A rise in the State Pension age to 68 over the next two decades means that dividend growth shares could become increasingly important to a range of investors. They could provide short-term returns in the form of a dividend, as well as the prospect of rising earnings and share price growth over the long term.
One stock which could offer a mix of dividend and capital growth is AstraZeneca (LSE: AZN). Although it has experienced a challenging period in recent years, the company now appears to be in a strong position to deliver improving financial performance. Could it therefore be worth buying alongside another income share which released an update on Tuesday?
Uncertain future?
The stock in question is online trading specialist IG Group (LSE: IGG). It released an update for the first half of its financial year, with revenue expected to be 6% down on the same period from the previous year.
The European regulator’s product intervention measures came into effect during the period, with revenue in the four months following their introduction set to be down 10% versus the comparable period. Within Europe and the UK, though, revenue was down 20%. This was offset by growth of 9% in regions not affected by the new regulations.
Looking ahead, IG Group is expected to post a fall in earnings of 14% in the current financial year. This is set to be followed by growth of 5% next year. The stock has a price-to-earnings (P/E) ratio of 10.8, which suggests that it offers a margin of safety. With a dividend yield of 7.7% which is covered 1.2 times by profit, it could offer recovery potential in the long run in my opinion.
Improving growth prospects
While AstraZeneca may appear to be a relatively one-dimensional share in terms of it offering a defensive profile, it could prove to be an improving growth stock. It is utilising a strong balance sheet and impressive cash flow to invest in its pipeline. Over time, this process is set to more than offset the decline in sales which has been experienced in recent years as a result of its loss of patents on blockbuster drugs.
In fact, in the next financial year it is forecast to record a rise in net profit of 13%. Recent updates by the company have suggested that it is now turning a corner in terms of the improved performance of its core business, and the decline in its non-core areas. In other words, the falling earnings figures of recent years could be coming to an end, with the business appearing to have a strong pipeline and solid growth outlook.
With AstraZeneca having a dividend yield of 3.5%, it appears to have an impressive income outlook. Certainly, there are higher-yielding shares in the FTSE 100. But its defensive profile, growth potential and the prospect of a rising dividend could make it relatively appealing in the long run.
