Two top dividend stocks with strong growth potential

These two shares could become increasingly popular due to their income potential.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

While buying high-yield shares is one way of combating the effects of higher inflation, buying shares with high dividend growth rates could be another. Certainly, in the short run their income return may be lower than for higher-yielding peers. However, in the long run their total returns could be higher as investors seek means of negating the effects of inflation on their income over a sustained period. With that in mind, these two shares could be worth a closer look.

Growth potential

Reporting on Wednesday was international transport company National Express (LSE: NEX). It was able to continue the strong momentum experienced in 2016 in the first part of 2017, with revenue rising by 5.4% on a constant currency basis. It benefitted from organic growth and a number of bolt-on acquisitions which were made recently.

National Express has been able to improve its operational performance and deploy technology to a greater extent in order to boost its profitability. North America has had a strong start to the year, with revenue up 5.8% and the company enjoying a strong bid season. Its contract retention rate of 96% indicates that its service offering is relatively high. While challenging conditions in the UK Bus sector equated to a fall in revenue in some parts of the business, this was offset to at least some extent by strong performance in the German Rail segment and in UK Coach.

Should you invest £1,000 in Jet2 Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Jet2 Plc made the list?

See the 6 stocks

With National Express yielding 3.7%, its income return is only 0.1% lower than that of the FTSE 100. However, since its dividend is covered 2.2 times by profit, there seems to be significant scope for a rapidly-rising dividend over the medium term. With profit growth of 7%-8% expected on an annualised basis over the next two years, now could be the right time to buy National Express.

Turnaround prospects

Another stock with a bright future is Dart Group (LSE: DTG). It could also be worth buying at the present time. The company has experienced difficult trading conditions in recent years, with customer demand coming under pressure. This has caused the company’s bottom line to fall in the most recent financial year at a double-digit rate, with a further 25% decline in profit expected in the current year.

However, Dart Group’s fortunes are expected to improve dramatically next year. It is forecast to post a rise in earnings of 15%, with its price-to-earnings growth (PEG) ratio of 0.9 indicating that its prospects have not yet been priced-in by the market. That’s despite a 30% rise in its share price since the start of the year.

While Dart Group may only yield 1% at the present time, its dividends are covered 6.2 times by profit. Alongside its strong earnings growth potential, this suggests that a sustained rise in shareholder payouts could be ahead. This has the potential to transform the company’s share price performance and lead to a high total return in the long run.

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in Jet2 Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Jet2 Plc made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Dart Group and National Express Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

British Pennies on a Pound Note
Investing Articles

Up 900%, could penny share Kodal Minerals have further to run?

Over five years, this penny share has increased in value by a factor of 10. Could the latest news persuade…

Read more »

Investing Articles

3 world-class stocks to consider buying, while they’re ‘on sale’

Looking for stocks to buy? These three all have attractive long-term prospects and are currently trading 20% or more below…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Could BP’s share price rebound over the next 12 months? These analysts think the answer is ‘yes’!

BPs share price has plummeted over the last year. But City brokers think things are about to turn around, as…

Read more »

Investing Articles

Is this an unmissable opportunity to buy Nvidia stock?

Nvidia stock is down 33% from its peak, driven by tariffs and geopolitical pressures. Despite this, some investors may spy…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Dividend investors! Here’s what Warren Buffett says builds wealth in the stock market

Reinvesting dividends at yields of 8% or higher looks like a good way of building wealth. But Warren Buffett has…

Read more »

Calendar showing the date of 5th April on desk in a house
Investing Articles

Here’s my Stocks and Shares ISA plan for 2025-26

A Stocks and Shares ISA helps investors avoid taxes on dividends and capital gains. And Stephen Wright has a plan…

Read more »

Dividend Shares

Of the 20 highest-yielding FTSE 100 stocks, this is my top pick

This FTSE 100 stock currently offers a yield of 6.4%. But Edward Sheldon believes it’s capable of providing share price…

Read more »

Investing Articles

Could Tesla’s share price jump over the next 12 months? These analysts think so!

Tesla's share price has fallen by almost a third since 1 January. But optimism is high that Elon Musk's company…

Read more »