I believe that recent share price weakness at Morgan Advanced Materials(LSE: MGAM) represents a prime buying opportunity.
After hitting 20-month peaks earlier in May, its stock value has since clattered 12% lower. And this is despite the business releasing reassuring financials in which it advised that "trading conditions in the period since the full year are in line with management expectations."
The Windsor firm advised that sales (on a constant currency basis) fell 0.8% during January-March, with demand declines in Europe and North America dragging sales at its Thermal Products division 2.8% lower. And turnover also dipped at Morgan's Composites & Defence Systems arm.
In brighter news, however, sales at the engineer's core Carbon and Technical Ceramics division (responsible for around half of group earnings) rose 1.5% from the corresponding 2016 period.
Transformation plan progressing
While trading conditions in the company's main end markets remain challenging, Morgan is undergoing huge restructuring to simplify its operations and improve margins, and earlier this year hived off its Electro-Ceramics and Rotary divisions for a combined £80m.
Morgan is also ramping up R&D investment to generate growth. The company paid out an extra £3.8m in 2016, and it plans to shell out an extra £3m this year. The engineer is ultimately to increase investment in its technologies to around 4% of sales within the next few years (up from around 3% at present), moves that should hold it in good stead once the economic cycle improves.
So while Morgan is expected to endure a 5% earnings fall in 2017, the company's improving bottom-line outlook (a 12% rebound is predicted next year) should propel dividends higher again from next year, according to City analysts. And a mega-low forward P/E ratio of 13.9 times is an added attraction.
The 11p per share payment doled out for 2015 and 2016 is expected to rise to 11.2p this year, a figure that yields an impressive 3.8%. And the yield moves to 3.9% for 2018 thanks to predictions of an 11.7p dividend.
On the cusp of greatness?
I also reckon Low & Bonar (LSE: LWB) could prove a stellar pick for those seeking solid dividend growth in the years ahead.
Supported by predictions of bold earnings growth with rises of 18% and 11% expected in 2017 and 2018 respectively, the polymers play is expect to pay dividends of 3.2p this year and 3.4p in the following period, up from 3p in 2016.
These projections yield 3.6% and 3.8%. And an attractive prospective P/E ratio of 12.1 times is an added sweetener.
Investor demand has ignited since April, the firm touching three-year peaks just today and supported by last month's trading statement in which it affirmed its belief that 2017 will be a year of "significant progress" and that it remains confident in expectations for the full year.
Low & Bonar's two-year transformation plan has seen it divest non-core operations, like its artificial grass yarns business, and double-down on its higher-margin operations. And the business is also investing huge sums to expand its geographical footprint, the company opening plants in China and Eastern Europe over the past year and engaging in acquisitions like that of Seattle's Walflor Industries in January.
I reckon the heavy lifting at both Low & Bonar and Morgan Advanced Materials should produce excellent returns for patient investors.
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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Morgan Advanced Materials. 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.