Since paying out its maiden dividend a couple of years ago, Softcat (LSE: SCT) has really put the pedal to the metal on growing shareholder payouts.
Special dividends have been a regular fixture at the former Neil Woodford favourite and in the last full fiscal period, the 12 months to July 2017, it forked out a total dividend of 22.5p, up 15% year-on-year, comprising an ordinary dividend of 9p and a supplementary payment of 13.5p.
And the stage appears set for more dividend fireworks, certainly if the latest trading statement is anything to go by. Softcat said in July that “market conditions have been very favourable and growth against prior year has accelerated,” and this means that “adjusted operating profit will be materially ahead of… prior expectations” for fiscal 2018.
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Investors should therefore expect more special dividends on top of the ordinary dividend, the latter predicted by City analysts to ring in at 11.2p per share as earnings rise by an anticipated 33%.
The number crunchers expect momentum at the software star to remain positive in the current year, and they are forecasting a 6% profits improvement. As a consequence, the ordinary dividend is expected to advance to 12.1p per share, a figure that yields 1.4%. But of course, this latter figure does not factor-in the strong possibility of more supplementary payouts.
Right now Softcat deals on a premium valuation, a forward P/E ratio of 28.4 times. This is expensive on paper but not in real life, in my opinion, given the rate at which it is growing business.
Hard Grafton
Grafton Group Units (LSE: GFTU) is another FTSE 250 share whose yields may not that be that spectacular right now, but whose impressive profits outlook should guarantee strong and sustained dividend growth for many years ahead.
In the five years to 2017, the annual payout has risen by more than 80%, culminating in last year’s 15.5p per share reward. Earnings have swelled by double-digit percentages during the period and with further solid growth anticipated — rises of 8% in both 2018 and 2019, to be exact — City analysts are also expecting dividends at the building materials giant to keep on rising.
A 17.7p per share payout is estimated for the current year, resulting in a handy yield of 2.2%. And the dial moves to 2.3% for 2019 due to the anticipated 18.4p dividend.
It wouldn’t surprise me, though, if Grafton ends up lifting the shareholder payout beyond these estimates given recent trading performance. It hiked the interim dividend 14% year-on-year to 6p per share after recording a 19% rise in adjusted pre-tax profits during January-June, to £90m.
While market conditions in the UK remained subdued in the first half, operating profit at the Selco owner still rose 13.8% on the back of self-help measures and the contribution of the recently-acquired Leyland.
And thanks to its broad geographic diversity Grafton can expect profits to continue pounding higher. While conditions were tricky in Belgium, favourable markets in Ireland and The Netherlands helped operating profits in these destinations rise 1.2% and 20.5% at constant currencies.
Right now, Grafton carries a forward P/E ratio of 13.2 times. Given its resilience in challenging conditions in its core UK region, and the possibilities for further impressive profits growth overseas in the years ahead, I reckon this reading is far too low. I’d happily buy into the builders’ merchant today.
