2 growth dividend champions for long-term investors
Rising input costs and adverse currency movements knocked annual profits back for cardboard packaging maker Smurfit Kappa (LSE: SKG). But with macroeconomic tailwinds, rising sales and a solid 3.2%-yielding dividend growing quickly, I think the firm could be an attractive long-term option for income-hunting investors.
The keys to the firm's growth remain twofold: improving economies across the markets where it operates; and the shift towards e-commerce that is fuelling demand for its cardboard boxes. In Europe, cardboard box volume demand was up 3% year-on-year in 2017, with Q4 demand increasing 5%.
However in the Americas, volumes were up only 2% when excluding the basket case that Venezuela's economy has become. This weak performance was mainly due to the rising US dollar making it more expensive to export boxes into Latin America and the continued supply shortfall from its US plant making higher-end, non-recycled kraftliner boxes.
Despite these headwinds, group sales still rose 5% in 2017 to EUR8.5bn, with growth accelerating to 7% in Q4 as the effects of price increases began to flow through. And although EBITDA was flat year-on-year at EUR1.2bn and pre-tax profits dropped 12%, the medium-term outlook for the group still looks quite appealing.
This is because of the aforementioned economic tailwinds as well as industry-wide action that is leading suppliers to increase the prices they charge customers. Passing on these rising input costs has already begun to restore forward margin progress with Q4 EBITDA marching 10% higher than in the year prior.
On top of continued sales increases and renewed margin improvements, Smurfit Kappa also offers investors a very nice full year dividend of 87.6 cents that's more than covered by basic earnings of 177.2 cents per share. And with net debt comfortably within the target range at 2.3 times EBITDA at year-end, the group's balance sheet is in good health.
So, with its final dividend payment growing by 12% continuing a run of double-digit dividend increases, earnings growth restored in Q4 and a positive global economic outlook, I reckon Smurfit Kappa could be a great pick for long-term investors at a very attractive valuation.
Benefiting as rivals struggle
Another company with a fast-growing dividend that's caught my eye is asset manager Brooks Macdonald (LSE: BRK). Since 2013, the group's payout has nearly doubled from 23p to 41p per share as rapid increases in the group's assets under management (AuM) are driving revenue and profits higher.
This process continued strongly in the half year to December as AuM rose 12.3% higher to £11.7bn. Encouragingly, this impressive growth was down to both net fund inflows and strong performance from assets already under management.
While some of this growth is coming in lower margin areas, there's still good potential for the group as a whole to continue increasing underlying pre-tax margins from the 20.1% achieved in full-year 2017. This is especially true as investments in back office functions begin to cut costs and fund inflows domestically and internationally lead to increased benefits of scale.
Although Brooks Macdonald may only kick off a 2% dividend yield based on today's share price, the group's high-performing funds are laying the groundwork for even more growth in AuM, profits and dividends.
Ian Pierce has no position in any of the 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.