Comebacks Building in London

05/25/2011 8:00 am EST

Focus: GLOBAL

Two construction stocks are on the rise after a tough stretch and paying sturdy dividends, writes Roy Tipping in The IRS Report.

Latchways (London: LTC) is a group of companies "dedicated to the safety of individuals working at height," to quote its Web site.

The use of its ManSafe system of protection for workers on office blocks, electricity pylons, and so forth is widespread across the world.

Any company in the construction field—particularly one supplying services rather than constructing things itself—is going to be vulnerable at present. Latchways continues to maintain its position, and the forecast is for a resumption of growth in 2011 and thereafter, following a rather stagnant 2010.

Dividend growth of 15%, announced in the interim report for March 2011, is a further indication of confidence in Latchways' board. [Shares yield 2.7% on a trailing basis—Editor.]

Chairman Paul Hearson pointed out that the difficult market at home was not matched overseas, with strong growth already coming from worldwide opportunities.

Another construction stock I like is Renew Holdings (London: RNWH), which has a history going back some 300 years.

The group has two main areas of activity. The Specialist Engineering half comprises five subsidiary companies working in the nuclear, rail, land, and water fields. The Specialist Building half comprises three subsidiary companies working in the retail, housing, science and education, and restoration and refurbishment fields.

The group has been deliberately moving from a substantial dependence on the latter—it comprised 85% of the company in 2006—to a much more equal division, with Specialist Engineering reaching 44% of revenue in the most recent annual report.

After reaching a peak in turnover in 2008, the group's figures for 2009 and 2010 were disappointing—not surprising, given the sharp recession in the construction industry. Forecasts for 2011 show the group getting back to about the same level of turnover as in 2007—much better, if realized, than for the last two years.

The share price has doubled in the past six months, and I don't see it doing much better than that over the next couple of years, but there is a solid dividend to add to the optimism. [Operating profit rose 32% in the semiannual report released Tuesday. The dividend yield currently stands at 4.4%—Editor.]

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