Do these stocks offer the perfect mix of capital growth and dividends?
Today, I'm looking at two stocks that could potentially provide the winning formula of both capital growth and dividends. Who wouldn't want that?
The challenger bank sector is a fantastic hunting ground for stocks that could provide both capital growth and dividends in my opinion. While some of the larger financial institutions such as Barclays and HSBC are struggling to grow profits, many of the smaller banks are thriving.
Take OneSavings Bank(LSE:OSB) for example. Adjusted earnings per share rose from 35p to 42p last year, and City analysts forecast earnings of 47p this year, growth of around 12%.
A trading statement in May was upbeat and the bank stated that its "strong financial and operational performance had continued in the first quarter." The buy-to-let specialist enjoyed loan book growth of 5% and commented that it was seeing "exceptionally strong levels of new mortgage applications."
The challenger bank's share price has pulled back recently, declining from 470p in late May to 375p today, on the back of the political uncertainty within the UK. At that price, I believe the stock offers value, as the forward P/E ratio is now less than eight.
Furthermore, adding weight to the investment case is the bank's dividend yield and dividend growth prospects. OneSavings Bank paid out 10.5p per share last year, equating to a trailing yield of 2.8% at the current share price. Analysts expect this payout to rise by 30% and 21% this year and next, meaning that the forward FY2018 yield could potentially hit 4.4%.
Of course, as a buy-to-let mortgage specialist, government intervention in the property market could potentially derail profitability going forward. However, after a 20% fall in the share price, I believe the stock now offers value and that its dividend prospects look appealing.
While technology stocks are often sought after for capital growth, it's not every day that you find a tech stock paying an attractive dividend. However one tech company that looks to offer both growth and dividends is £135m market cap Amino Technologies(LSE:AMO).
Based in Cambridge, Amino is a global provider of digital TV entertainment and cloud solutions, and helps broadband network operators deliver entertainment and associated connected home services to the consumer. The company released interim results this morning and the numbers look impressive.
Revenue for the half year rose 21% to £39.9m and profit before tax jumped a huge 64% to £6.9m. Basic earnings per share rose 61% to 9.2p. Cash generated from operations climbed 102% to £13m and this left the company with net cash of over £13m at the end of May. The interim dividend was hiked 10%, representing the sixth consecutive year the interim dividend was increased. Management stated: "Our sales pipeline is robust and we are therefore confident that we will deliver full-year profits in line with market expectations."
Amino shares have retreated from around 220p to 190p over the last 10 weeks, and at that price, I reckon value is emerging. A forward P/E ratio of 14.3 is undemanding and with the company paying out dividends of 6.05p last year, the trailing yield has been boosted to a healthy 3.2%.
Is this small-cap stock a better investment opportunity?
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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Barclays and HSBC Holdings. 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.