Since I last wrote about specialist social care services providerCareTech Holdings (LSE: CTH)in December 2018, the share price has risen just over 9%.
Meanwhile, in todays half-year results report, the directors declared a 7% increase in the interim dividend compared to the equivalent period a year earlier. And a steadily rising dividend is something shareholders are used to with the firm. Over five years its up almost 60%, which strikes me as a decent return for income-seeking investors.
A transformational acquisition
Todays share price close to 380p puts the forward-looking dividend yield for the current trading year to September at just over 3%. Given the companys strong record of growing the annual dividend, I reckon a 3% yield is a decent starting point.
City analysts following the firm anticipate earnings will cover the payment a little over three times. A robust level off cover like that suggests to me the directors anticipate further growth, otherwise they might pay more cash out to shareholders rather than ploughing it back into the business.
The accounts are dominated by the October 2018 acquisition of Cambian Group, which executive chairman Farouq Sheikh describes in the report as being transformationalfor CareTech.The integration of Cambian is well underwayand the expected synergies from the enlarged operation are on track.
You can get a feel for the scale of the expansion from todays figures. Overall revenue rose 120% compared to the year-ago number, underlying profit before tax shot up 50%, and the firms net asset value rose 58% to 328m. Net debt increased by 99% to 293m.
Things can get a bit blurry in the figures whenever a company first takes on a big acquisition. But like-for-like revenue in the original CareTech business went up 12% in the period and like-for-like EBITDA increased 4%. Meanwhile, underlying earnings per share increased by 7%. It seems to me CareTech is still trading well and growing organically.
The firm commissioned an independent valuation of the enlarged companys property portfolio back in October on the date of the acquisition, which threw up a figure of 774m. I think the property backing with this share is one of its prominent attractions.
Consolidating the sector
The firm sees itself as something of a consolidator in the sector and theres no sign it will ease off its plans to continue expanding both organically and by acquisition. As long as the firm remains profitable, keeps its borrowings under control and continues to move the dividend up, I think thats a good thing.
As well as the benefits of an efficient operation for the firms care-users, this one could be a decent, cash-generating hold for long-term shareholders. Im tempted to pick up a few shares to collect that growing dividend while waiting to see how the growth agenda plays out for shareholders.
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