You don’t need fancy new technology to generate loads of cash. In fact, as a shareholder in Gillette, Warren Buffett used to sleep well thinking of those millions of men who’d be shaving every morning.
I was reminded of that when I read the latest trading update from Trifast (LSE: TRI) on Monday. The firm is in the business of mechanical fasteners, and I can’t help wondering how many millions of those are sold every day.Â
The share price has soared by 370% over the past five years, to 206p, and that’s been on the back of years of double-digit earnings growth. On a forward P/E of around 15.5 now, I still think we’re seeing an attractive valuation.
Another great year
After reminding us that the year to March 2017 was a record one, Trifast told us it is on track to meet its key performance indicators of “revenue, overheads and margins across all our business teams in the UK, mainland Europe and Asia.”
Capital investments and acquisitions are continuing nicely, and currency exchange fluctuations have had a pretty benign effect overall with 70% of Trifast’s business being overseas.Â
But I haven’t mentioned dividends yet.
Yields have only amounted from 1.4% to 2.2% over the past five years, and that might not thrill you if you’re an income seeker. But the storming share price gain has hidden the underlying progress there, with the actual cash paid rising from just 0.8p per share in 2013 to 3.5p for the year just ended — and further predicted uplifts to 3.65p this year and 3.8p next year would mean the dividend will have risen 4.75-fold in just six years.
The cash is covered around 3.5 times too, and I’m seeing a future long-term dividend cash cow here.
Bigger yields
If you want bigger dividend yields, Charles Taylor Consulting (LSE: CTR) might be one for you, with payouts of around 4% on the cards, which should be around 1.9 times covered by earnings.
And, crucially, the company operates a progressive dividend policy. It did have to impose a cut from 10p to 8.77p in 2013, but since then we’ve seen regular annual rises up to 10.5p in 2016, with 10.95p forecast for this year and 11.65p next.
Charles Taylor provides professional services to the insurance market, and that’s proving to be a nice long-term generator of cash. First-half results released in early September lend support to that, although the key story right now is the firm’s growth strategy involving its three key business — its management services, loss-adjusting services, and insurance support services.
Planning for growth
EPS is expected to fall back a little this year as the company focuses its capital on that growth plan, but earnings should start moving upwards again in 2018. And chief executive David Marock said the board is “very positive about the long-term prospects for Charles Taylor” and that “we are well-positioned to deliver further growth, increased profit and greater shareholder value.“
In terms of numbers, we’re looking at forward P/E ratios of around 13.5 and 13 this year and next respectively, which looks cheap for a company offering progressive 4% dividend yields.
What both these companies have in common is a strong outlook for long-term growth in earnings, and that’s essential if you’re looking for those dividends to keep on growing — no company can keep its dividends growing year after year without rising earnings.