Two FTSE 250 stocks offering 8%+ dividend growth per annum

These two FTSE 250 (INDEXFTSE:MCX) stocks have huge appeal, says G A Chester.

| 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.

There are two components to a company’s dividend that should have great appeal for investors. A starting yield at a decent level above interest on cash, and good prospects of the company increasing the payout at a faster rate than inflation in future years.

Such stocks offer investors living off the dividends a rising real income and investors reinvesting dividends a turbo-charge to the compounding of their capital growth. Today I’m looking at two FTSE 250 stocks that I believe fit the bill nicely.

Strong performance

Leading UK self-storage specialist Big Yellow Group (LSE: BYG) today released results for its half year ended 30 September. A strong occupancy performance from its 92 stores saw revenue increase 6%, while higher profit margins drove earnings up 13%. It’s the company’s policy to distribute 80% of earnings, so there was a commensurate 13% increase in the interim dividend to 15.3p.

Ahead of today’s results, City analysts were forecasting a full-year dividend of 29.8p (8% up on last year). The shares are trading 7p higher on the day at 772p, so the forecast full-year payout gives a yield of 3.9%. Forecasts could be upgraded somewhat after today’s results, although the six months to September is the seasonally stronger half.

Favourable outlook

Future prospects for continued strong dividend growth are good. The board today raised its long-held occupancy target of 85%, with the new target being 90%. The company also has a current pipeline of developments that when built out will, increase the lettable area of its estate from 5.4m sq ft to 6m sq ft.

Increasing space and occupancy should drive good revenue growth. At the same time, earnings should grow faster than revenue, due to costs rising at a relatively modest rate. This will be helped by the company having recently reduced its average cost of debt. And with 96% by value of its stores and sites being freehold and long leasehold underpinning the balance sheet, I rate Big Yellow as a solid stock to buy.

Growing internationally

Also sporting a good dividend yield and rising payout prospects is National Express Group (LSE: NEX). Its UK bus and coach business is long established and well known, but around 80% of earnings now come from outside the UK. The company has fast-growing businesses in North America, Spain and Morocco, as well as rail operations in Germany.

The internationally diversified portfolio of cash-generative businesses supports a bright dividend outlook. Following an 8.4% increase in the payout last year, City analysts are forecasting a 9.9% rise to 13.5p this year. At a share price of 355p, the yield of 3.8% is similar to Big Yellow’s, and also like the self-storage group, National Express is forecast to deliver high-single-digit annual increases for the foreseeable future.

The board’s prudent policy is to pay a dividend twice covered by earnings. Cover is currently running a little stronger than that, which provides comfort, as does reasonable gearing and the company’s commitment to maintaining an investment grade credit rating. Again, this is a stock that looks a solid buy to me.

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.

G A Chester has no position in any of the 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

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »