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.
