This red-hot growth share has hiked dividends by 19.5% every year for a decade!
It’s possible to be a brilliant growth share AND a dividend superstar. I’d argue that the London Stock Exchange Group (LSE: LSEG) has combined both with aplomb.
The stock doesn’t scream income, with a trailing yield of just 1.18%. But that’s only because the share price has climbed in line with rising payouts.
The financial data company has increased its dividend every single year for the last 15 years. Over the past decade, it’s grown by an average rate of 19.45% a year. That’s an astonishing pace.
The growth story is just as striking. Over that same 10-year stretch, the share price has climbed from around 2,376p to 11,050p. That’s a rise of 365%, enough to turn £10,000 into more than £46,500. With reinvested dividends, investors will be sitting on much more than that.
Strong momentum
The shares have picked up again recently, rising 18% over the past year and 57% in the last three. Despite all this excitement, it isn’t a stock I’ve paid close attention to until now. For years, I’ve favoured cheap value stocks with high yields. Now I’m keen to balance them out with a bit of momentum and growth.
The last time I examined it was almost exactly a year ago. I was impressed, but also deterred by an eye-watering price-to-earnings (P/E) ratio of 63. Data firms can justify premium ratings due to their growth potential, but I’d never paid that much for a stock and couldn’t bring myself to do it then.
Yet since then, London Stock Exchange Group has lived up to those expectations. Full-year 2024 results showed adjusted earnings per share up 12.2% to 363.5p. Total income, including recoveries, rose 5.7% to £8.85bn.
A final dividend of 89p marked a 12.2% increase. The board also signalled another £500m of share buybacks.
Positive signals
First-quarter results published on 1 May reinforced the momentum. Total income excluding recoveries rose 8.7%. Its partnership with Microsoft is breezing along nicely, while markets income surged 10.7%, helped by stronger trading activity and volatility.
The group maintained guidance for 6.5%-7.5% organic income growth in 2025 and expects to deliver equity free cash flow of at least £2.4bn.
There are still risks. This is a competitive sector, and London Stock Exchange Group must keep investing to stay ahead of the pack. Higher costs could pressure margins.
It has also grown through acquisitions, but integrating new businesses can take time, cost money and distract from core operations.
Still, analysts remain optimistic, with an impressive 14 out of 18 rating the stock a Strong Buy. Two more say Buy, two say Hold. There are no sellers. The median 12-month share price forecast of 12,815p implies another 16% gain from today.
So what about the sky-high P/E? It’s still high today, but not quite so dizziness-inducing, at just over 30 times earnings.
As a value-seeking contrarian, I found buying this stock hard to justify. As a born again momentum seeker, it’s a different matter. The shares may idle after such strong performance but with a long-term view I think they’re worth considering buying today. Ideally, on a market dip. It would be nice to trim that P/E a little further though.
The post This red-hot growth share has hiked dividends by 19.5% every year for a decade! appeared first on The Motley Fool UK.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
