first on The Motley Fool UK.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Document management firm Restore (LSE: RST) isn’t a household name, but the tiny £400m market cap firm has rewarded its investors with a 300% rise in share prices over the past five years alone. And full year results released this morning, which showed an 41% increase in revenue year-on-year, leads me to believe this rally can continue for another five years.

Reliable recurring revenue streams

This rapid growth has been driven largely by an £83m acquisition that made its document shredding business the second largest in the UK. This continues a solid record of acquisitions that have also made the company the second largest provider of document storage space in the UK.

Economies of scale and cost-cutting improved operating margins to an impressive 19.3% for the year. This should continue, as new acquisitions are integrated and further cross-selling opportunities with current customers feed through.

As the second biggest player in its two largest markets there probably isn’t much room for further transformative acquisitions. But the company is supplementing solid organic growth with a move towards higher growth areas, such as document scanning and online storage. These business lines are a natural extension of Restore’s capabilities and competitive advantages, and are growing quickly — over 8% alone in 2016.

With margins rising and little need for extensive capital investments, the business also kicks off considerable cash flow. High cash flow will be necessary in the years to come, as two major acquisitions in two years has driven net debt up to £72.3m, or 2.46 times EBITDA.

But as cash flow rises this is a very manageable amount of leverage for a non-cyclical company such as Restore. I believe the company’s reliable recurring revenue streams, growth opportunities and improving margins make its shares a steal at 17 times forward earnings.

A turnaround very much in progress

One company Restore is very familiar with is logistics firm Wincanton (LSE: WIN). from whom it bought a document storage business for £55m back in 2015. This has proven to be a very good deal for both involved, as it allowed Wincanton to pay down some of its debt and refocus on growing its core logistics business.

So far this turnaround is bearing fruit, as margins and profits are rising while net debt fell 48.2%, to £32.3m, in H1. The company’s retail and consumer segment is also growing quickly as e-commerce becomes more and more important, and retailers need help creating distribution centres and deciding how to most effectively get their products to consumers.

The downside to this is that operating margins of 3.7% from this division lag significantly behind the 5.9% operating margins of the the transport and logistics division. But overall operating margins in H1 did improve from 4% to 4.6%, which suggests management’s renewed focus on the core business is paying off.

That said, with margins this low there’s little room for error. Wincanton’s shares may look cheap at 10 times forward earnings, especially considering the firm’s non-cyclical characteristics, but I’d need to see further margin improvement and a return to sales growth before I bought shares.

The post 41% FY sales growth shows this top small cap can quadruple again by 2022 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 no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

At today’s 82p share price, Severfield is up around 41% from the 58p or so the shares reached in late June. And at 257p, Wincanton sits around 49% higher than the 172p we saw the shares touch during early July.

These stocks are marching on, but why? Let’s dig a little deeper to see if they can make decent investments from here.

A dividend explosion

Severfield’s chief executive Ian Lawson was upbeat in the firm’s interim results report released in November. He said a strong performance continued after the company’s September half-year period with margins up and healthy cash-generation. He thinks profit growth for the full year will be ahead of previous expectations, and to underline the directors’ confidence, the interim dividend was pushed up an impressive 40%.

Severfield’s strategy targets an underlying doubling of profit before tax over the next four years and, judging by the interim report, it looks like the firm is on course to achieve that goal.

However, just four years ago its position didn’t seem as rosy. Profits had collapsed and the firm tapped the market with a Rights Issue to pay down debt and fix its balance sheet. There’s no doubt that the firm’s operations are highly cyclical, but there could be more to come during the current upturn in operations.

Indeed, City analysts following Severfield anticipate the firm’s earnings bounce-back to continue with earnings per share rising 14% during the year to march 2018 and by 12% to March 2019.

A return to dividends

Wincanton’s interims were out in November too. The firm’s chief executive, Adrian Colman, said that good trading during the first half of the year justified the reintroduction of a dividend payment at the end of the previous year and dividends would continue with an interim payment. 

Dividend payments were last on the scene as far back as 2011, and one glance at the share price chart tells the story of the firm’s volatile trading over recent years — operating profit declined into loss as recently as 2012. Yet City analysts see progress ahead, predicting 4% uplifts in earnings per share for the years to March 2018 and March 2019.

More to come?

Companies with recovering operations such as these can be attractive as investments, but if I held their shares I would remain vigilant for approaching weakness in trading down the road. 

Right now, you can pick up shares in Severfield for a forward price-to-earnings (P/E) ratio of just over 14 for the year to March 2018 and Wincanton’s on a forward P/E rating of around nine. Severfield’s forward dividend yield runs at 2.8% or so, and Wincanton’s around 3.8%.

The valuations remain undemanding and the shares are on the move, but I think it’s worth remembering these firms’ troubled recent histories. If you’re tempted to take the plunge, it might be a good idea to remain cautious while holding the shares.

The post Up over 40% in 6 months, these 2 stocks are marching on appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.