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.

Should you invest £1,000 in Big Yellow Group 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 Big Yellow Group Plc made the list?

See the 6 stocks

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.

AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!

Buckle up because we're about to dive headfirst into the electrifying world of AI.

Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.

If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?

Get your free AI 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.

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

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

£10,000 invested in Lloyds shares on 7 April is already worth…

After a dip in early April, Lloyds shares are back to their 30%+ year-to-date gain in 2025. And analysts are…

Read more »

US Stock

What I’d look to buy as the US stock market heads for the worst month since 1932

Jon Smith sifts through the US stock market to try and find some ideas that have fallen in value recently…

Read more »

Growth Shares

Prediction: I think £1,000 invested in this UK stock could double by 2030

Jon Smith runs through a FTSE 250 stock with a market cap just over £1bn that he feels has the…

Read more »

Investing Articles

With £10k in savings, here’s how an investor could target a second income of £500 a month

£10k in savings could be the foundation needed towards a powerful second income. Our writer details some steps necessary to…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing For Beginners

£1k invested in the FTSE 100 on ‘Liberation Day’ is now worth…

Jon Smith talks about the volatility in the FTSE 100 in the weeks since the tariff announcements and flags up…

Read more »

Long-term vs short-term investing concept on a staircase
Investing Articles

Barclays’ share price is down 7% from March, so is now the right time for me to buy?

Barclays’ share price has dipped recently, which could mean a bargain to be had. I took a deep dive into…

Read more »

Investing Articles

Down 13% since March, does this rising FTSE 250 defence star look an unmissable buy for me?

The FTSE 250 is currently home to many of the big stock stars of tomorrow and I think this high-tech…

Read more »

Investing Articles

Should I buy Aston Martin shares for my ISA while they’re under 70p?

With Aston Martin's shares down hugely across multiple time frames, this writer is wondering if he should snap up some…

Read more »