2 'under the radar' growth stocks with enormous income potential

Over the past few years, property portal Zoopla has grown through a series of bolt-on acquisitions to become a one stop shop for property owners, buyers, sellers and renters. With multiple brands now under the company's umbrella, management decided to rename the firm ZPG(LSE: ZPG) and divided the group into two segments: Property Services and Comparison Services.

These acquisitions, and the benefits of having multiple related operations under one roof, helped ZPG grow revenues by 22% to £117.9m year-on-year for the six months to 31 March. Adjusted earnings before interest, tax, depreciation and amortisation expanded 11% year-on-year.

Growing through acquisitions

ZPG has continued to acquire new businesses to boost growth since the end of its first half. At the beginning of this month, the company announced that it had acquired Ravensworth, the leading provider of on-demand print & creative marketing services to UK estate agents. And today, ZPG revealed that it has agreed to buy Money.co.uk, one of the UK's leading financial services comparison websites. The company is paying £80m for this asset, excluding a £60m performance-based earn-out. For the year ended 31 October 2016, Money reported revenues of £24.7m and adjusted EBITDA of £8m.

This acquisition will almost certainly lead to an upward revision in City earnings forecasts for ZPG. At present, analysts have pencilled in earnings per share growth of 13% for the fiscal year ending 30 September, followed by growth of 18% for the following year.

Unfortunately, the market has already recognised ZPG's potential as the shares trade at a premium multiple of 25.3 times forward earnings. However, it's the firm's dividend potential that excites me.

ZPG converts around 90% of earnings to cash, which gives the company plenty of firepower for acquisitions and returns to investors. Even though the shares only yield 1.6% today, the cash payout was covered 3.7 times by cash generated from operations for fiscal 2016, indicating that the company could double or even triple the payout if management decides to dial back acquisition activity.

In demand

Like ZPG, Impax Asset Management(LSE: IPX) also flies under the radar of investors, despite its strong growth. Indeed, over the past five years, the company has grown pre-tax profit at a compound annual rate of 31.4%. Over the same period, the company's dividend payout to investors has expanded 24.6%.

Impax is an investment company offering listed and private equity strategies primarily to institutional clients. The firm provides investments in alternative assets such as food, renewable energy and logistics. This is a hugely lucrative business and one that's growing by the day as institutional investors search for better returns on their cash.

City analysts have pencilled in earnings per share growth of 31% for the fiscal year ending 30 September 2017 and growth of 42% for the following fiscal year. Based on these estimates the shares are trading at a forward P/E of 22.4, falling to 15.8 for next year.

As well as rapid earnings growth, the company is set to hike its dividend payout to investors by 64% over the next two years. At present, the shares support a dividend yield of 2%, but this is expected to hit 3.2% by 2018. What's more, the dividend will be covered twice by earnings per share, giving headroom for payout growth.

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Rupert Hargreaves does not own shares in any company 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.

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