2 FTSE 250 stocks with fast-growing dividends I’d buy today

These two FTSE 250 (INDEXFTSE:MCX) shares could help you to overcome higher inflation.

| 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.

Higher inflation is already causing greater challenges for income investors. It is now 2.9% and means a number of FTSE 250 companies now offer negative real dividend yields. The index itself yields 2.6%, which would lead to a loss of spending power for investors seeking to rely upon their investment for income purposes.

However, within the index there are still some shares which offer positive real income yields. Here are two prime examples which also offer strong dividend growth potential over the long run.

Uncertain future?

Reporting on Wednesday was housebuilder Bellway (LSE: BWY). It has a relatively uncertain future due to the instability of the UK government. Although it now seems likely that the Conservatives will be in power with a minority government, history tells us that this can lead to weak government. This may not bode well for the performance of the wider UK economy, which could mean confidence surrounding major purchases such as houses comes under pressure.

Should you invest £1,000 in Bank of Georgia 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 Bank of Georgia made the list?

See the 6 stocks

Despite this risk, the outlook for Bellway and the wider industry is relatively positive. Low supply and high demand for houses have combined to push the company’s sales up by 13% in the February to June period. Housing completions for the full year are expected to increase by 10%, while the operating margin has remained steady at 22%.

In terms of its income potential, Bellway’s yield of 3.8% is comfortably ahead of inflation. Therefore, it seems likely it will stay that way over the medium term. Dividend growth potential remains high partly as a result of the company’s dividend payout ratio of just 33%. This could rise and still leave the business with sufficient capital to reinvest for future growth. Trading on a price-to-earnings (P/E) ratio of just 8.7, now could be the perfect time to buy it due to a wide margin of safety.

Dividend growth potential

Also offering upbeat dividend growth prospects is healthcare real estate investment trust (REIT) Assura (LSE: AGR). It has been able to raise shareholder payouts by over 100% during the last four years, which puts it on a dividend yield of 3.5%. While only 60 basis points ahead of inflation, dividend growth of 7.5% per annum is forecast over the next two years. This should ensure it remains a favourable place to invest even if inflation heads north of 3%.

As with Bellway, Assura also faces an uncertain future. Its focus on the UK economy means it could experience some challenges in the medium term as Brexit gradually becomes a reality. However, since it operates in a relatively defensive sector, it may offer a degree of protection against volatility in the wider FTSE 250. Its price-to-book (P/B) ratio of 1.3 also suggests that it offers a relatively wide margin of safety at the present time. Therefore, it could deliver share price growth even after its 13% gain since the start of the year.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

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 has no position in any shares mentioned. 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

Older couple walking in park
Investing Articles

Could £300 a month invested in US and UK shares reach a million by retirement?

Could an investor retire with a million pounds just by dedicating £300 a month to US and UK shares? Mark…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

Is £800 enough to start an ISA?

Is it worth bothering with an ISA with less than £1,000 to spare? This writer believes it may be --…

Read more »

Investing Articles

3 reasons Tesla stock may be a long-term bargain

This writer is keen to buy Tesla stock at the right price. He doesn't think it's there yet -- but…

Read more »

Investing Articles

Nvidia stock is a lot cheaper than before – or is it?

Nvidia stock has been caught in the whirlwind of market volatility. This writer has been waiting to buy, so might…

Read more »

Top Stocks

3 FTSE stocks Fools are eyeing up for choppy markets

A selection of companies listed on the UK stock market on the watchlists of four Foolish investors.

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

A £10,000 investment in Rolls-Royce shares last week is now worth this…

Harvey Jones says Rolls-Royce shares couldn't escape the volatility of recent weeks, but wonders if the recent dip is a…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Prediction: in 2 years these S&P 500 stocks will be much higher than they are today

These two S&P 500 stocks have been beaten down in recent weeks. But Edward Sheldon expects them to move much…

Read more »

Investing Articles

10% yields! Why a volatile stock market is great news for passive income investors

The recent stock market volatility has given passive income investors the chance to earn double-digit returns. But they still need…

Read more »