I’m searching for the best dividend growth shares to buy and hold for the next seven years. Here are two I’ll be looking to acquire when I have spare cash to invest.
Grainger
Investing in residential lettings companies could be a good idea as rents in the UK head through the roof. As a keen dividend investor Grainger (LSE:GRI) is one that I have my eye on.
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The business raised the annual dividend 16% in the last financial year (to September 2022), to 5.97p per share. And although past performance is no guarantee for the future and dividends are never guaranteed, City analysts expect shareholder payouts here to keep flying.
Full-year dividends of 6.3p and 7.4p are predicted for financial 2023 and 2024 respectively. This means that yields march from 2.5% this year to a very healthy 2.9% for the following period.
It’s no surprise that the number crunchers are so bullish on Grainger’s dividend outlook. A huge shortage of rental properties mean UK rents continue to increase, as latest data from the Office for National Statistics (ONS) shows.
Average rents in the UK rose 4.9% in the year to March, while rents in London increased 4.8% over the period. Annual growth in the capital was the highest since 2012, the OBR said.
As Britain’s largest-listed residential landlord, Grainger — which has a portfolio of around 10,000 homes — is benefitting from strong growth across the country. And rents could receive an additional boost if the Renters (Reform) Bill introduced to Parliament last week passes.
The bill to boost tenants’ rights could see even more buy-to-let landlords exit the market, worsening the homes shortage still further.
Grainger’s future earnings could disappoint if high cost inflation persists and supply chain problems drag on. But on balance I expect profits and dividends to grow strongly here for years to come.
Kainos Group
Tech shares aren’t famed for their generous dividend policies. Any excess capital they generate is usually ploughed back into the business to boost future growth.
But artificial intelligence (AI) specialist Kainos Group (LSE:KNOS) is an exception to the rule. With earnings and cash here tipped to balloon over the next couple of years dividends are also expected to soar.
City analysts expect the business to raise an expected dividend 25.1p per share for the last financial year (to March) to 27.6p this year. It is then tipped to rise to 30.6p in financial 2025.
This means a dividend yield of 2.3% for this year potentially marches to 2.5% for next year.
The pace at which the AI sector is growing suggests that Kainos could keep increasing dividends sharply through the rest of the decade. Analysts at Fortune Business Insights for instance think the market will expand at a compound annual growth rate (CAGR) of 21.6% between now and 2030.
Investors need to remember that this company is a small player in the IT services industry. Nasdaq-listed giants like Microsoft have considerably larger marketing and R&D budgets than Kainos. This poses a clear risk to the UK firm’s ability to grow revenues.
Yet the rate at which it keeps winning business still makes it highly attractive to me. Earlier this month it said trading remains “very strong” across all its divisions.
