ASX investors: Buy this stock that increased its dividend by 58%

This stock is building its dividend at an impressive rate.

| More on:
Man holding Australian dollar notes, symbolising dividends.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The ASX share Johns Lyng Group Ltd (ASX: JLG) is one that's rapidly growing its dividend, and I really like the business. I recently doubled down on my investment in the stock and I rate it as a buy.

It's not exactly a household name – this business, in its own words, is an "integrated building services group delivering building and restoration services across Australia and the US." Its core business is focused on its "ability to rebuild and restore a variety of properties and contents after damage by insured events including impact, weather and fire events."

Many of its largest customers include insurance companies and governments.

Strong dividend growth

In the FY23 result, it grew its dividend by 58% to 9 cents per share. That's a huge increase and represented the large growth of the net profit after tax (NPAT), which rose 64.3% to $62.8 million.

Johns Lyng has increased its dividend every year since it listed in 2017. The annual dividend per share has grown by 200% since FY19 (the last non-COVID year), so it's building a good track record of growth.

In FY23, the dividend payout ratio was around 50%, so the company is retaining plenty of annual profit to invest for future growth.

Profit can continue growing strongly

The company said it's "well-placed" for another strong year in FY24, with the first quarter "maintaining the positive momentum" of FY23.

It says it has a "significant annuity style earnings profile, is defensive in nature and continues to grow year-on-year". On top of that, it expects strong revenue from FY23 catastrophe-related activity to flow through FY24 and beyond.

'Business as usual' revenue is expected to increase 18.5% to $1 billion and business as usual earnings before interest, tax, depreciation and amortisation (EBITDA) is expected to grow 20.1% to $113 million in FY24.

The company recently expanded into New Zealand and management recently suggested that its model could be expanded to other countries.

It's making acquisitions to boost the company's growth prospects, which could then help the dividend.

A key growth area for the company is strata services – both management and building services. There are approximately 3.1 million strata lots nationally, with Johns Lyng having the second largest market share of the management market at less than 4%. It can provide building and restoration works for strata insurers and directly to managers, including cross-selling to its own management companies.

The ASX share is also expanding in 'essential home services' with the acquisitions of Smoke Alarms Australia and Linkfire. As standalone businesses, they provide non-discretionary services, underpinned by regulation and compliance requirements across smoke alarm, electrical, fire and gas compliance, testing and maintenance services. This segment can also create cross-selling opportunities with the core business.

ASX share valuation

According to the projection on Commsec, the business is expected to see earnings per share (EPS) growth to 23.3 cents in FY25, which puts the Johns Lyng share price at 26 times FY25's estimated earnings.

Its dividend per share could grow another 19% to FY25, which would put the FY25 grossed-up dividend yield at 2.5%. Ongoing double-digit growth could see the dividend become very sizeable by 2030.

Motley Fool contributor Tristan Harrison has positions in Johns Lyng Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Johns Lyng Group. The Motley Fool Australia has recommended Johns Lyng Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Opinions

Young male investor smiling looking at laptop as the share price of ASX ETF CRYP goes higher today
Opinions

Why I just bought this 5.2%-yielding ASX dividend stock and plan to buy even more

This business is one of my favourites for dividends and total returns.

Read more »

A young female investor with brown curly hair and wearing a yellow top and glasses sits at her desk using her calculator to work out how much her ASX dividend shares will pay this year
Opinions

Why I'm still investing in ASX shares during tariff uncertainty

There are a few reasons why I plan to continue investing even during uncertainty.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Opinions

Why I'm buying more of these 2 ASX stocks ahead of earnings season

I've been excited about buying these investments.

Read more »

Business women working from home with stock market chart showing per cent change on her laptop screen.
Opinions

1 month until ASX earnings season begins: how I'm preparing

It’s almost reporting time. Here’s what I’m looking at.

Read more »

a man sits at his desk wearing a business shirt and tie and has a hearty laugh at something on his mobile phone.
Opinions

Potential buys: 2 compelling ASX shares I like

These ASX shares have an exciting future.

Read more »

Smiling man at the wheel of a car.
Opinions

2 ASX auto stocks to buy — and 1 to sell: experts

Analysts have shared fresh insights into 3 ASX auto shares -- and not all of them are in the buy…

Read more »

A male investor sits at his desk pondering at his laptop screen with a piece of paper in his hand.
Opinions

ASX retail share whose 'fundamentals have deteriorated significantly': expert

Christopher Watt from Bell Potter explains his views on this former market darling.

Read more »

A young woman looks at something on her laptop, wondering what will come next.
Opinions

3 soaring ASX 200 large-cap shares that are now overvalued: experts

Two experts say this trio of ASX 200 large-caps have overshot and it's time to take some profits.

Read more »