About twice a 12 months, FTSE 100 development and earnings share Diploma (LSE: DPLM) springs to my consideration. It’s simply performed it once more, and for a constructive purpose.

The distribution group has a protracted and proud document of rewarding loyal shareholders. It’s lifted its dividend yearly for greater than 25 years. And never simply by inches. It’s grown at a mean compound price of 13.22% a 12 months for the final 15 years.

That’s solely a part of the enchantment. Diploma’s additionally delivered severe share price development. It’s up a modest 12% within the final 12 months however 146% over 5 years.

It’s jumped 15% up to now month, which is why it’s come to my consideration once more.

Dividend development

This can be a regular compounder that’s quietly created severe wealth. The overall return over the previous decade’s a whopping 620%, in keeping with calculations AJ Bell did final 12 months.

But there’s one more reason why it’s simple to miss: the comparatively modest trailing yield of 1.3%. Its steadily rising share price is partly responsible for that, so traders have to look behind the headline quantity.

Diploma isn’t a family identify, but it surely additionally isn’t small. It’s a £6bn operation supplying sensible however unexciting bits of package like seals, gaskets, filters and wiring to clients throughout North America and Europe. The type of stuff that makes every part work, with out anybody actually noticing.

Half-year outcomes printed on 20 Might confirmed a 25% rise in adjusted working revenue to £156.9m. Income climbed 14% to £728.5m, with natural development hitting 9%, up from 5% the 12 months earlier than.

Diploma now expects natural development of 8% for the total 12 months, and an working margin of twenty-two%. Each figures beat expectations. CEO Johnny Thomson stated the group had continued to ship “compounding growth in good times and bad”.

In right now’s unsure financial local weather, that’s an enormous declare, and a reassuring one.

Worth displays reputation

So why didn’t I purchase it again in December? The identical purpose I hesitate now. Diploma’s shares are costly. The price-to-earnings ratio is basically excessive at 48. That’s one of many highest on the FTSE 100, at Rolls-Royce ranges. Its price-to-book ratio’s near seven. One is seen as honest worth.

Clearly, traders have noticed the standard. However the valuation’s wealthy. At occasions like this, I like to attend and see if the market presents a greater entry level. There was one a month in the past, however I missed it.

The median share price goal from analysts is 5,060p, which is round 9.5% above right now’s 4,626p. Issue within the dividend and that offers a possible complete return of 11%.

Seven out of 12 analysts price the inventory a Robust Purchase, whereas another says Purchase. Just one says Promote. Possibly that lone worrier is scared by Diploma’s P/E too.

Diploma depends on acquisitions to fund its development. It has quite a lot of expertise, however there’s all the time a component of threat when bolting on a brand new buy. First-half earnings per share jumped 23% to 80.2p. Sustaining that could be a tall order, and markets may punish any shortfall given excessive expectations.

For long-term traders chasing high quality and development relatively than an enormous payday right now, I feel Diploma is one for the watchlist. If the price settles, or higher nonetheless dips, I’ll take into account shopping for. Offering I’m paying consideration.