Got £2k to invest? One FTSE 100 dividend stock I’d buy today

This FTSE 100 (INDEXFTSE:UKX) firm could deliver income and growth, says Roland Head.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

FTSE 100 dividend stocks are often a good choice for a reliable income. But they’re not always able to deliver enough growth to outperform the wider market.

Today, I’m looking at a FTSE 100 stock whose share price has risen by 120% over the last five years. That’s more than double the 47% gain delivered by the index over the same period.

The company concerned is Carnival (LSE: CCL), the world’s largest cruise ship operator. Alongside its flagship signature brand, the group operates other famous cruising brands such as Cunard, P&O Cruises, Princess Cruises, and Holland America. In 2018, it carried more than 12m passengers on 105 ships. This generated sales of $13.9bn and a net profit of $3.2bn. It’s a pretty big business.

Can growth be maintained?

You might think that Carnival must now be fully grown. I’m not so sure. In results released just before Christmas, the firm said that advance bookings for the 2019 year were already “considerably ahead” of 2018, with prices broadly unchanged.

Management expects adjusted earnings between $4.50 and $4.80 per share this year, compared to $4.26 last year. That’s an increase of 5-12%.

Another attraction for investors is the firm’s focus on shareholder returns. Since late 2015, Carnival has returned $4.6bn to shareholders through buybacks, in addition to its regular dividend.

The cruise ship sector appears to be booming. This may not continue forever. But Carnival has market-leading scale and some valuable brands. I’d expect it to be a long-term winner.

Last year’s market sell off has left the shares trading on about 11 times forecast earnings, with a 4.3% dividend yield. At this level, I think investors could enjoy smooth sailing.

A smaller choice

I believe Carnival can continue to grow. But I don’t expect the shares to double again over the next five years. If you’re looking for this kind of performance, then I think you may need to focus on companies at the smaller end of the market.

One such stock I own myself is staffing and training specialist Staffline Group (LSE: STAF). Shares in this firm have doubled over the last five years, while profits have risen by nearly 150%.

Uncertainty

Brexit uncertainty has hit this business, which supplies more than 60,000 blue collar staff each day to UK businesses. Many of these are EU nationals, so the outlook beyond Brexit isn’t clear.

The group’s training and education business is also in the middle of a period of change, which is expected to result in exceptional costs of £20m for 2018. As a result, net debt is expected to have risen by 70% to £63m since the end of June.

This is a little surprising, and the group’s shares are down by nearly 10% as I write. But it’s worth remembering that this firm does have a fairly good track record of delivering sustainable growth.

Strong management

Staffline’s dividend has risen by 1,300% since 2004, from 1.9p per share to 26.7p per share. During the same period, its share price has risen by 1,225% to 1,140p. Cash generation has been consistently good.

For now, I’m going to give management the benefit of the doubt. The underlying business is said to be performing well and costs should fall in 2019. With the shares trading on 10 times forecast earnings and offering a 2.3% yield, I continue to view this business as a buy for growth.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head owns shares of Staffline Group. The Motley Fool UK has recommended Carnival. 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.

More on Investing Articles

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »

Investing Articles

2 FTSE dividend shares yielding more than 6% with P/Es of less than 9!

Harvey Jones picks out two brilliant FTSE 100 dividend shares that yield more than 6% but are selling at strangely…

Read more »

Investing Articles

Up 105% in a year! Is this rocketing FTSE bank the perfect pick for my Stocks and Shares ISA?

Harvey Jones is drawing up a shortlist of stocks to purchase inside his Stocks and Shares ISA allowance. This FTSE…

Read more »

Investing Articles

Down 78%, is this once-hot AI growth stock set to explode like the Rolls-Royce share price?

Our writer asks if he should invest in Super Micro Computer (NASDAQ:SMCI) following the growth stock's massive recent decline.

Read more »

Investing Articles

Is it madness to buy Palantir shares after Q3 earnings?

Palantir stock's surging again after the firm's Q3 earnings report. But after a 150% gain, is it too late to…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

£6,000 in savings? Here’s how I’d aim to turn that into £1,032 a month of passive income!

A small investment in high-dividend-paying stocks with the returns used to buy more shares can generate big passive income over…

Read more »