Have £2,000 to invest? A cheap growth AND dividend stock I’d buy and hold for the next 10 years
I’m delighted to say that latest financials from the Scotland-focused builder released last week vindicated my bullishness. Springfield declared that revenues shot 27% higher in the 12 months to May, to £140.7m, with sales at its Private Housing and Affordable Housing divisions rising 18% and 60% respectively. The terrific top-line result grew adjusted profit before tax to £9.8m, up 46% year-on-year.
And to the cheer of income chasers this bright result, allied with a significant improvement in the balance sheet (net debt more than halved to £15.3m in the last fiscal period) prompted the AIM-listed business to pay a maiden dividend of 3.7p per share.
Springfield looks in terrific shape to keep making decent progress, in the near term at least. It commented that it “entered the new financial year in a stronger position than at the same point of the previous year. With an established pipeline, strengthened foundations and the long-term drivers showing no sign of abating, the board is confident of delivering strong growth for full year 2018/19 in line with market expectations.”
Demand for affordable housing booms
City analysts are currently expecting the housing star to report a 27% earnings improvement in fiscal 2019, but this is not the end of the story. With homes demand north of the border comfortably outstripping supply and driving sales of Springfield’s new-builds, and the business also expanding its building programme across Scotland, another 16% earnings rise is predicted for fiscal 2020.
And with the homes shortage in the region set to last long into the future, who would bet against the company extending its run of brilliant profits growth beyond this period?
I am particularly excited by the probability of additional eye-popping sales growth at Springfield’s Affordable Housing arm. The Scottish government has made increasing the amount of low-cost properties a policy priority and it plans to have created 50,000 more of these homesteads in the five years to 2021.
Springfield last year successfully secured a local authority contract worth £45m to work across 10 sites over the next three years. In the current climate I wouldn’t rule out the company making more progress on this front.
Huge dividend yields
Despite its bright growth outlook, Springfield can be picked up on a forward P/E ratio of 9.1 times, comfortably inside the accepted bargain level of 10 times and below.
But growth and value seekers aren’t the only people who should be excited right now. Income chasers should toast the news that City analysts are tipping a 5.2p per share reward for this year, resulting in a vast 4.2% yield. And in fiscal 2020 the dial moves to 4.9% thanks to an estimated 6.1p dividend.
Springfield is a share I reckon could make investors a packet in the years ahead. In fact, I believe the business should continue to impress the market through the next decade at least.
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Royston Wild 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.