Two growing dividend stocks that could soon yield 6%+

Here are two opportunities to lock-in potentially long-term rising dividends today.

| 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.

It’s easy to see which stocks are providing big dividends today, but not those that will be paying out the big cash tomorrow. To get some idea of that, we need to look for progressive dividend policies, strong cash generation, and the potential for future growth.

Software and IT services provider Sanderson Group (LSE: SND) is one that I think fits the bill. The share price has been a bit volatile over the past couple of years, but at 74p today we’re looking at a 55% gain over five years.

But more important from an income perspective is a dividend that has soared from 1.5p per share in 2013 to 2.65p for the year ended September 2017. That represented an 11% rise over last year, for a 3.6% yield on the current share price. It’s also almost two-and-a-half times covered by earnings per share, so it’s really not stretching the company at all.

Should you invest £1,000 in Marks and Spencer 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 Marks and Spencer made the list?

See the 6 stocks

Big 5-year jump

With the dividend having risen by 77% in four years, if you’d bought shares around the start of 2013 for about 50p, you’d be earning an effective yield of 5.3% this year on your original purchase price, and the 2.9p forecast for next year would take that to 5.8% — just a shade short of that 6%.

Revenue for the year was largely flat at £21.56m, but adjusted operating profit picked up 5.7% to £3.9m with adjusted basic earnings per share up 18% to 5.2p.

Most importantly (in my view), the firm reported continued strong cash generation which led to a year-end net cash balance of £6.18m — up from £4.34m a year previously and “well ahead of market expectations.

Buying now could lock in some big future returns.

Superior cover

Norcros (LSE: NXR) has exhibited a slightly less spectacular dividend progression in the past few years, but it’s still impressive. From 4.6p in 2013 (adjusting for 2015’s share consolidation), the dividend has grown to 7.14p for the year to March 2017. That’s a rise of more than 55% in four years, which is massively ahead of inflation.

Forecasts suggest a 4% dividend hike this year followed by a further 5.2% next year, which is a slowdown in the rate of growth — but still beating inflation, and I’m happy with it for a couple of reasons.

First, the cash would be more than three-and-a half times covered by forecast earnings, so it’s looking pretty safe. The other thing is that this is while Norcros, which supplies showers, taps, bathroom accessories, tiles and adhesives, is facing difficult trading conditions — and if it’s looking this good in tough times, I’m optimistic about the longer term.

Acquisition

In fact, Norcros looks to be in a good state to benefit from trade headwinds by making acquisitions at attractive prices. On 23 November, the firm competed the acquisition of Merlyn Industries funded by a new £31.4m open offer, with the enlarged company now on a market cap of £145m.

On top of that, debt at the interim stage at 30 September stood at £20.8m, down 24% and not what I’d call remotely troubling, and the company saw fit to lift its first-half dividend by 8.3%.

Forecast yields currently stand at a little over 4%, with the shares on a forward P/E of only around 6.3. I reckon Norcros is a dividend and growth combination to hold for the long term.

Should you buy Marks and Spencer now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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.

The Motley Fool UK has recommended Norcros. 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

Road 2025 to 2032 new year direction concept
Investing Articles

Is the Rolls-Royce share price still undervalued in 2025?

After massive growth in the Rolls-Royce share price, Charlie Carman considers whether the FTSE 100 aerospace and defence stock is…

Read more »

Businessman hand flipping wooden block cube from 2024 to 2025 on coins
Investing Articles

How an investor could target a £43k lifelong passive income starting with just £5 a day

Harvey Jones says it's possible to build a high-and-rising passive income by investing small, regular sums in FTSE 100 shares.…

Read more »

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 »

Tariffs and Global Economic Supply Chains
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 »

Businessman hand stacking up arrow on wooden block cubes
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 »

Businessman hand flipping wooden block cube from 2024 to 2025 on coins
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 »