2 top dividend and momentum stocks for 2018

Floorcoverings distributor Headlam Group (LSE: HEAD) has delivered its investors a 130% increase in its share price over the past six years and a 74% rise in the dividend over the same period. Today’s pre-close trading update suggests more to come.

The firm saw weaker demand in its markets from July through to October 2017 but trading performance picked up during November and December. For the whole year, revenue at constant currency rates improved by 1.2% compared to the previous year. The directors expect profit before tax for the full year to be “comfortably in line” with market expectations of an uplift of 6% over 2016.

More to come?

Stellar returns can be found by investing in the most mundane of businesses. Floorcoverings may not be as exciting as tech, pharmaceuticals or commodities, but the returns in your portfolio from investing in a firm such as Headlam can certainly be satisfying. However, I’d always approach an investment in Headlam with caution because of the inherent cyclicality in its business model.

Right now though, quality, momentum and value indicators all look good suggesting the long run up isn’t yet over. Today’s share price around 574p leads to a forward price-to-earnings (P/E) ratio just over 12 for 2019 and the forward dividend yield is around 4.9%. City analysts following the firm expect earnings to grow 11% this year and 3% during 2019. To me, Headlam looks tempting.

Meanwhile, Workspace Group (LSE: WKP) has been even kinder to its investors, delivering a 330% share price gain over six years and a 110% rise in the dividend. The firm operates as a Real Estate Investment Trust (REIT) providing flexible work spaces in London locations and owning or managing around 3.6m square feet of business space across 66 London properties.

In the right place at the right time?

Today’s third quarter business update trumpets the headline: Well positioned for continued growth with strong demand for our flexible offer.” The firm talks of strong demand in October and November with a seasonal fall in enquiries during December, which was “more marked this year.” Should we worry that a weaker December may presage more enduring trading softness during 2018? Chief Executive Jamie Hopkins reassures saying enquiries “have picked up again in the first two weeks of 2018.”

The firm is in full swing with an extensive refurbishment and redevelopment programme and Mr Hopkins believes that the firm’s marketing expertise and ownership of the right real estate positions Workspace “to take advantage of the growing interest from all kinds of businesses in our inspiring, well-connected spaces.”

There’s still good value apparent with the price-to-tangible-asset value sitting close to 0.95. Today’s 977p share price also leads to a forward P/E ratio around 21 for the year to March 2020 and the forward dividend yield is around 3.5%. Again, I’d approach Workspace with caution because of the cyclicality in the sector, but both these firms display ongoing operational momentum, which looks set to translate into ongoing momentum for the share prices and the dividend yields, perhaps for some time to come.

What now?

I think both Headlam and Workspace Group remain attractive investment propositions, but the outperforming Motley Fool analysts have identified another stock that looks set to deliver decent growth and investor returns over the coming years.

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Kevin Godbold 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.

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