Shares of accident management company Redde(LSE: REDD) increased by up to 8% in early trade after full year results exceeded previousexpectations. Adjusted pretax profit rose to 11.9m from 4.3m last year, while the firmhas over-delivered on its cash collection targets resulting in improved cashflow.
The board declared a final dividend of 3.5p per share, taking the full year dividend to 6.9p (yield 10%). Redde has a robust, profitable, cash generative business capable of sustaining attractive dividends, the chief executive, Martin Ward, commented.
The groups dividend policy is to distribute as much profit as it can to shareholders so long as there is sufficient cash available. Reddes total net cash at 30 June 2014 was 16.8m, up from 1.1m in 2013.
Redde said that the new financial year has started well and noted that following the December share placing there is 24.8m available for investment. The pipeline of business at recent acquisition NewLaw is growing and the group added that it will invest in opportunities when there is a quality strategic fit.
NewLaw contributed 8.9m in turnover in the four months since acquisition.
Whether Redde can develop into a first rate legal services business remains to be seen. Until then the gigantic dividend yield probably isnt sustainable.
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Mark Stones 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.