RM (LSE: RM) is one of the market's dark horses. The company flies under the radar of most investors but its returns over the past five years have been nothing short of outstanding.
Indeed, over the period, the shares have returned 100% excluding dividends. Including dividends, shareholders have seen a return of 125%.
And it looks as if these returns are set to continue as today the company announced, alongside its final results for the period ending 30 November, a 25.9% increase in adjusted diluted earnings per share and a 10% increase in the proposed full-year dividend of 26.6p per share.
This dividend hike follows a healthy year for the supplier of technology and resources to the education sector. Overall, revenues for the period increased by 11% to £185.9m and adjusted operating margins increased from 11.2% to 11.9%. These operational improvements helped the company deliver adjusted operating profit growth of 17.4%.
RM's performance received a substantial boost in the year after the company acquired the education & care business of Connect Group plc for £59m. The acquisition contributed revenues of £27.8m for the period. Even though the group did borrow to acquire this growth, robust cash generation is already allowing it to pay off creditors. Before the acquisition, RM's net cash balance was £40m. By year-end, net debt had fallen to £13.4m implying a reduction in net debt of £5.6m over the past few months.
Going forward City analysts are expecting further growth from the company. Following this year's strong performance, earnings per share growth of 9.1% is projected for 2018 indicating that the shares are trading at a discount forward P/E of only 8.3. A market-beating dividend yield of 4.3% is also on offer.
So overall, if you're looking for a cheap growth stock with a dividend growing at a double-digit percentage every year, RM could be the company for you.
Changing with the times
Another dividend stock that's on my radar today is NAHL(LSE: NAH). This personal injury-focused law firm has fallen out of favour with investors over the past few years, due to government attempts to clamp down on the sector. However, management has been trying to diversify, and so far this strategy is succeeding, with the group's critical care division and residential property arm producing steady results.
These efforts are expected to help the company continue to grow in a harsh environment. Over the next two years, City analysts expect revenues to expand by around 9%, although net profit is expected to slide by 25% over the same period.
Still, NAHL's discount valuation and high-single-digit dividend yield more than make up for this earnings decline. The shares currently trade at a forward P/E of 9.3 and support a dividend yield of 7.3%. The payout is covered 1.5 times by earnings per share, and the group has a relatively stable balance sheet with net gearing of just 16.2%, leaving plenty of room for manoeuvre.
It could also be the case that City expectations for the company's outlook turn out to be too pessimistic. Indeed, only a few weeks ago the firm announced to the market that trading during the fourth quarter had exceeded expectations and, as a result, earnings for the full year would beat City estimates. With this being the case, I'm optimistic about NAHL's future.
Risk vs reward
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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.