Why Staffline Group plc and Bellway plc could be today's top dividend growth buys

Potential investors in UK recruitment stocks are nervous at the moment. They don't really believe that these businesses can keep growing, despite Brexit uncertainty.

Although it's obviously too soon to say what will happen when we eventually pull the plug on our relationship with the EU, what is clear is that trading conditions are currently quite stable.

Today's figures from Staffline Group (LSE: STAF) are a good example. This recruitment group is focused on providing temporary staff for industrial customers, and runs welfare-to-work programmes for the government.

First-half revenues rose by 3% to £427.8m, while underlying pre-tax profit was 5% higher at £16.1m. The group said it opened 31 new OnSite locations, taking its total to 388. This is Staffline's main recruitment business. It involves the company basing staff on client sites to manage the supply of temporary workers.

Reassuringly, the group's cash generation remains good. Net debt rose in 2015 as a result of the firm's PeoplePlus acquisition. But borrowings are falling fast. Net debt fell from £63.1m to £36.7m in 2016. The company said today that it expects to end 2017 with a net cash position.

In this morning's statement, chief executive Andy Hogarth confirmed that the board has "every confidence" that full-year results will meet market expectations for 2017.

If Mr Hogarth is right, then Staffline stock currently trades on a forecast P/E of 10.2 with a prospective yield of 2.4%. This yield may seem low, but the firm's payout has risen by an average of 29% per year since 2011.

The modest valuation and steady growth suggest to me that the stock could be worth buying at current levels.

Not too late to profit

Housebuilders have enjoyed a strong run in recent years. But the ongoing stability of the UK economy has left companies such as Bellway (LSE: BWY) looking very affordable, in my view.

Indeed, noted income fund manager Neil Woodford has taken large positions in several housebuilding stocks in recent months. Mr Woodford believes the outlook for the UK economy is better than many expect.

I've chosen Bellway as I think its modest valuation and focus on quality could help deliver stable ongoing growth. The company is one of only two national housebuilders with a five star rating from the Home Builders' Federation Customer Satisfaction Survey, which I hope means that the risk of reputational problems is low.

Recent sales performance has certainly been strong. Reservations were 13% higher during the three months to 4 June than during the same period last year. House completions are expected to be 10% higher this year than last year, while full-year operating margin is expected to remains stable at 22%.

These figures place Bellway among the top performers in the housebuilding sector. The group's outlook has also improved more rapidly than some of its rivals. Forecasts for 2017 earnings per share have risen by 25% over the last year, compared to 17% for Barratt Developments and 10% for Taylor Wimpey.

In my opinion, Bellway's performance is likely to improve further over the next year. On that basis, I think the stock looks attractively valued at current levels.

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Roland Head has no position in any shares 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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