Rebecca Maclean, co-manager of Dunedin Income Growth (DIG ), highlights UK mid-cap tech stock Softcat (SCT) and French engineering company Gaztransport et Technigaz, or GTT, as examples of strong dividend payers outside the FTSE 100.

This is the third excerpt from our recent virtual event with the UK equity income investment trust. You can watch the previous two:

• ‘UK is all about dividends, but beware high yielders’;
• ‘Dunedin: The big FTSE dividend stocks aren’t as safe as you think’.

Alternatively, you can catch up with the whole one-hour programme with our ‘Big Broadcast’.

Can’t watch now? Read the transcript

Rebecca Maclean:

We’ve got two examples here. GTT, it’s a French listed company and Softcat which is a UK mid-cap. What do these two companies have in common? Maybe that’s a good way to start. They’re both market leaders in their specialisms, in their fields. They’ve both got outlook for growth. Both very cash generative and have got net cash balance sheets. So strong financials which allow them to pay a dividend and actually, then grow that dividend over the medium-term.

GTT, as I say, French listed business. It designs and engineers membranes that are used in LNG [liquified natural gas] carriers. They’ve seen very strong order growth over the last couple of years due to capacity expansion in LNG.

Going forward, they have the potential also to take on orders for replacing some of those carriers. What this means for the business is, they’ve got great visibility because they’ve got a robust order book, which means that they can see where those revenues are going to be in the next couple of years. Some of the orders are not for delivery until 2027, for example. That gives them very good visibility of the growth that is on the horizon for the business.

It’s a market leader. It has nearly 100% market share in what it does. Very strong pricing power. The reason for this is that it’s got a superior technology. The key thing for this membrane technology is about the boil-off rates. You have to store this LNG at very low rates. Their technology is able to do that more efficiently than competitors.

Then Softcat, it’s a great UK technology reseller. They sell to SMEs [small, medium-sized enterprises] in the UK. They’ve got 10,000 customers. They’re selling hardware/software services. The market that they’re playing into is a growth market. Companies increasingly, they can’t be particularly discretionary about their spend in tech. Companies need to continue to spend in order to maintain and upgrade their technology infrastructure. Then if you add on top of that the trend towards AI. The demands for datacentre compute power and data engineering.

That just adds additional layers of support for growth for the industry. Whilst the company has faced some weakness in the last 18 months, where there’s been more delayed decision-making for their customers, they still managed to deliver double-digit gross profit growth. That’s on the back of 20 years of delivering double-digit gross profit growth. Really fantastic performance, which is partly the market, but it’s also their competitive positioning. They’re taking market share and they are now the leader.

Why are they taking share? They’ve got the broadest offering. They’ve got a very strong reputation with customers and what’s crucial to them is their culture and their people. We were speaking to the management team a couple of weeks ago and they reiterated again. Their culture is their number one priority. It’s the thing which keeps them up at night. Maintaining that culture. Making sure that they incentivise their workforce and they’re on board in terms of the strategy. So, we see them as a very strong leader in terms of that human capital.