These Cheap Dividend Stocks May Rocket Higher

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, 2019-07-08 10:00:00

Hold onto your hats: I reckon RM could knock investors’s socks off when it declares interims tomorrow (Tuesday, July 9).

RM — which supplies a range of IT services to the education sector — has seen its share price boom 27% already since the start of 2019, and judging by the strength of trading updates in that time I expect another solid swing higher.

I’m particularly impressed by the improving sales momentum the business is showing in foreign climes. Total international revenues blasted 30% higher in the last fiscal year (to November 2018), and within RM’s core RM Resources division, sales in overseas markets jumped an eye-popping 41%.

Going Global

What’s more, the education giant is ramping up investment in its international units to keep the run going. As well as bumping up sales and marketing spend in its non-British territories it also remains committed to acquisitions following the monster takeover of education supplies provider The Consortium in 2017.

Just last month RM shelled out £7.3 million to acquire SoNET Systems of Melbourne, Australia, a leading provider of e-testing software to both education and government sectors. The move will enhance operations at RM Results, the UK firm’s marking business, and “will help accelerate international growth” — according to RM the move will bring several customers from Europe and Asia Pacific into its stable.

Yields at the company might not be the biggest out there, it’s true. For current financial year this sits at 3.3%, a figure that trails the British blue-chip average of 4.5% by some distance.  But never mind this, I say: firstly, this forward figure still outstrips inflation of around 2% or below on both sides of the Atlantic Ocean.

And secondly, given the rate at which RM has hiked dividends in recent years (up 15% in fiscal 2018 alone to 7.6p), and is expected to continue doing so over the medium term, it’s still a mighty attractive income share in my opinion. City boffins are anticipating an 8.3p per share reward for this year to move to 9p for fiscal 2020, a projection which nudges the yield to a chubbier 3.5%.

Chuck a dirt-cheap forward P/E ratio of 10 times into the equation, too, and I reckon RM is a great share to snap up today.

Bowled Over

I’m also backing Ten Entertainment Group’s stock price to rise when half-year numbers are unveiled on Wednesday, July 10.

Like RM, this ten pin bowling operator also deals on a rock-bottom valuation, in this case illustrated by a prospective P/E multiple of 10.6 times. And in my opinion this gives plenty of scope for fresh share price gains.

Last time I covered Ten Entertainment in April I lauded the rate at which like-for-like revenues are growing, and judging from the overall health of the British leisure sector I see no reason to expect anything but another exceptional update (and neither do City analysts by the looks of things: profits rises of 27% and 12% are forecasted for 2019 and 2020 respectively).

Oh, one other thing: at current prices the bowling behemoth carries giant dividend yields of 5.3% for 2019 and 6% for 2020. So whether you’re into growth, income or value Ten Entertainment clearly has a lot to offer. It’s why I reckon the firm’s a stunning buy right now.

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