Do you invest for dividend income or for growth? If you go for these two, you could have both.
An attractive income play
Shares in Kier Group (LSE: KIW) were hammered by Brexit fallout last year, but they’ve since come bouncing back. At 1,466p, the price has soared by 57% since 2016’s low point in early July, and we’ve seen an overall 13% gain over the past 12 months — as if the turmoil never even happened.
Short-term panic soon gives way to rational judgment, and in the case of this building and civil engineering contractor, the fundamentals are looking good — and I reckon we’re looking at a nice long-term cash cow here.
The first half of the current year brought in a 12% rise in underlying pre-tax profit, with earnings per share up 11%, and the interim dividend was lifted by 5% to 22.5p per share. A similar rise in the final dividend would provide a full-year yield of 4.6%, which looks set to be well covered by dividends and seems safe to me.
The firm enjoys good visibility over future work too — in the words of chief executive Haydn Mursell, Kier is “encouraged by the pipeline in the Property and Residential businesses and our healthy order books of approximately £9bn in the Construction and Services businesses“.
Forecasts put Kier shares on P/E multiples of 12 to 13 or so for the next two years. Net debt of £179m might dent the attractiveness of that a little, but at 1 x EBITDA I don’t see it as a problem. No, I see Kier shares as still good value despite their recent gains, and I expect a healthy stream of future dividends.
Growth star in the making?
Turning to the growth front, Futura Medical (LSE: FUM) is a possible pharmaceuticals and biotechnology winner with interesting prospects.
It’s big in the field of erectile dysfunction with its Eroxon candidate having “the potential to be the world’s fastest-acting treatment for ED“, and its aspirations are supported by a “novel erectogenic condom“. Oh, and it does pain-relief stuff too.
The erectile dysfunction gel is certainly good at getting the share price up — it caused a surge back in September 2016 when Futura announced “breakthrough results” from early trials and spoke of a potential $5bn market. Thursday’s full-year update continued the enthusiasm, telling us the firm intends to “begin a Phase III placebo-controlled parallel group multi-centre clinical study of 700 or more patients in Q4 2017″.
An investment in a company like this, which is not generating profits yet, is definitely not to be undertaken lightly. Indeed, far from a profit, Futura recorded a net loss of £3.7m for the year — though that is down from 2015’s loss of £5.08m, thanks to lower spending on clinical trials.
On the bright side, a share placing in November raised £12m for the coffers, and at 31 December the company had cash resources of £12.35m.
That looks like a reasonably healthy position to me at this stage in the company’s development, but medical progress can be painfully slow and we really can’t tell how long it will be (assuming a successful Phase III and eventual clinical approval) before sales start ramping up enough to achieve profits.
So Futura Medical is still a risky investment, but if you can live with that I’d say it’s one of the more promising of its kind that I’ve seen recently.
