This outperforming small cap just lifted its dividend for the 4th straight year

The boss of auto parts and water products supplier GUD Holdings Limited (ASX: GUD) is taking a leaf out of Macquarie Group Ltd’s (ASX: MQG) book by attempting to exit on a high.

GUD’s managing director Jonathan Ling said he will retire in September after delivering a 20% jump in full-year net profit to $55.2 million and rewarding shareholders with a 12% increase to its final dividend to 28 cents a share – its fourth consecutive year of dividend increases.

The share price of GUD has been performing strongly with the stock rallying 17% over the past year when the All Ordinaries (Index:^AORD) (ASX:XAO) and S&P/ASX 200 (Index:^AXJO) (ASX:XJO) have only chalked up gains of 8% to 9%, but there could be a sting in the tail from the results announcement.

GUD could follow the share price performance of Macquarie when the market opens this morning with the investment bank’s share price tumbling on the news that its revered chief executive Nicholas Moore will depart.

Mr. Ling is also held in high esteem by shareholders, who may not be happy about the changing of the guard, so GUD could also become a victim of high expectations.

GUD’s FY18 results may show that the group’s restructuring efforts are paying off but the market is pricing in a bigger success with consensus earnings per share (EPS) expectation set at 65.1 cents, versus the 64.1 cents that management has delivered.

That shouldn’t necessarily be a big deal given that the miss is less than 2%, but GUD’s share price leaves no room for mistakes.

Not only has the stock outperformed the market over the short and longer term, it is currently trading on a price-earnings (P/E) multiple of 21 times – a 31% premium to the market.

This isn’t too high a price to pay for a well run organisation, which has been able to operate successfully in the local automotive industry when so many better resourced companies have failed. It has also won a number of supplier awards, including one from Bapcor Ltd (ASX: BAP).

But the EPS miss and the impending departure of Ling could very well give shareholders an excuse to take profit even though GUD is reassuring investors that the growth momentum in the auto parts business is expected to be sustained in FY19.

Its Davey water solutions business is also tipped to improve this financial year after slipping a little from weaker export demand in the Middle East and as the dry winter conditions (that triggered a profit warning from Nufarm Limited (ASX: NUF) this week) impact on local demand for its pumps and controllers for rain water harvesting.

Davey makes up close to 30% of total group sales.

It’s not a bad result but if you are looking for stocks with a bright outlook and more compelling value proposition, the experts at the Motley Fool have just the thing for you.

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Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited. The Motley Fool Australia owns shares of and has recommended Bapcor. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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