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.

Should you invest $1,000 in Johns Lyng Group Limited right now?

Before you buy Johns Lyng Group Limited shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Johns Lyng Group Limited wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 7 February 2025

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

Dog with a shoe in its mouth.
Opinions

This ASX income stock just cut its dividend: I think it's time to invest

This business is paying a smaller dividend, but I think that makes it more attractive.

Read more »

I young woman takes a bite out of a burrito n the street outside a Mexican fast-food establishment.
Opinions

As the Guzman y Gomez share price drops 14% on results, what should investors do?

Is the Mexican restaurant stock’s valuation still too spicy?

Read more »

Smiling couple looking at a phone at a bargain opportunity.
Opinions

Near 52-week lows, are these ASX 300 shares now unmissable bargains?

Are these stocks at valuations that are too good to ignore?

Read more »

A businessman hugs his computer and smiles.
Opinions

If I could only buy and hold a single ASX stock right now, this would be it

This business has a lot of positives.

Read more »

Young couple at the counter of a hardware store.
Opinions

Is the Wesfarmers share price a buy after the company's half-year result?

Is this retail giant still a buy after its big rise?

Read more »

A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.
Opinions

Where I'd invest in ASX shares now the RBA is starting to cut interest rates

These ASX shares look like appealing opportunities amid the RBA rate reduction.

Read more »

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
Growth Shares

I think these ASX growth shares could be top buys right now

I am backing these stocks to deliver significant growth.

Read more »

A worried woman looks at her phone and laptop, seeking ways to tighten her belt against inflation.
Bank Shares

I'm getting nervous about the CBA share price

The higher CBA climbs, the more nervous I get.

Read more »