2 hot growth stocks I'd buy and hold for 10 years
Shares in Henry Boot(LSE: BOOT) perked up 9% in early trading Friday, in response to an upgrading of the company's outlook for the full year.
The Sheffield-based land development, property investment, and construction firm had already lifted its targets back in May, but now tells us it anticipates 2017 performance to be "materially ahead of the board's existing expectations."
In these times when we seem to be getting profit warnings almost every day, this is a welcome change.
Saying that "2017 has proved to be an outstanding year where almost every deal we hoped to complete has done so," the company told us that trading has been strong across its range of businesses, and that accelerated completions and deliveries in the second half lie behind the day's good news.
Some projects previously scheduled for next year will be brought forward now and some may be completed before year-end, so the firm is cautiously leaving its 2018 expectations unchanged. But with presumably free capacity next year on the cards, I'd be hoping more work can be found to fill any gap.
Henry Boot shares are now up 150% over the past five years, to 330p, and it's not hard to see why. Since 2012, earnings per share (EPS) have more than trebled from 7p to 21.5p last year. And over the same period the dividend has been lifted by 49% to 2016's 7p -- and that was three times covered by earnings.
The yield has remained fairly flat due to the rising share price, but effective yields based on buying price have accelerated nicely.
We're looking at a forward P/E multiple of around 11 now, and that looks cheap to me.
Information is key
Idox(LSE: IDOX) is another small-cap growth stock I like the look of. The information management company has seen its shares climb 63% over five years, and they've five-bagged over the last decade.
That, unsurprisingly, is on the back of steadily rising EPS. Although there were modest dips in 2013 and 2014, and since 2012 we've seen growth of only around 7%, forecasts for this year and next indicate a further rise of 23% by the end of 2018, and that would put the shares on a P/E of 12 -- which looks low to me for a stock with growth potential.
The dividend might not look great with yields of only around 2%, but it was hiked by 47% between 2012 and 2016, and analysts predict a further 28% uplift by 2018.
That's strongly progressive and it makes Idox look like my favourite kind of long-term dividend candidate. The annual payment is around four times covered by earnings, which suggests that once the company matures from its early growth phase (and presumably pulls back on acquisitions), it has the potential to turn into a very nice cash cow with attractive dividend yields.
The company offers its services to the public sector and also to highly regulated businesses in the corporate sector, and the latter can be a hard nut to crack as it really does require expertise for strict adherence to the rules -- I see that as a defensive aspect.
Over the past year, the share price has been flat, leading to what I see as an under-rated stock on P/E measures. Debt was fairly modest at £28.2m at the interim stage, and I see Idox as a long-term buy.
A safer growth stock?
I reckon Henry Boot and Idox have great growth potential, and I'd like to introduce you to what I think is another terrific candidate.
The Motley Fool report, A Top Growth Share, examines a hot FTSE 250 company that has already delivered handsome rewards to shareholders. And with sales expected to top the £1bn mark in the near future, there should be plenty more to come.
CLiCK HERE for your copy of this free report, and it will be sent immediately to your inbox.
Alan Oscroft 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.