M2 Group Ltd and Hills Ltd: Should you buy?

Both M2 Group Ltd (ASX:MTU) and Hills Ltd (ASX:HIL) have posted solid full-year results and pay strong dividends. They might deserve a spot in your portfolio.

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When investing for the long term, regular dividends and growth potential are what we look for. In an economic downturn regular dividend income can provide financial security and, if you hold a stock for more than a year, capital gains taxes are minimised.

M2 Group Ltd (ASX: MTU) and Hills Ltd (ASX: HIL) are two technology-related companies which will benefit from our ever increasing interconnected lives.

As the owner of Dodo, Primus, Eftel and Commander, M2 has enjoyed a meteorically rising share price over the past decade, up over 2,400%. The company's growth has, in recent years, been fuelled by acquisitions.

In the short term, with debt levels high, it is now focused on pursuing organic growth and recognising even more synergies from its acquisitions. Earlier this week, the group announced it notched-up 50% revenue growth in FY14, whilst earnings per share jumped an impressive 36%. With the declaration of a 14.5 cent final dividend (taking the full-year payout to 26 cents), shares currently yield 3.5% fully franked.

Hills has a rich history in Australia and New Zealand as the inventor and distributor of the Hills Hoist clothes line. It was, until 2013, a steel producer but more recently become a leading technology and communications provider for the security and healthcare industries.

The first year in its new form produced good results. For example, it swung from a considerable loss in FY13 to a $24.8 million statutory net profit this year. It achieved underlying earnings per share growth of 46%. It declared a final dividend of 3.60 cents, taking the full-year payout to 7.00 cents and placing the shares on a trailing yield of 4.3% fully franked.

In coming years, analysts are anticipating strong growth from the company with shares trading on a price-earnings to growth ratio of just 0.49.

Buy, hold or sell?

I think all of these companies offer shareholders long-term value at today's prices. For risk-averse investors, M2 is a safer bet but Hills has greater upside potential in the medium term.

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the companies mentioned in this article. 

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