What’s the best way to offset the risk of high-growth investments? Looking for companies that are already growing their dividends is one way, as there should be less of an ex-growth shock once they mature.
So I’ve been looking at companies doing just that, but which still have low P/E values compared to their forecast EPS growth (in other words, companies with low PEG ratios):
The UK’s housebuilders, despite massive price rises, are still showing strong growth characteristics. Taylor Wimpey (LSE: TW) shares have soared 75% in the past 12 months to 200p, but a 33% rise in EPS forecast for 2015 and 15% in 2016 gives us forward P/E ratios of about 13.5 and 11.5. Those are below the long term FTSE 100 average of around 14, and put the shares on a 2015 PEG of 0.4, rising only to 0.8 next year — growth investors typically think anything around 0.7 or less is a strong sign.
And after a few years of low dividend yields, reaching only 1.1% last year, there’s a big rise to 4.7% forecast for this year with 5.3% on the cards for 2016 — Taylor Wimpey still looks cheap to me!
The whole sector
Things are similar over at Redrow (LSE: RDW), where the share price has almost doubled to 459p in the past year, and where predicted EPS rises of 49% and 15% over the next two years give us PEG ratios of 0.2 and 0.7 respectively — comfortably within growth criteria. Dividend yields are only expected to reach around 2% by 2016, but that’s still a doubling of 2014’s 3p per share to 6p this year, followed by a further 50% rise to 9p.
Shares in industrial hire specialist Ashtead (LSE: AHT) have lost 20% since the end of May, leaving the price up just 9.5% in 12 months, at 966p. Yet the stunning EPS rises of the past few years aren’t set to stop any time soon — forecasts suggest some slowing, but they still indicate a 25% rise this year followed by a further 17% next. And the recent slip in the share price brings P/E multiples for April 2016 and 2017 down to just 12.5 and 10.7 — giving PEG ratios of only 0.5 and 0.6. In fact, Ashtead’s PEG has been consistently low over the past few years, putting it firmly in growth territory.
Last year’s 15.25p dividend is expected to grow 15% this year and 14% next, to reach 20p by April 2017 — a yield of only around 2%, but climbing nicely.
Further afield
Finally, I spotted NMC Health (LSE: NMC), which bills itself as the UAE’s largest private healthcare provider. It only floated on the LSE in April 2012, but since then its share price has put on 260% to today’s 836p — and that includes a 74% rise in the last 12 months.
Last year’s earnings growth of 12% is expected to accelerate to 44% this year, with a further 20% in 2016. P/E ratios are still a little high at around 18 to 21, but PEGs of 0.5 and 0.9 for the two years suggest that’s still decent value. A dividend of 5.4p in 2014 should be lifted by 28% this year and by 25% next, to reach 8.6p — still only yielding 1%, but an attractive growth rate and covered more than five times by earnings
