When it comes to the age-old question of whether to go for a growth shares or to look for solid dividends, we often dont have to choose there are plenty of companies that potentially offer both. Today Im looking at two, quite different ones.
One is Severfield (LSE: SFR), which has gone through several partial name changes in its history. Thestructural steel company suffered a tough patch and recorded a few years of losses, but since returning to positive (although very low) earnings per share in 2014, all the signs have been of an impressive recovery.
After a strong year to March 2017, forecasts suggest further growth in earnings for the current year together with steadily rising (and well covered) dividends, and Tuesdays interim results supported that nicely.
The share price gained 11% to 71.5p after the company reported a 59% rise in underlying pre-tax profit to 12.9m, after revenue grew by 16%. Underlying basic EPS came in 56% ahead at 3.5p, and the first-half dividend was hiked by 29% to 0.9p.
Outlook getting better
Crucially, the firm reported a continuing strong cash performance, leaving it with net funds of 31.4m at 30 September (from 32.6m in March, but after paying some debts.)
With strong order books in both its UK and Indian markets, full-year results are apparently expected to be comfortably ahead of previous expectations.
Were now looking at a modest forward P/E of under 12 based on current forecasts, and that will surely fall when theyre upgraded after the latest results.
The firms progressive dividend is tipped to yield 3.5% this year and 3.8% next. Looks like a buy to me.
Stunning growth
My next subject is a classic growth stock in the shape of Scapa Group (LSE: SCPA), whose shares have seven-bagged over the past five years, to 470p as I write with the firm bringing in double-digit rises in earnings per share for years.
And though dividend yields are still low, theyre nicely progressive and we could be looking at a long-term cash cow.
Further EPS rises of 15% and 11% are forecast for this year and next, to which Tuesdays interim results lent support. Though revenue grew by a fairly modest 7.5% (1.6% at constant exchange rates), adjusted pre-tax profit rose 33.1% with adjusted EPS up 29.7%.
Net debt is down from 16.1m to 3.2m, even after the 7.6m acquisition ofMarkel Industries.
The manufacturer ofadhesive-based products for the Healthcare and Industrial markets saw both divisions doing well, with strongly increasing margins up from 1.9% to 16.1% in the healthcare sector, with industrial margins up from 2.2% to 11.5%.
Why Id sell
Impressive, so why would I sell? As I previouslysaid in June, I think the shares are too expensive now, on a forward P/E of 27. I reckon Im seeing the start of that phase which hits every classic growth share sooner or later, when early EPS rises start to slow down a bit and investors start taking profits.
In fact, since a peak in early June, Scapa shares have lost 9%, and though thats very short term, they did dip a lot lower in September and were seeing those erratic ups and downs that often mean the surefire enthusiasm of early investors is wearing off and theyre starting to look for the next big thing.
Scapa is a tempting company, but I foresee better buying opportunities to come.
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