An annual increase of 29% for earnings would be good for any business, and the FTSE 250’s Mitie (LSE: MTO) has achieved exactly that.

Today’s (6 June) full-year report from the facilities maintenance, management and improvement company has many positives. I think the stock looks worth consideration as a play for both income and growth.

Broad-based growth

In the 12 months to 31 March, revenue rose by 11% year on year, and free cash flow came in higher along with operating profit.

Meanwhile, the firm’s order book improved by almost 18% and the pipeline of contract opportunities has been shooting up too.

The directors had enough confidence in the good performance and the outlook to increase the total shareholder dividend for the year by a whopping 38%.  

With the share price near 122p, the historical yield is almost 3.3%. Meanwhile, the record shows strong annual increases in the shareholder payment since the pandemic. And City analysts predict a further mid-single-digit percentage increase for the current trading year.

Chief executive Phil Bentley said Mitie is a cash generative business with a “robust” balance sheet and is investing in “accelerated” growth. On top of that, the company has been returning “surplus” funds to shareholders via share buybacks.

However, it’s worth noting that net debt had risen by around 84% to £81m by the end of the trading year. Commenting on the situation, the company said positive free cash flow generation had been “offset” by acquisitions and ongoing shareholder returns.

That reads a bit oddly, to me. It suggests the business has borrowed money to fund share buybacks and dividends. If that’s the case, it could be a risk for shareholders to keep an eye on.

A volatile sector

Although the level of borrowings looks like it’s under control, at least for the time being. Nevertheless, I’d prefer a net cash figure on the balance sheet while this business is trading well to help it get through any leaner times.

If cash flow ever falters, dividends may be reduced. If that happens, the share price will likely fall too leading to a losing investment for shareholders.

The scenario’s quite likely at some point because the firm operates in a sector with quite a bit of cyclicality. Volatility shows up in the share price chart and the dividend record — like many companies, Mitie stopped payments in the wake of the pandemic.

Nevertheless, Bentley said all the company’s divisions are performing well.

Looking ahead, City analysts expect normalised earnings to remain essentially flat for the current trading year. However, I’m optimistic about the multi-year prospects for the general economy and believe that the upswing in Mitie’s business may continue for some time.

Meanwhile, the forward-looking earnings multiple for the current trading year to March 2025 is around 11. That compares favourably with the rating of the FTSE All-Share index of about 12.5, making the company’s valuation look fair.

On balance, and despite the risks, I see Mitie as worth further research and consideration now with a view to adding some of the shares to my diversified portfolio.