Digital dynamos

There’s a vast collection of cybersecurity companies investors can choose from on the London Stock Exchange. And a quick look at broker forecasts showcases how much potential these growth stocks have.

Take Kape Technologies (LSE: KAPE), for instance. City analysts think that earnings here will jump 57% year on year in 2022. This is particularly impressive given the rising prospect of a global recession.

Kape builds antivirus software that currently protects over 7m global users from malicious attacks. This is a small number compared to industry heavyweights like Microsoft and FTSE 100-quoted Avast. But sales are growing at an astonishing speed.

Revenues roared to $301.6m in the first half of 2022, up 216% year on year (or 19% on a pro-forma basis). Encouragingly almost nine-tenths of sales were recurring in nature, giving the company excellent earnings visibility.

Watch the unicorns

A report by Atlas VPN illustrates how rapidly the cybersecurity industry is growing. It says that the number of ‘unicorns’ — the name given to private new businesses valued at $1bn or above — is growing “at an unprecedented rate.” This is clearly a good sign for the entire industry.

Despite its impressive sales momentum Kape Technologies shares trade exceptionally cheaply. Today the tech business trades on a forward price-to-earnings growth (PEG) ratio of 0.2. Any reading below 1 suggests that a stock could be undervalued.

Remember, though, that cybersecurity specialists like this operate in an unforgiving industry. A high-profile failure of their systems could spell catastrophe for future earnings.

Another bargain growth share

Clarkson (LSE: CKN) is one of the world’s largest providers of shipbroking services. So in theory it is in danger of seeing profits fall as the global economy cools and seaborne freight volumes slow.

But despite the deteriorating macroeconomic outlook City analysts continue upgrading their earnings forecasts for the business. They now think earnings will rise 25% year on year in 2022 amid predictions of further solid revenue growth.

There simply isn’t enough shipping capacity to go around. And so shipping rates continue to rise, boosting profits at businesses like Clarkson.

The Xeneta Shipping Index, for example, shows that long-term freight rates on container ships are still rising strongly. These were up 4.1% month on month in August, or 121.2% on an annual basis.

Inadequate shipbuilding levels in recent years have left a huge shortage of available vessels. And with a recession looming new ship orders look set to slip again, worsening the supply/demand imbalance.

It’s why Clarkson — which enjoyed revenue growth of 40% in the first half — has commented that “the outlook for the business remains strong.”

I think recent share price weakness here provides an excellent dip buying opportunity. Today Clarkson shares trade on a PEG ratio of just 0.6. Like Kape Technologies, I think this is one of the best growth stocks out there for value investors.

In both cases, I bought more shares to add to existing holdings. Today, I want to explain why I’m excited enough about these companies to invest — despite the uncertain economic outlook.

A top family retailer

My first buy was retailer Dunelm Group (LSE: DNLM). This FTSE 250 business is well known for its wide range of affordable homewares. Dunelm is also expanding into the furniture market. The company recently opened a new warehouse to support this side of the business.

Trading boomed during the pandemic, as locked-down shoppers updated their homes. Dunelm’s share price also boomed, hitting record highs of almost 1,500p.

The stock has since fallen by more than 50%, to around 700p. That’s left Dunelm trading on around 10 times 2022/23 forecast earnings, with a potential 6% dividend yield.

City analysts have already factored in a fall in profits next year. However, the big risk is that a UK recession could be longer and deeper than expected. That could result in a much sharper fall in sales.

I can’t rule out this risk. But Dunelm has several qualities that mean I think this business will recover strongly and return to growth.

3 reasons why I’ve bought

Dunelm has strong finances with minimal debt. The group generates plenty of cash and has high profit margins — around 13% at last count. This should mean that any short-term slump in sales will be manageable.

Secondly, the founding Adderley family still own more than 40% of Dunelm shares. My experience is that family-controlled businesses tend to be run for the long term, to protect the family’s assets (and income). As a long-term investor, that’s what I want too.

Finally, I’m impressed that Dunelm has managed to recruit Alison Brittain to be its new chair. Brittain has a strong track record as CEO at FTSE 100 firm Whitbread (which owns Premier Inn).

On balance, I think Dunelm’s share price slump is offering investors a chance to profit from future growth. That’s why I bought more Dunelm shares in August.

A leading global business

Rising energy prices and supply chain problems have become everyday complaints over the last couple of years. To increase my exposure to energy and shipping without investing directly in these sectors, I’ve been buying shares in Clarkson (LSE: CKN).

This FTSE 250 firm was founded more than 170 years ago and is now the world’s leading shipbroker and shipping services business. Clarkson is active in sectors including oil and gas, renewables, dry bulk (e.g. grain) and container shipping.

Recent trading has been strong. I think this is likely to continue, given the uncertain and changing conditions in global energy markets.

One concern is that a major global recession could see shipping demand fall. That could hit profits.

However, Clarkson says that a “structural supply shortage in the global shipping fleet” is expected to keep shipping rates and ship prices high. High commodity prices also tend to be good for shipping.

Clarkson shares have fallen by around 25% from their pandemic highs. This FTSE 250 stock looks decent value to me at current levels.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

DS Smith

What it does:  A provider of sustainable packaging solutions, paper products and recycling services. 

By Paul Summers: Down a third in value in the last year. DS Smith (LSE: SMDS) has given up most of the share price gains it made in the post-pandemic recovery. 

But I wonder if the market has become too bearish. The new financial year has “started well” according to the company and management expects “further substantial improvement in performance” in FY23.

An increase in capital expenditure was never likely to be celebrated but, on a more positive note, the shares now trade at just eight times forecast earnings. 

The dividends look pretty solid, too. DS Smith is forecast to yield 5.7% in the current financial year. This payout should be covered by expected profit if analyst predictions are hit.

As a source of passive income as part of a diversified portfolio, I think the shares are worth a closer look. 

Paul Summers has no position in DS Smith

Clarkson 

What it does: Clarkson provides an array of shipping services such as shipbroking. 

By Royston Wild. Resilient trading at shipbroking giant Clarkson (LSE: CKN) suggests (to me at least) that this remains a top dividend growth stock to buy. 

Cyclical businesses like this face the risk of cooling profits as global growth stalls. But trading conditions at Clarkson remain white hot (it said last month that it expects profits in 2022 to come in “materially ahead of its previous expectations.”). 

Shipping rates remain solid as vessel shortages of all classes roll on. Meanwhile, the war in Eastern Europe has pushed up rates, too, as ships bound for Russian and Ukrainian ports are diverted to already-packed ports elsewhere. This is removing even more capacity as vessels sit waiting to unload their cargoes. 

City analysts think Clarkson’s earnings will soar 22% year-on-year in 2022. And so they are tipping exceptional dividend growth as well, to 92.2p per share. That would represent a 10% year-on-year increase.

This projection creates a healthy 2.7% dividend yield. And the predicted dividend payment is covered 2.3 times by anticipated earnings, too.

Royston Wild does not own shares in Clarkson. 

Hargreaves Lansdown

What it does: Hargreaves Lansdown is the largest provider of retail-focused investment services in the UK.

By Edward Sheldon, CFA. Hargreaves Lansdown (LSE: HL) shares have experienced weakness in 2022 and this has pushed the dividend yield up to a very attractive level. With analysts expecting the group to pay out about 40p in dividends for the year ended 30 June 2022, the prospective yield on offer here is currently around 4.6% – considerably higher than the average FTSE 100 yield.

But this stock isn’t just about dividends. In my view, it has the potential to reward investors with healthy long-term capital gains as well. The reason I’m bullish here is that Hargreaves Lansdown is essentially a play on the world’s stock markets. And markets tend to rise over time.

One risk to consider here is that new competitors are emerging. These companies could potentially steal market share from Hargreaves. However, with the stock currently trading on a P/E ratio of less than 20, I think a lot of this risk is already priced into the stock.

Edward Sheldon owns shares in Hargreaves Lansdown

DS Smith

What it does: DS Smith is the UK’s leading manufacturer of recycled paperboard and corrugated packaging.

By Zaven Boyrazian. With consumer spending declining, e-commerce businesses haven’t had the best time in 2022. Yet, looking at the bigger picture, our current economic environment is ultimately a short-term problem. And online spending continues to grow as a proportion of total retail spending.

That’s why DS Smith (LSE:SMDS) has caught my attention. The cardboard manufacturer doesn’t have an exciting business model. But it does provide a critical product for the e-commerce sector.

With investor confidence at record lows, the stock has dropped by over 37% in the last 12 months. Yet looking at the latest results, sales and profits are up by double digits. But more excitingly, its return on capital employed has jumped from 8.2% to 10.8%, on track to hitting management’s long-term target of 20%.

In other words, despite headwinds, DS Smith is generating impressive growth and value for shareholders. Paring that with a discounted share price spells a buying opportunity for my portfolio, in my opinion.

Zaven Boyrazian does not own shares in DS Smith.

M&G

What it does: M&G is an investment manager that offers savings and investment products across a number of countries.

By Christopher Ruane. For M&G (LSE: MNG), could August be a big month?

I think the answer may be yes. Interim results are due to be released on 11 August. The company’s policy of maintaining or increasing its dividend annually seems to make the shares attractive – if the firm can keep delivering on it.

Last year, the interim dividend rose by 1.7%. But the full year dividend increase was a meagre 0.4%. With a strong brand, long experience and a substantial customer base, the firm has a recipe for profitability. I see the risk of clients withdrawing funds as a threat to profits in coming years. The company reported net inflows of client funds last year. Hopefully that positive trend has continued.

Meanwhile, the dividend yield is 8.4%. So I do not mind if M&G delivers another modest rise or none at all. As long as the firm does not cut its dividend, I think the income opportunity here is attractive.

Christopher Ruane owns shares in M&G.

Ashmore

What it does: Ashmore is an asset management firm that has a presence across the globe and specialises in emerging market investing.

By Andrew Woods. Ashmore (LSE:ASHM) has been consistent with its dividend policy over the past five years. During this time, it has paid well above 16p per share every year. For the year ended June 2021, the firm paid a total dividend of 16.9p per share. At current levels, this equates to a dividend yield of 7.99%. For me, this is appealing.

In the current economic climate, however, customers have generally been more risk-averse, meaning that emerging market investments have suffered. This has been caused by a multitude of factors, including inflation and interest rate hikes. To that end, in June the company’s assets under management declined by 18.3%, quarter on quarter.

However, for the six months to 31 December, the business beat earnings expectations of £89m, instead posting £92m. Furthermore, over the long term the company continues to report consistent growth. Between 2017 and 2021, for instance, pre-tax profit and revenue continue to increase markedly.

Andrew Woods owns shares in Ashmore.

Vesuvius

What it does: Vesuvius makes equipment used in foundries to handle molten metal and control its flow.

By Roland Head. Vesuvius (LSE: VSVS) can trace its history back over 100 years, to the fast-growing US steel industry of the early 20th century.

Today, the company’s product range is broader and more sophisticated. But its core specialism of handling molten metal is unchanged. I think that’s attractive — this business is a market leader in a very specialised market.

Another big attraction for me is that more than 95% of the parts Vesuvius sells are consumables. These need regular replacement.

The only real risk I can see is that customer demand could slow during a severe recession.

I see that as an acceptable risk, especially as Vesuvius is tapping into new growth markets like wind energy.

Management recently reported strong trading and a positive outlook for the rest of the year. Vesuvius shares currently offer a well-supported 6.5% dividend yield. I see this dividend stock as a good buy in August.

Roland Head does not own shares in Vesuvius.

Profits boosted

Shipping businesses like this could face challenging conditions as the global economy cools. Lower levels of sea freight mean that the profits this firm makes from its shipbroking and maritime financial services operations could sink.

Having said that, I’m encouraged by how strong trading at Clarkson has remained despite worsening economic indicators. Indeed, such resilience has driven the firm’s share price skywards in recent sessions.

Last week, it announced that “performance has been strong across all divisions”, noting that trading has been particularly robust at its core broking division.

In fact, the FTSE 250 firm said that it now expects full-year profits to be “materially” ahead of prior expectations.

Ships shortage

Clarkson is thriving thanks to huge supply and demand imbalances in the shipping industry. Weak shipbuilding activity over the past decade has created a massive shortage of vessels of all types. And this is pushing shipbroking rates through the roof.

Pleasingly for the firm, there is little sign that this chronic shortage is set to end. Order books among shipbuilders have leapt, thanks to the post-pandemic economic boom. But this is doing little to soothe the world’s huge ships shortage.

According to industry analyst Lloyd’s List, a large containership ordered today will take between 30-36 months to build. That compares with half that time just two years ago.

A growing shortage of skilled manual labour is exacerbating the ongoing supply crunch. And, what’s more, the onset of new economic stress could worsen the problem by reducing new ship orders.

A dividend aristocrat

Against this backdrop, City analysts expect it to continue growing profits. A bottom-line rise of 23% is predicted for 2022. And, as a result, they predict that the dividend aristocrat will continue lifting its annual dividend too.

The shipping colossus has raised the full-year dividend every year for almost two decades. Forecasters think it will rise to 89.6p per share in 2022, from 84p last time out. This results in a decent 2.6% dividend yield.

Encouragingly, the numbers suggest it’s in great shape to meet City dividend estimates too.

The payout is covered 2.3 times by anticipated earnings, above the security benchmark of 2 times. Clarkson also has a strong balance sheet to fall back on if need be. Its free cash resources stood at an impressive £92.3m as of December.

A top buy

Dividend investing is about more than just picking income stocks with big yields. The key to enjoying a passive income is to buy shares that can increase dividends year after year.

Clarkson has proven to be one of the best stocks to buy for dividend growth for many years. And by the looks of things, it should continue to be a top income share for a long time to come.

A tasty growth share

The Greggs (LSE:GRG) share price is down 35% in the past year and has fallen 18% in the last month. At the time of writing, it’s trading at 1,920p.  

The company – a retailer of baked goods – swung to a £13.7m pre-tax loss in 2020. This was mainly the result of the closure of shops due to pandemic lockdowns.

As economies have reopened, however, so too have Greggs’ shops. In 2021, the firm posted pre-tax profits of £145m. This swift rebound was encouraging, but the share price remains low.

This is because of a recent market sell-off, combined with concerns over inflation. Furthermore, Greggs has been feeling the pinch from the increased cost of energy and ingredients in recent months. These factors could begin to start eating into future profit margins. 

Supply chain issues also caused a suspension of the sale of the company’s famous vegan sausage roll, due to the inability to acquire some ingredients.

Despite these risks, however, Greggs has been seeing strong earnings growth. Between 2017 and 2021, earnings per share (EPS) rose from 64.5p to 115.7p. By my calculation, this results in a compound annual EPS growth rate of 12.4%. This is both strong and consistent.  

Steely earnings growth

The Clarkson (LSE:CKN) share price is also down over the past year, having fallen 14% in that time. However, it’s up 10% in the past month. At the time of writing, it’s trading at 2,950p.

The shipping and financial services firm reported a pre-tax loss of £16.4m in 2020, owing to pressures on freight from the pandemic. By 2021, this had swung to a £69m pre-tax profit.

Like Greggs, Clarkson also has consistent earnings growth, with a compound annual EPS growth rate of 7.2%. It should be noted, of course, that past performance isn’t necessarily indicative of what might happen in the future.

Yet in recent months, high demand for commodities has bolstered the firm’s broking segment and the company has a large forward order book for 2022. In addition, market volatility has been positive for the financial business.

On the other hand, any pandemic resurgence could be bad news for the global freight market and could hit Clarkson in a similar way to 2020.

Overall, both of these businesses have suffered over the past couple of years. Recent stock market sell-offs have also sent their share prices lower. But I view this as an opportunity to load up on two quality growth stocks to hold for the long term. I’ll be adding both companies to my portfolio soon.

• Endeavour Mining’s revenue increased from $1.4bn to $2.7bn between the 2020 and 2021 calendar years
• Clarkson’s EPS grew from 116.8p to 165.6p between the 2017 and 2021 calendar years
• Both firms exhibit consistent growth and have favourable business environments

The FTSE 250 is full of exciting and high-performance companies. Every so often, I scour the index for high-quality growth stocks to add to my long-term portfolio. I think I’ve found two firms that fit the bill. One is a gold mining company operating in parts of Africa, and the other is a well-established global shipping business. Why do I think that I should buy shares in both of these companies? Let’s take a closer look. 

A FTSE 250 gold miner

The first company, Endeavour Mining (LSE:EDV), operates mines in the Ivory Coast, Burkina Faso, and Mali. Founded in 1988, it publicly listed in June 2021 and joined the FTSE 250 index. It is possible that the business will join the FTSE 100 imminently. It currently trades at 2,020p.

Having only listed last year, access to long-term historical results is limited. Between the 2020 and 2021 calendar years, however, progress is visible. During this period, revenue increased from $1.4bn to $2.7bn.

In addition, profit before tax nearly doubled, growing from $219m to $424m. Furthermore, earnings-per-share (EPS) rose slightly from ¢236 to ¢240.

On the other hand, operating cash flow per share decreased over this period from $5.15 to $4.89. 

Despite this, the business announced the sale of its Karma Mine in Burkina Faso for $25m in March 2022. This sale means management can now focus on “high-margin, long-life and low all-in sustaining cost, core assets”, according to CEO Sébastien de Montessus.

A consistent shipping firm

The second company I’m buying is Clarkson (LSE:CKN), a UK-based shipping business operating worldwide. While it specialises in the broking of ships and cargo, it also operates a financial division. It currently trades at 3,565p, up 39% in the past year.

Between the 2017 and 2021 calendar years, revenue increased from £324m to £443.3m. Furthermore, profit before tax grew from £45.4m to £69.1m. 

Unsurprisingly, EPS over this period rose from 116.8p to 165.6p. As a potential shareholder, it gives me confidence to see that this firm is performing for its shareholders year in, year out.

In December 2021, the company again raised profit guidance. This was primarily due to significantly higher shipping rates, because of markedly higher demand during the Covid-19 pandemic. Compounding this is the lower shipbuilding capacity of many yards across the world. These yards are still unable to return to pre-pandemic capacity and this is tightening the supply side.

While the business expects this supply/demand dynamic to continue, I am slightly concerned that a return to normality will bring with it less demand and greater supply. This may negatively impact shipping rates and, ultimately, the Clarkson share price.  

Overall, I like both of these firms. They exhibit consistent growth and are enjoying favourable environments going forward. In an effort to achieve long-term growth, I will be buying shares in both businesses today.

One way of separating the wheat from the chaff is to look for companies that have better-than-average records of consistently raising their bi-annual payouts.

Here are three examples, all of which come from the FTSE 250 and probably remain under the radar of many private investors.

Cranswick

Meat supplier Cranswick (LSE: CWK) is a great passive income stock, in my view. The company has a long history of growing its annual cash returns to investors. In fact, hikes in recent years have often been by double-digit percentages. So while no dividend stream can be guaranteed, this is exactly the sort of form I’m looking for.

Based on recent trading, I have no concerns over this trend continuing. In its most recent update, the FTSE 250 stock said trading over the festive period has been “comfortably ahead” of the same time in 2020. This was despite “unprecedented industry-wide labour and supply chain challenges” and cost inflation.

Will we still be talking about these headwinds in a few years though? I sincerely doubt it. 

As good as the dividend hikes have been, Cranswick is a fairly low-margin business. Admittedly, the 2.2% forecast yield isn’t all that generous compared to others in the UK market either. 

Still, the amount of free cash flow (essentially, what allows a company to pay passive income to holders) is looking very healthy indeed. This makes me believe the company will continue growing its dividends in the years ahead. 

Bodycote

Heat treatment and thermal processing specialist Bodycote (LSE: BOY) is another FTSE 250 member that’s been increasing its annual payouts to investors for a long time. This quality tends to be indicative of a very resilient company.  

As things stand, Bodycote is expected to yield 21p per share in FY22. That becomes a yield of 3%. Again, this fairly average return doesn’t bother me. I’d rather invest in a company where my passive income is likely to be paid and also increasing every year. 

The shares have fallen 20% in 2022 so far, which highlights how even solid dividend payers can be just as volatile as more growth-focused stocks. Headwinds, such as supply chain disruption and cost inflation, won’t go away overnight either. 

Nevertheless, Bodycote seems to be trading just fine. This month’s full-year results revealed a 7.1% rise in revenues to almost £616m. Operating margins also rose to 15.4%. 

Clarkson

Shipping services provider Clarkson (LSE: CKN) strikes me as another stock that many private investors might be unfamiliar with. Similar to the other two shares mentioned here, the £1.1bn-cap company regularly lifts its annual dividend. In fact, it’s been doing this for the last 19 years! 

A forecast 2.5% yield in 2022 is expected to be covered almost twice by profit. That last bit is important. The greater the dividend cover, the less likely it is that the payment will be cut.

On the downside, shares in Clarkson aren’t a bargain, at almost 21 times earnings. This potentially makes the stock a more risky buy.

Even so, the balance sheet looks pretty solid to me. Earlier this month, Clarkson also announced record underlying pre-tax profit of £69.4m for 2021. Maintaining this kind of form should allow the passive income to keep ticking higher.

Here’s a top FTSE 250 dividend stock I think could help me make a terrific passive income over the next decade at least.

Shipping giants shun Russia

Russia’s decision to invade Ukraine is already creating problems for the global economy. Moves to isolate Russia are gaining momentum and today two of the biggest shipping firms have announced drastic action of their own. Both MSC and Maersk — the world’s two biggest container shipping lines — announced plans to cease deliveries to and from Russian ports in response to recent sanctions.

More shipping firms could follow suit as the tragedy in Ukraine unfolds. And it threatens to take a bite out of profits at Clarkson (LSE: CKN), a giant in the shipbroking space and a provider of maritime financial services.

Still a top buy

It’s my belief, though, that Clarkson’s profits could still rise strongly in 2022 and beyond, enabling it to keep growing dividends at a terrific pace.

As I say, the restrictions being slapped on Russia threaten to have far-reaching effects, so the risks of owning Clarkson have undoubtedly risen. But the shortage of shipping vessels is so vast that I think the brokerage could still deliver decent earnings growth. Indeed, Clarkson has made a habit of lifting profits guidance in recent months as shipping rates have improved.

There’s a good chance that this supply and demand imbalance will take years to solve, too, given the post-pandemic economic recovery and a dearth of new ship orders in recent years. As a long-term investor, then, Clarkson has plenty of appeal for me right now. And especially as someone who’s currently looking for the best passive income shares to buy.

A top stock for a passive income

You see, Clarkson’s strong record of cash generation has allowed it to raise annual dividends every year for almost two decades now. It’s a record that City analysts expect to continue rolling as well. For 2022, Clarkson is expected to pay a total 89p per share reward. This is up sharply from the 84p payment analysts forecasted for last year. A 95p dividend is being predicted for 2023 as well.

Pleasingly, the shipbroker’s projections also create yields that far exceed the 2.3% FTSE 250 average. These clock in at 2.7% and 2.9% for 2022 and 2023, respectively.

Today, Clarkson trades on a forward price-to-earnings (P/E) ratio of 20.8 times. This doesn’t exactly make the stock cheap. And this means that the broker’s share price could reverse sharply if fears over the global economy grow. Still, as a long-term investor I’d be happy to take this risk. And especially when I consider Clarkson’s history as a top passive income stock.

A penny stock on my radar

Pub chains like Marston’s (LSE: MARS) face some significant near-term dangers as beer prices jump. They have a tough choice to make: pass these costs onto the consumer and risk a revenues slump, or absorb the cost themselves at the expense of margins.

Marston’s is directly impacted by rising brewing costs too through its stake in the Carlsberg Marston’s Brewing Company joint venture.

Today, sector industrialist and entrepreneur Lord Bilimoria (founder of Cobra Beer, which Marston’s sells) told the BBC that the industry is facing a “vicious cycle” of rising costs and that price rises “were a necessity”. The problem is one that the pub industry (and its investors) cannot ignore.

However, I think these could be baked into the ultra-cheap Marston’s share price. Today the business trades bang on the bargain-basement P/E ratio watermark of 10 times.

As a long-term investor, I’m pretty tempted to pick up the publican at these levels. People are spending a greater proportion of their incomes on eating and drinking out in a trend that stretches back years. And thanks to its 1,500-odd pubs that span the UK, Marston’s has a chance to really capitalise on this opportunity.

Marston’s was forced to stop paying dividends following the outbreak of Covid-19. But shareholder payouts are predicted to leap as the world seems to be emerging from the pandemic. A payout of 0.7p per share is forecast by City analysts for this financial year to September 2022. And rewards are predicted to treble to 2.1p in financial 2023. This powers the yield from 0.9% today to a healthy 2.6% for next year.

Wind in its sails

Shipping giant Clarkson (LSE: CKN) is also expected to lift dividends at a robust rate. What’s more, at 2.8% for 2022, it still comfortably beats the broader FTSE 250 average of 2.1%.

There aren’t enough ships to meet the demands of the recovering global economy. And Clarkson, a major provider of shipbroking and maritime financial services, is one company that’s reaping the rewards. Booming shipping rates are expected to last too, as economic conditions steadily improve and subdued vessel building in recent years impacts the market.

Of course, Clarkson’s profits would take an almighty whack if the economic rebound runs out of steam. A worsening Covid-19 crisis, for instance, or severe central bank action to curb soaring inflation are a couple of dangers to the company’s bottom line.

But, right now, it’s full steam ahead for the shipping colossus. Indeed, Clarkson upgraded its 2021 profits expectations again last month, thanks to robust trading in December.

Against this backdrop, I think Clarkson’s dividends could grow rapidly for years to come. City analysts are tipping a full-year dividend of 89p per share for 2022, up 5.8% from last year’s levels. Payments are forecast to leap 7.1% to 95.3p in 2023 too.

Clarkson (LSE: CKN), a worldwide leader in shipping services, has quietly gone about its business of keeping world trade moving for the last 170 years, but until recently it was a business that I knew little about.

A Christmas conversation with a friend, whose son had recently started work in London as a trainee shipbroker, was my entrée to Clarkson. Before looking at the inner workings of this company, though, I thought it best to understand a bit more about the notable current challenges facing the shipping sector.

Why is there a supply chain crisis?

Prior to the Covid-19 pandemic, the spat over tariffs between the Trump administration and the Chinese government had already caused significant volatility in worldwide trade. The subsequent impact of Covid-19 was immediate and hard hitting.

Overnight, the demand for fossil fuels collapsed, leading to the incredible short-term reality of negative oil prices. Tanker ship contents were unsaleable and market players rushed to offload these cost-sapping cargos.

Surprisingly, though, as the full effect of the pandemic began to bite, there was a sudden increase in demand for consumer products worldwide, as locked-down populations changed their behavioural patterns.

Spending on services — such as travel, hotels and restaurants — obviously collapsed, but home-based consumers soon ramped up demand for hard goods, such as electrical products and homeware materials.

A fall in manufacturing capacity and the available resourcing of ports and shipping led to the perfect storm – resulting in the lengthy delays we now face in securing that new car or television.

With all this volatility, is it therefore a good time for me to invest in the shipping sector?

My immediate thought is that such volatility means that it is an area surely best avoided at this time. Some further research of Clarkson, though, demonstrated just what a robust operator this company is and piqued my interest further.

The company generates around 75% of its total revenue from shipbroking services and has been able to maintain consistent performance throughout the pandemic. It is also no slouch in embracing new sectors, such as the supply and development of the offshore renewables business, which bodes well for the future.

Clarkson looks after both its staff and its shareholders. Bonus payments are high and dividend payouts over the years have typically ranged from 65% to 75% of its total available earnings. The company does, however, retain a substantial cash buffer, allowing it to maintain its commitment to increased dividends in leaner years.

A short trading update issued in January mentioned that the company expected its underlying profits for 2021 to exceed £69m (50% higher than comparable 2020 numbers). On that basis I expect that its earnings per share will exceed pre-pandemic levels, and that the dividend payment will be comfortably increased for another year.

Going forward, I believe that Clarkson will continue to be a market leader in the shipping services sector. However, with an estimated price-to-earnings (P/E) ratio in the 20s and a dividend yield of around 3%, it’s not cheap at 3,260p.

Whilst I trust in management’s ability to maintain dividend payouts for the foreseeable future, I think I will wait a while longer before looking at this stock again.