As inflation moves higher, investors may begin to favour dividend shares with growth potential. In other words, high yields may still matter, but the ability of a company to beat inflation when it comes to growth in shareholder payouts may take on greater emphasis than it has done in the past. With that in mind, here are two shares with scope to raise dividend payments in future.
Better-than-expected performance
Reporting on Monday was provider of IT infrastructure services Computacenter (LSE: CCC). The company’s share price gained over 7% following its trading update, which was better than expected. Group revenue for the first quarter of the year increased by 16% on a reported basis, and by 9% on a constant currency basis. This was aided by a rise in Services revenue of 14%, while the company’s Supply Chain revenue moved 17% higher.
However, in its UK segment the business suffered from a decline in sales of 1%. While disappointing, growth in Germany of 23% helped to offset this. And with growth in sales in France of 6%, the company’s international growth strategy seems to be progressing well and could benefit from a weak pound over the medium term.
While Computacenter currently yields just 2.9%, its potential for rapid dividend growth is high. The company has a dividend payout ratio of 42%, which could easily be increased without hurting its growth potential.
Certainly, some capital should be reinvested in order to capitalise on the growth opportunities across Europe. However, with a relatively sound balance sheet and a low dividend payout ratio, it would be unsurprising for dividend growth to easily beat inflation over the medium term.
Low valuation
Also offering high dividend growth potential within the technology industry is Micro Focus (LSE: MCRO). It currently pays out around half of its earnings as a dividend, which puts its shares on a yield of 2.9%.
Looking ahead, the synergies from the deal to acquire HP’s non-core software assets could positively catalyse the company’s bottom line. Its earnings are due to rise by 4% this year, and then by a further 17% next year. This indicates that dividend growth could at least match profit growth and lead to a higher yield than at the present time.
As well as dividend growth potential, Micro Focus also offers scope for a higher share price. Its shares currently trade on a price-to-earnings growth (PEG) ratio of 0.9, which indicates they offer growth at a reasonable price. While there is added risk from the major integration process which will see the HP assets merged into the existing Micro Focus business, the market seems to have factored this into the company’s valuation.
With a wide margin of safety and strong dividend growth potential, as well as a sound balance sheet and excellent cash flow, now could be the perfect time to buy Micro Focus for the long term.
