Here, I’m going to highlight two under-the-radar UK dividend stocks that have rising payouts. If one is looking to build a growing passive income stream, I think these shares could be worth considering.

Unbelievable dividend growth

First up, we have Yü Group (LSE: YU.). It’s an independent supplier of gas and electricity to small and medium-sized businesses across the UK (and a smart meter installer).

This company has one of the fastest-growing dividends on the London Stock Exchange. Last year, the company raised its payout to 40p from 3p per share – an increase of an incredible 1,233%.

This year, analysts expect the payout to rise another 43% to 57p. That would take the yield to about 3.5%.

What strikes me about this company – aside from the spectacular dividend growth – is that it’s performing very well at the moment. In the first half of 2024, revenues grew 60% to £313m while earnings per share soared 52% to 88p.

Looking ahead, CEO Bobby Kalar said that he expects continued momentum in H2 and that company is looking to take advantage of a £50bn+ market opportunity.

It’s worth pointing out that Yü has no control over energy prices. So there’s no guarantee that revenues and dividends will continue to rise.

Overall though, I think the stock looks very interesting today and is worth further research. The price-to-earnings (P/E) ratio is just 8.5 so there’s some value on offer too.

A steadily rising payout

The second company I want to highlight today is Spectra Systems (LSE: SPSY). It’s an AIM-listed business that provides solutions to authenticate banknotes, postage stamps, wine, spirits and tobacco, and also provides security software for lottery organisations.

The yield here is decent at around 3.7%. But most importantly, the payout is also rising at an impressive rate.

Last year, the company paid out total dividends of 11.6 cents per share, up 66% on the figure five years earlier. This year and next, City analysts expect payouts of 12 cents and 13 cents.

One thing I like about this company is that it has contracts with governments (central banks) for its banknote technology. This means revenues are likely to be quite resilient going forward.

Of course, today there’s a global shift away from cash. Physical money isn’t likely to disappear completely any time soon, but this trend could create challenges for the company in the future so it’s something to think about.

In terms of the valuation, the P/E ratio is currently 15, falling to just 7.3 using next year’s earnings forecast. At those multiples, I see some value here.

Overall, I think this dividend stock has the potential to provide attractive returns in the years ahead and is a good one to consider.

The post These 2 dividend growth stocks could be cash cows for UK investors appeared first on The Motley Fool UK.

My approach would have three strands. First, I’d look for stocks with a chunky dividend yield now.

Big-dividend stocks would give me a decent-sized cash income stream sooner rather than later. The money would give me choices. For example, I could draw it for a second income, or reinvest it to help build up the share account so it’s capable of paying an even bigger income later.

The power of growth

A second strand would be to look for companies that have a good rate of dividend growth. Dividends are good, but an income stream that gets bigger over time can be even better.

The progress a company makes with dividend payments often reflects the success and growth of the underling business. That means a decent dividend-grower can often deliver its shareholders a rising share price too.

The third strand would be to ignore dividends and focus just on the growth of an enterprise. Often, fast-growing businesses don’t pay dividends, or pay tiny ones. Instead, they tend to reinvest their cash flow back into operations to generate even more growth.

If the capital value of my portfolio is rising, I can choose later how to use the gains to generate a second income. I could draw money directly from the portfolio by selling shares, for example. Or I could reinvest the money into big-dividend-paying stocks or dividend growers.

For my big-dividend stocks, I’d consider names such as Legal & General, Renewable Infrastructure, MONY Group and others. Meanwhile, for my dividend-growers I’d target companies like RELX, BAE Systems, Halma, DCC and similar.

For growth, I’d tend to consider smaller companies with a long runway ahead. Names on my watchlist now include ME International, Gamma Communications, Wilmington and Spectra Systems (LSE: SPSY), which deals in machine-readable, high-speed banknote authentication, brand protection technologies, and gaming security software.

Trading well and a robust outlook

At the end of September, the company delivered a strong set of half-year results and a positive outlook statement. Meanwhile, City analysts expect normalised earnings to increase by a whopping 70% this year and 110% in 2025.

With the share price in the ballpark of 246p, it’s been adjusting to the progress of the business and stair-stepping higher.

However, with such big anticipated earnings increases, one risk for shareholders is the business may fail to keep up its rate of growth, perhaps because of not winning contracts it’s pitched for. It could even miss current estimates. If that happens, the valuation could be left ‘stranded’ at too high a level.

For the time being though, the forward-looking earnings multiple is just over seven for 2025 when set against the forecast. However, Spectra Systems is a FTSE AIM-listed small-cap stock with a market capitalisation of just £117m. So, although the multiple looks undemanding at first glance, I’d expect it to be lower than some because of the risks that come with smaller businesses.

Nevertheless, despite the uncertainties, I’d conduct further research and consider the stock now for inclusion in a portfolio financed by my £20k ISA allowance.

The post How I’d invest for a second income using my £20k ISA allowance appeared first on The Motley Fool UK.

For example, Spectra Systems (LSE: SPSY) looks interesting. The business is a “leader” in machine-readable, high-speed banknote authentication, brand protection technologies, and gaming security software.

A decent earnings record

It trades on the FTSE AIM market, and with the share price near 228p, the market capitalisation is around £112m. So it’s a small-cap stock, and that fact elevates the risk a little for investors.

However, Spectra System’s record for normalised earnings per share has been strong. Here’s what it’s looked like over the past few years:

The table shows robust revenue and earnings growth. On top of that, City analysts expect further increases in the top and bottom lines for next year.

Meanwhile, the share price chart reflects the progress of the business. Over the past five years, the stock’s risen by around 75%. That’s just the sort of gain I’m keen to lock into my portfolio for the coming years.

However, there’s never a guarantee any business will continue to perform well – all enterprises can suffer from operational challenges from time to time.

Nevertheless, Spectra Systems delivered a stonking set of half-year results in September 2023 with a bullish outlook statement. The business is trading in-line with expectations and is on course to meet analysts’ projections.

Organic and acquisitive progress

In December 2023, the company completed the purchase of Cartor Holdings Ltd, a business in the security printing industry. The move demonstrates ongoing potential for both organic and acquisitive growth.

Meanwhile, Spectra System’s balance sheet looks strong with a net cash position rather than net debt. That situation gives the company some fire power to invest and drive further growth ahead. For example, it could afford to make that latest acquisition.

I like the consistency of earnings here. That table above has no down years, and I’m hopeful the company can keep up such good performance.

But the dividend record is equally impressive. The compound annual growth rate of the shareholder payment is running near 14%. Meanwhile, the forward-looking dividend yield for 2024 is just above 4%. That could be a handy and growing income to collect while waiting for further business progress to develop.

The anticipated earnings multiple is around 19.5, suggesting a fair-to-full valuation, and that adds a bit of risk. However, if the company can keep on growing its earnings into the future, it may deliver a satisfactory investment outcome over the next five years or so.

I’m not in these shares at the moment, but this one’s way up on my watchlist for deeper consideration.

The post 1 attractive UK growth stock for 2024 and beyond appeared first on The Motley Fool UK.

Several dividend stocks look dirt-cheap to me right now. And if I had some spare cash to invest I’d be tempted to buy some of them now to hold for the long term.

For example, IG Group (LSE: IGG) has a robust multi-year record of financial figures. The trading platform provider has generally delivered rising operating cashflow, earnings and shareholder dividends. And those trends look set to continue.

An underlying agenda for growth

City analysts expect modest single-digit percentage increases in earnings and dividends for the current trading year to May 2023. And they anticipate yet more again the following year.

I used to view IG as a fast-growing enterprise. However, these days I see it as more of a stalwart dividend-payer. And like all the best income shares, growth remains on the agenda in the underlying business. Although the rate of increase anticipated in the figures is modest. 

But growth is still important. And that’s because I want all my dividend-paying companies to increase their shareholder payments a little each year.

And the signs look promising. The company has a growth agenda and it’s committed to delivering shareholder returns via its progressive dividend policy. There’s also a share buyback operation in full swing. 

My assumption is that demand for the company’s products and services will not deteriorate any time soon. However, I could be wrong. And if speculation becomes less attractive for the firm’s customers — perhaps because of hard economic times — I could lose money on the shares. 

However, with the share price near 820p, the forward-looking dividend yield is running just below 6% for the trading year to May 2024. And I reckon that’s attractive. But estimates for the dividend could prove to be incorrect. Nevertheless, I’m attracted to the stock now for my long-term, dividend-led portfolio.

Small but growing

But I also like the look of Spectra Systems (LSE: SPSY). The business is a leader in machine-readable high-speed banknote authentication, brand protection technologies, and gaming security software.

And with the share price near 153p, the forward-looking dividend yield is just above 6% for 2023. The dividend record shows a rising trajectory since 2017. And solid growth in revenue, earnings and cash flow has backed the trend. So, at first glance, the figures suggest Spectra Systems could make a promising dividend investment in my portfolio.

Looking ahead, City analysts predict robust single-digit percentage increases in earnings and the dividend for this year and next. And the company delivered a strong set of half-year results in September with an optimistic outlook statement.

As with all businesses, operational setbacks may arrive at any time. And the risks are perhaps higher for Spectra shareholders because it’s a small listed company. The market capitalisation is just around £67m.

However, the stock still tempts me now. And I’d be inclined to add it to my long-term portfolio.

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Consistent cash flow

With its share price near 200p, Moneysupermarket.com (LSE: MONY) has a forward-looking dividend yield of just over 6% for 2023.

I think that’s attractive because the price comparison website operator has a multi-year record of consistent cash flow and shareholder payments. The compound annual growth rate of the dividend is running at around 3.5%.

In October’s third-quarter trading update, Moneysupermarket reported “Growth in the quarter ahead of expectations.” Revenue increased by 15% over three months and by 6% for the nine-month period. And, looking ahead, the directors expect full-year earnings before interest, tax, depreciation, and amortisation (EBITDA) to be “towards the upper end of market expectations”.

Chief executive Peter Duffy said there are early signs of improving trends in the Insurance market. And, in the firm’s Money division, “More consumers are finding attractive products to switch to”. He reckons the firm’s “strong brands” will help to support consumers during the current economic hardships. 

It’s possible that Moneysupermarket’s revenue could dip if the general economic slowdown gains traction. But I’d shoulder the risks and buy this stock for dividend income today.

Rising dividends

The shares of Spectra Systems (LSE: SPSY) are near 160p. And the forward-looking dividend yield is just above 6% for 2023.

Spectra describes itself as a leader in machine-readable, high-speed banknote authentication, brand protection technologies, and gaming security software. And the firm’s activities have generated a multi-year record of strong cash flow and rising shareholder dividends.

In September’s half-year results report, the company posted a 15% increase in revenue compared to the figure 12 months earlier. And cash generated from operations increased by more than 50%.

Looking ahead, chief executive Nabil Lawandy said Spectra will likely “meet market expectations for the full year”. City analysts have pencilled in single-digit-percentage increases for earnings and the dividend for this year and in 2023.

Spectra is a tiny listed business with a market capitalisation of just under £68m. There’s some risk in that situation. But the balance sheet is strong. And I’d buy the stock for income.

A privileged position

Near 1,028p, the National Grid (LSE: NG) share price throws up a forward-looking dividend yield of just over 5.5% And that’s for the trading year to March 2024.

The company’s privileged position at the heart of the UK’s electricity transmission and distribution infrastructure leads to consistent cash flows. And there’s a sizeable energy business in the US as well.

Both the dividend and operational cash flow show a multi-year rising trend. And that’s attractive to me. However, the business faces heavy regulation and must constantly reinvest a lot of money to maintain and upgrade its networks. 

There’s a lot of debt on the balance sheet, but I reckon the consistent trading and financial record helps to justify that. Nevertheless, future regulatory demands could inhibit the company’s ability to keep its dividend growing.

On 10 November, the company delivered a strong set of half-year figures and a bullish outlook statement. I’d embrace the risks and hold this stock for the long term.

The post My top UK dividend shares to buy for December 2022 appeared first on The Motley Fool UK.

A word of warning – AIM is more lightly regulated than the main market and also contains some high-risk speculative stocks. Careful research is needed to find the hidden gems, but I’ve found it’s worth the effort. Here are seven AIM market stocks that I’d consider buying for my portfolio today.

Safer profits from property

My first choice is AIM property developer Watkin Jones (LSE: WJG). This company specialises in building student accommodation and apartment blocks, which it then sells to big rental landlords. New buildings are often pre-sold before they’re built, so the risk of losing money on completed projects is low.

The main fear I have is that this business could face much tougher competition in the future. Purpose-built rental accommodation is a growing market with some big money behind it. But Watkin Jones is an established player with a good reputation. I think it should continue to do well.

The shares have slumped recently, and this stock now offers one of the higher dividend yields on the AIM market, at around 3.9%. I think Watkin Jones looks good value at current levels.

A potential bargain

My second pick is tableware and home fragrance group Portmeirion (LSE: PMP). This business grew out of a gift shop in North Wales, but today owns brands including Spode, Royal Worcester and Wax Lyrical.

One potential concern for me is that if it continues to buy up other businesses, Portmeirion could lose focus on its core pottery business. This still generates the majority of profits.

However, Portmeirion’s latest results suggest to me that this isn’t a problem yet. The group’s 2021 profits were only slightly below 2019 levels and City analysts expect profits to hit record highs this year.

The shares currently trade on just eight times earnings and offer a 4% dividend yield. I’m tempted to buy at current levels.

Promising newcomer

Franchise Brands (LSE: FRAN) only floated on AIM in 2016 but is growing fast and looks promising to me. This group owns a range of franchised businesses, including drain specialist Metro Rod.

Management recent expanded into the US with the acquisition of Filta, which provides commercial kitchen maintenance services through a franchise network in the UK and US.

Franchise Brands’ shares aren’t cheap, on 21 times 2022 forecast earnings. If growth slows, then the shares could fall sharply. But progress so far has been good, in my view.

Annual profit has risen from under £2m in 2017 to more than £5m last year. Franchise Brands is one AIM growth stock I’d consider buying for my portfolio.

Nuclear specialist

I normally avoid buying shares in building contractors. But I think that Renew Holdings is a bit different. This business specialises in essential infrastructure such as rail, water and nuclear energy.

Most of these areas are heavily regulated. Unlike housing and commercial property, they do not usually suffer from cyclical booms and busts. I’m particularly interested in the exposure to nuclear energy, which I think could be a growth area as the UK moves away from coal and gas.

Renew has delivered steady growth in recent years, with profits rising from £12m in 2017 to more than £30m last year. So far, management has been able to manage material shortages and rising costs without any impact on trading, we’re told.

If these problems continue, I think it might become more difficult for the company to manage them. That could cause profits to fall below expectations.

However, I’d see this as a short-term issue that would affect many competitors equally, so I’m not too worried. For now, I think Renew Holdings looks an interesting opportunity for continued growth.

A cash-backed 6% yield

Bank note authentication and brand protection specialist Spectra Systems has one of the highest dividend yields on AIM, at 6.4%.

This tempting payout looks fairly safe, in my view. Spectra has no debt and generates plenty of cash each year, thanks to its 35% operating profit margin. I think the main reason these shares don’t trade much higher is that the company’s growth rate has been fairly slow in recent years.

Investors worry that demand for bank notes and Spectra’s services could fall in future years. But there’s no sign of that this year and I think new products such as a machine-readable plastic banknote material could support long-term demand.

This is a niche business, but as an income investor I’m tempted to add a few to my portfolio.

Pharma growth

Healthcare is one of the long-term growth themes in my portfolio. One less well-known company in this sector is Alliance Pharma (LSE: APH).

Alliance specialises in buying mature consumer healthcare products and improving their distribution and marketing. The firm’s share price has doubled over the last five years.

This business may not sound that exciting, but profit margins have averaged over 20% since 2016 and sales have nearly doubled over this period.

I think management is a key risk here – misjudged future acquisitions could hit profits and damage the group’s growth record.

For now, though, I remain bullish about this company. I’d be happy to tuck a few shares away for the next five years.

25% growth forecast at this stock

My final pick is currency exchange specialist Argentex (LSE: AGFX). This small-cap specialises in providing foreign exchange services to corporate and private clients.

The business is led by founder and CEO Harry Adams, who has a 12% shareholding in the business. I reckon this should mean his interests are well-aligned with those of shareholders.

Perhaps the biggest risk I can see is that this is a fast-growing, competitive market. Will Argentex end up as a long-term winner or an also-ran?

I don’t know, but broker forecasts suggest it could report 25% earnings growth this year. Based on these estimates, I think the shares look very cheap on eight times forecast earnings. This AIM stock is on my list as a potential buy.

The post 7 top AIM market shares to buy now appeared first on The Motley Fool UK.

Rupert Hargreaves: Trifast

Trifast (LSE: TRI) specialises in the design and manufacture of high-quality industrial fastenings. After a slowdown in demand last year, sales have rebounded this year. Revenues in the first half increased 30% compared to 2020 and are now ahead of 2019 levels.

As the global economy continues to rebuild after the pandemic, I think this trend could continue. Management is also looking to complement organic growth with acquisitions.

At the beginning of September, Trifast acquired Falcon in the USA, and management has said that the search for additional acquisitions continues “apace.”

Considering the growth potential, I would buy the stock for my portfolio. Some challenges it could face that may hold back growth include cost and wage inflation pressures.

Rupert Hargreaves does not own shares in Trifast.

Christopher Ruane: Card Factory

As people buy Christmas cards, small-cap stock Card Factory (LSE: CARD) is on my radar. It’s 56% higher than a year ago, but well below its Spring highs.

The company sharply cut its loss in the first half. The Christmas season should be busy. Increasing moves online could help grow sales. The company is cash generative and cut net debt by a third in the first half. But Card Factory remains risky. Its shops can see sales plummet if there are lockdowns, and supply chain inflation could hurt profits.

Christopher Ruane does not own shares in Card Factory.

Roland Head: Spectra Systems

I think that security technology specialist Spectra Systems (LSE: SPSY) could be a quality company at a reasonable price.

Spectra specialises in providing authentication technology for documents, consumer goods and currency. For example, Spectra provides the security features for many countries’ banknotes and the equipment needed to test them.

Banknotes are Spectra’s biggest market, and this is probably the main risk for investors. Use of paper money is falling and the business could struggle to grow.

However, Spectra is diversifying and continues to win new contracts. The group also upgraded its profit guidance for 2021 in October. I think the shares look reasonably priced at current levels. There’s also a tempting 4.7% dividend yield. This is a stock I’d buy today.

Roland Head does not own shares in Spectra Systems.

Andy Ross: finnCap  

Financial company finnCap (LSE: FCAP) is a great small-cap stock in my opinion. Apart from its small market capitalisation, which gives it plenty of headroom to grow into a much larger company, I really like finnCap’s financials. They indicate to me a stock that has serious growth potential. 

The group has a three-year compound annual growth rate (CAGR) for sales of 29%. This is important because, as an investor, I want to know that demand for a company’s products/services is continuously increasing. The operating margin is improving, so all in all it seems like potentially a great time to buy the shares.  

Andy Ross does not own shares in finnCap.

Royston Wild: Science in Sport 

I’d use recent price weakness at Science in Sport (LSE: SIS) as a dip-buying opportunity. The sports nutrition giant has fallen 10% in value over the past month. Demand for the products it makes is rocketing as peoples’ desire to live healthier lifestyles grows and fitness activities become more popular. Science in Sport’s revenues jumped 24% during the six months to June. 

This small cap’s more than doubled in value during the last year. If industry analysts are to be believed there should be plenty of opportunity for Science in Sport’s share price to continue soaring too. Experts at Statista for example think the global sports nutrition market will be worth $35.4bn by 2026. That’s up significantly from the $16.5bn it was valued at last year. Through its popular products I think the business should make big profits in this favourable landscape.  

Royston Wild does not own shares in Science in Sport.

Zaven Boyrazian: iomart

iomart (LSE:lOM) is a cloud-computing business trying to take on industry giants like Amazon, Alphabet, and Microsoft. That’s quite a tough bunch of competitors, so it’s not surprising to see revenue growth struggle. However, management has since begun pursuing a niche in the hybrid-cloud market through bolt-on acquisitions.

It will take some time before this new strategy starts yielding results. However, iomart continues to be supported by fairly impressive cashflows courtesy of its high customer retention and 93% recurring revenue.

There is obviously no guarantee of success. And using an acquisitive approach has led to an increased debt position that adds more risk. But given the potentially explosive returns of becoming a new leader in cloud computing, I think the risk is worth the reward.

Zaven Boyrazian does not own shares in iomart, Amazon, Alphabet or Microsoft.

Paul Summers: Bioventix

Although still far from being cheap, I think shares in biotech firm Bioventix (LSE: BVXP) are starting to look attractive. Stock in the small-cap antibodies supplier has fallen 20% in value in 2021 so far. 

At least some of this selling pressure has been due to hospitals continuing to prioritise dealing with the pandemic over diagnosing people for other things. To make matters worse, understandably cautious patients aren’t even reporting symptoms to healthcare professionals. As a result, Bioventix’s main business has been suffering.

I reckon this might be a great contrarian opportunity. BVXP’s returns on capital and margins are some of the best on the market. The balance sheet also looks sound. Any indication that Covid-19 is being beaten back and the shares could rally. 

Paul Summers has no position in Bioventix

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The company began its life as a spin-out from the research of founder and CEO when he was a professor at Brown University in the US. Since then the company’s focus has been on providing authentication systems and anti-counterfeiting devices for banknotes for 19 central banks across the world. While this has been a steady and sometimes profitable business, there have been a few changes of late that interest me.

The first is a renewed focus on profitability, which has entailed a cost-cutting drive, a move to in-house manufacturing of its covert materials products, and the acquisition of a company making the phosphor-based materials used by central banks in banknote production. This has led to a rapid uplift in financial performance with revenue rising 48% in the year to June to $7.1m and adjusted EBITDA hitting $3m. The company is also cash flow-positive and with no debt and $9.4m of cash on hand, it has begun paying out dividends and intends to return all cash in excess of $5m to shareholders.

The second thing that is interesting me is the company’s push into authentication systems for physical goods such as luxury clothing and other items. Spectra has recently won regulatory approval to roll out its TruBand smartphone-based authentication system for cigarettes in China. If this trial goes well and Spectra is able to roll out the product to other goods and countries, its growth prospects are rather astonishing.  

However, success is still far from certain and with the company’s stock price up over 350% in the past year, a good deal of growth has already been factored-in. Would be-investors should do their homework and be cautious but I still see plenty of reason to be interested in Spectra Systems.

A bargain basement growth stock?

A much safer option is £240m market cap Alliance Pharma (LSE: APH). It takes a rather novel approach to business by avoiding expensive and hit-or-miss R&D in favour of simply acquiring already certified treatments and then doing what it does best, marketing them and finding distribution routes into new markets.

This has worked out very well for the company with revenue and EBITDA more than doubling last year, to £97.5m and £26m, respectively. Much of this growth was due to a large purchase, but previous acquisitions also continued to perform well with several growing by double-digits. With year-end net debt at 2.8 times EBITDA it’ll probably be a while before the company makes further large acquisitions, but impressive second half cash flow was already pushing down leverage, so they will come eventually. 

With its shares priced at just 12.8 times forward earnings while offering a decent 2.3% dividend yield, Alliance Pharma offers both a significant margin of error for investors and good growth prospects through organic expansion and further acquisitions.

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