Why the DWS Ltd share price rose 43% in July

Could IT consulting company DWS Ltd (ASX:DWS) be a cigar butt?

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 12, 2015 2:13 pm AEST

DWS Ltd (ASX: DWS) is an IT company providing services to the Australian government, corporations and other institutions, and had a great month in July.

The share price rocketed up 43% from 61 cents to 87 cents, and has jumped even higher in August, currently trading at just under $1.00.

So what has put a rocket under the share price?

Could it be the 8% dividend yield? We all know Australians love their dividends, preferably fully franked, and DWS has delivered that in the past 12 months. A total dividend of 7.5 cents against even today's price is 7.5%. Grossed up to include franking credits, we're talking about a pre-tax yield of 10.8%!

Ok, the company didn't exactly shoot the lights out with its financial results in the 2015 financial year. My colleague Tim McArthur described it as 'lacklustre' in this article, with net profit falling 19% to $10.4 million, compared to the previous year. But perhaps it could've been worse, and it seems shares had been oversold prior to July.

At today's price, DWS is trading on a P/E ratio of 10.8x, not exactly expensive. With company management suggesting the fourth quarter was strong, 2016's financial results could be much better. For a bargain price and a decent fully franked dividend, shareholders might consider DWS a 'cigar butt' worthy of a few puffs.

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