2 high-growth dividend shares that could make you a million

These two stocks could deliver strong income returns.

| 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.

Dividend yields have always been important to income investors. However, in 2018 they may become of even greater importance. Inflation has gradually climbed to 3.1%, with Brexit being a key reason. As the date of the UK leaving the EU draws closer, uncertainty may build and force inflation higher. With the Bank of England concerned about growth prospects, there may be a lack of monetary policy tightening to help curb the rising price levels.

As such, buying these two higher-yielding stocks could be a shrewd move. They may deliver real income returns even if inflation soars.

Impressive performance

Reporting on Thursday was online gaming entertainment and solutions provider 888 Holdings (LSE: 888). The company announced a positive trading update, with it expecting adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) to be in line with forecasts. This has been achieved despite the increased regulatory focus which has been prevalent in the UK. It has also been delivered even though the company has chosen to exit from five markets in the first half of the year.

There has been strong progress in the company’s Casino business, while there has also been encouraging momentum in 888Sport. Furthermore, the company has reported increased activity on mobile devices, as well as continued expansion in regulated Continental European markets such as Italy and Spain.

With a dividend yield of 4.2%, 888 appears to have income appeal at the present time. Its dividends are covered 1.2 times by profit, which suggests they are sustainable at their current level. With earnings due to rise by 6% this year and by a further 12% next year, dividend growth could be high. Therefore, while not a defensive share, the stock could be a worthwhile income play for the long term.

High returns

Also offering a positive outlook for income investors is motor insurance specialist Admiral (LSE: ADM). The company currently has a dividend yield of 5.6%. This includes special dividends and while there is no certainty that such dividends will continue in the long run, the company has a good track record of paying them each year. Therefore, there seems to be a high chance that they will continue to be paid in future years.

With Admiral occupying a dominant position within various niches in the motor insurance segment, such as young drivers and high-performance cars, it could deliver relatively stable earnings growth in the long run. For example, in the next financial year it is expected to post a rise in its bottom line of 3%. This puts it on a forward price-to-earnings (P/E) ratio of 16.6, which suggests that it offers a margin of safety.

Certainly, the motor insurance industry has experienced a degree of turbulence in recent years. The changes to the Ogden discount rate used to calculate payouts for personal injury claims caused share prices across the sector to decline. However, with such costs simply being passed to consumers in the form of higher prices in most cases, the sector appears to be a sound place to invest for the long run.

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 in Admiral. 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

Google office headquarters
Investing Articles

1 reason I like buying S&P 500 shares – and 1 reason I don’t

Will this investor try to improve his potential returns by focusing more on S&P 500 shares instead of British ones?…

Read more »

Young woman holding up three fingers
Investing Articles

3 SIPP mistakes to avoid

Our writer explains a trio of potentially costly errors he tries to avoid making when investing his SIPP, on an…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Here’s how (and why) I’d start buying shares with £25 a week

Our writer uses his investment experience and current approach to explain how he would start buying shares on a limited…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s my 5-step approach to earning passive income of £500 a month

Christopher Ruane explains the handful of steps he uses to target hundreds of pounds in passive income each month.

Read more »

Investing Articles

2 UK shares I’ve been buying this week

From a value perspective, UK shares look attractive. But two in particular have been attracting Stephen Wright’s attention over the…

Read more »

Investing Articles

A lifelong second income for just £10 a week? Here’s how!

With a simple, structured approach to buying blue-chip dividend shares at attractive prices, our writer's building a second income for…

Read more »

Investing Articles

Here’s how I’d use a £20k Stocks and Shares ISA to help build generational wealth

Discover how our writer would aim to turn a £20k Stocks and Shares ISA into a sizeable nest egg by…

Read more »

Investing Articles

Billionaire Warren Buffett just bought shares of Domino’s Pizza. Should I grab a slice?

Our writer takes a look at a few reasons why Domino's Pizza stock might have appealed to Warren Buffett's Berkshire…

Read more »