4 Stocks with yield + growth

Spotless attractive medium term prospects

David Poppenbeek, Head of Australian Equities, K2 Asset Management

Spotless is a leading provider of integrated facility services in Australia and New Zealand. Spotless has dominant market industry positions, good revenue visibility driven by long term contracts of 5-10 years and very low customer concentration with no single client representing more than 5% of turnover.  We are attracted to Spotless at this point in the cycle as it offers a dividend yield that is double the 6 month term deposit rate. In addition, we believe that Spotless has the capacity to grow its dividend per share by at least 7% per annum over the next 5 years. The medium term prospects for Spotless look attractive primarily since we expect growth in the outsource penetration rate.  In Australia, the outsourced facilities services market is forecast to grow by around 8% over the coming 5 years. This level of growth would lift the outsourced component of the Australian facilities management market from 47% to 54%; still well below the global market average of 65%. In addition, we believe that Spotless can make further strategic bolt on acquisitions.

Macquarie capitalising on buoyant conditions

John Deniz and Nick Reddaway, Paragon Funds Management

Macquarie is currently yielding a 4.6% forward dividend (March year-end FY16F), and based on our estimates is growing earnings at 30% CAGR for the three years to FY16F. Macquarie is taking advantage of buoyant conditions across key segments including 1) Asset Management, 2) Corporate & Asset Finance, 3) Commodities & Financial Markets and 4) Banking & Financial Services; all of which are contributing to its growth. Macquarie is well capitalised and in our view still in an earnings upgrade cycle. We expect solid yield + growth to continue as Macquarie’s key segments drivers - low global rates, loose monetary policy, strong net inflows, buoyant and liquid market conditions and AUD risk to the downside - remain in place. Macquarie Asset Management – a leader in global Infrastructure – has grown significantly and offers annuity style earnings from its base management fees, and scope for material ongoing contributions from its performance fees. We went long Macquarie at $56.58/sh on the 18th of Dec 2014 for the above very reasons and despite its near 50% increase, continue to like the stock’s risk:reward. (VIEW LINK)

The market is mispricing National Storage

Tim Hannon, Chief Investment Officer, Freehold Investment Management

Within our universe we think the market is incorrectly pricing a ‘yield + growth’ situation for a company called National Storage (NSR). NSR generates income from its portfolio of ~80 self-storage sites across Australia, distributing to investors bi-annually. Future earnings growth is generated from increasing rents, as well as further acquisitions of self-storage assets. We concede that the difficult operating environment for NSR in the short term could see some potential share price volatility. Nonetheless, it is likely these operational headwinds will eventually subside, and the company will continue to create value over the medium to long term consolidating the Australian self-storage sector. Freehold Funds remain long term holders of NSR.

MacMillan Shakespeare: Well funded for offshore growth opportunity

John Abernethy, Chief Investment Officer, Clime Asset Management

MacMillan Shakespeare has grown steadily from prior to the GFC. A period of over 8 years and has been 6 years in our portfolio. Apart from the period following the former-Government changes regarding car logs the company has steadily grown profits and dividends. The outlook is for steady but lower than historic growth in Australia but with an emerging business in United Kingdom. Company is well funded and generates strong cash flow to undertake the growth opportunity in the UK.