This week I am writing about potential ISA investments that provide an income as well as offering potential share price growth.
These are companies that have consistently increased their dividend over a long period of time, including one which floated recently but has paid dividends as a private company and set out a policy of growing its dividends.
Five AIM stocks to diversify your ISA
Self-storage outlets operator Lok'nStore (LOK) is building up a strong asset base and investing in new sites. In tandem with this, it is raising its dividend each year.
Self-storage is a growing market with a shortage of capacity. Lok’nStore’s management has more than two decades of experience of finding sites and exploiting them. Like-for-like occupancy levels continue to improve.
Lok’nStore has increased its bank facility by £10 million to £50 million and this runs until January 2023. Net debt was £17.4 million at the end of July 2017, with a loan to value of 14%. Significant investment will be required in the extensive opening programme over the next couple of years, but there are the facilities to fund that and cash generated from operations more than covers the dividend.
A potential site has been acquired in Leicester and that will cost £8.5 million to get up and running. Gillingham, Hemel Hempstead and Wellingborough sites will be opened in this financial year and there are six more sites, including Leicester, which should all open by the end of 2019 – planning permissions permitting.
The shares are trading at a small discount to the most recent net asset value (NAV) of 416p a share. It generally takes around three years for a site to mature, so the recent and upcoming openings will provide a significant uplift to the NAV over three years. It could reach 485p a share over that time.
Last year’s dividend was raised by 1p a share to 10p a share and 11p a share is an achievable target for this financial year. The forecast yield is 2.75%.
Amino Technologies (AMO)
IPTV hardware and software technology developer Amino Technologies (AMO) has a strong market position and a record of increasing its dividend by 10% a year. There is plenty of cash in the bank so there is no worry that it cannot afford the dividend.
In the year to November 2017, pre-tax profit was 10% ahead at £11.2 million, while revenues were flat at £75.3 million. On a constant currency basis, revenues were 7% lower, but software is becoming an increasingly important part of the revenue mix and that is boosting margins. Higher memory chip costs offset some of this margin improvement last year.
This is an international business, but North America is the strongest market at the moment. That it is because it is moving from cable TV to IP-based services. North America tends to be ahead of other parts of the world in this sector. Investment in the MOVE platform should pay off in the coming years.
The second half is likely to be the stronger part of this financial year. Pre-tax profit is forecast to edge up to £11.8 million, but earnings per share will be slightly lower due to the increase in the tax rate. The dividend is well-covered. It was increased by 10% to 6.7p a share last year and it is set to rise by a further 10% this year. Net cash was £13.3 million and it should rise to £17.7 million by the end of November 2018 – even after dividend costs.
The shares have performed strongly over the past couple of years, but, despite the share price rise, they are trading on just over 13 times 2017-18 earnings. The forecast yield is 3.7%.
Springfield Properties (SPR)
Scotland-based housebuilder Springfield Properties (SPR) joined AIM last year via a placing at 106p a share. It focuses on large, village-style developments, which provide good visibility over a number of years. Political focus on affordable housing has provided another growth area for the company.
Springfield reported maiden interim results earlier this month. Revenues were 10% higher at £54.8 million and pre-tax profit improved from £2.6 million to £3.1 million.
The fastest growth came from the affordable homes division, although this remains the smaller part of the business. The policy of the government of Scotland is to build 50,000 affordable homes by 2022. Springfield is bidding for £70-£80 million of affordable housing work deliverable over the next three years.
The private housing side is waiting for planning permissions for planned villages in Scotland, but existing permissions mean that the second half has significant contracted revenues. This division provides the visibility for the business because the developments are developed in a number of stages.
N+1 Singer upgraded its full year profit forecast from £9.1 million to £9.6 million. That equates to earnings per share of 9.1p, putting the shares on 13 times forecast earnings. Net debt will be around £20 million at the end of May 2018.
Even though Springfield was quoted for little more than a few weeks of the first half it is paying a 1p a share interim dividend. A total dividend of 3.7p a share is forecast with double digit growth forecast for the following two years. The forecast yield is 3.1%.
Local government and engineering software supplier IDOX (IDOX) has had problems in the past year, but the figures for the year to September 2017 should mark the bottom and profit performance should improve. Despite the decline in profit, IDOX edged up its total dividend.
Problems with health sector acquisition 6PM and the illness of the chief executive, who has subsequently resigned meant that there was a slump in profit last year, even before the restructuring and impairment costs.
In the year to October 2017, revenues were 16% ahead at £88.9 million, while underlying pre-tax profit fell from £16.7 million to £12.1 million. Net debt was £32.1 million at the end of October 2017 is within the group’s banking facilities.
The shortfall compared with original forecasts was mainly due to accounting irregularities and changes and contracts not being signed in time. Cost savings of £7 million are being targeted and new pricing and revenue recognition policies are being put into effect.
IDOX paid a maiden dividend of 0.05p a share for the 2005-06 financial year and each year since then the dividend has been increased. Sometimes the percentage increase has been large and at other times it has been more modest. The latest increase was 4% to 1.04p a share, which was 2.3 times covered by earnings.
The shares are trading on 15 times underlying earnings, with the prospect of a recovery this year. The share price has halved over the past year, making the yield 2.8%.
Wynnstay Properties (WSP)
Wynnstay Properties (WSP) is one of the longest-quoted, and least covered, companies on AIM. One thing in its favour is consistent growth in dividends over two decades. This is backed by a growing NAV.
Not to be confused with Wynnstay Group, the agricultural products supplier and retailer, Wynnstay Properties focuses on office, retail, warehouse and industrial properties in southern England. It joined AIM in September 1995.
Wynnstay has not bucked property trends, but it has weathered them well. In the year to March 2009, the NAV fell from 572p a share to 414p a share. Since then, the NAV has grown and, at the end of September 2017, the NAV was 685p a share. During the same period of time, the dividend has risen from 10p a share to 15.75p a share.
Net debt was £10 million at the end of September 2017, but management says it has cash to buy properties. Last year’s dividend was more than twice covered by cash generated from operations.
Wynnstay obtained a 10-year lease extension on its office property in Cosham. The tenant is a government department and the revaluation of this property on the back of the extension will provide an additional boost to NAV.
Liquidity is limited and the bid/offer spread is relatively wide (often around 50p). Finance director Toby Parker bought 2,000 shares at 590p each. Non-executive chairman Philip Collins owns 31.4% and the next two biggest shareholders own 12.6% between them.
The yield is 2.8%, or 2.7% based on the offer price. It is important not to chase the share price upwards.
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