2 FTSE 250 dividend growth stocks I’d buy with £2,000 today

These two FTSE 250 (INDEXFTSE: MCX) shares appear to offer a potent mix of income and growth prospects.

| 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.

While it is relatively straightforward to find shares which offer either a high yield or strong growth prospects, combining the two in one stock can be tough. In many cases, investors have bid-up the prices of such stocks and this can lead to narrow margins of safety that make them unattractive to new investors.

However, the FTSE 250 continues to offer a number of opportunities to generate a high income alongside strong capital growth prospects. Here are two prime examples which could be worth buying today.

Upbeat performance

Reporting on Friday was defence, security, transport and energy company Ultra Electronics (LSE: ULE). The company released a trading update which showed that conditions in its markets have remained as expected, with it anticipating modest progress in underlying revenue and operating profit for the full year. It expects a second-half weighting to its financial performance, with it investing in increased R&D and capital expenditure.

The company was able to secure a higher volume of orders in the first quarter of the year than in recent years. This resulted in a stronger order book, with it standing at £933m at the end of March versus £914m at the start of the year.

A growing order book suggests that Ultra Electronics could deliver improving financial performance. The company is expected to post a rise in its bottom line of 9% in the next financial year, which puts it on a price-to-earnings growth (PEG) ratio of just 1.4. Alongside a dividend yield of 3.6% which is covered 2.2 times by profit, this suggests that the company has high total return potential in the long run.

Recovery potential

Also offering a potent mix of capital growth and dividend potential is consumer goods company PZ Cussons (LSE: PZC). The stock has experienced a challenging period, with its performance in key markets being less impressive than had been anticipated.

However, the company now appears to be on the cusp of a successful comeback. It is expected to post a rise in its bottom line of 11% next year, followed by 10% in the following financial year. This puts it on a PEG ratio of just 1.6, which is relatively cheap for a stock that has exposure to a number of markets via a wide range of brands.

Since PZ Cussons is expected to record improved profitability, its dividend growth rate could be relatively impressive. The company is due to increase its shareholder payouts by over 6% per annum during the next two years. This means it has a forward yield of 3.8% from a dividend that is due to be covered 1.9 times by profit in the next financial year.

Certainly, a fall in profit in the current financial year could cause investor sentiment to come under a degree of pressure. But with a solid total return outlook, the stock seems to offer investment appeal.

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 has no position in any of the shares mentioned. The Motley Fool UK owns shares of PZ Cussons. 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

Bearded man writing on notepad in front of computer
Investing Articles

Could a 2025 penny share takeover boom herald big profits for investors?

When penny share owners get caught up in a takeover battle, what might happen? Christopher Ruane looks at some potential…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

3 value shares for investors to consider buying in 2025

Some value shares blew the roof off during 2024, so here are three promising candidates for investors to consider next…

Read more »

Investing Articles

Can this takeover news give Aviva shares the boost we’ve been waiting for?

Aviva shares barely move as news of the agreed takeover of Direct Line emerges. Shareholders might not see it as…

Read more »

Investing Articles

2 cheap FTSE 250 growth shares to consider in 2025!

These FTSE 250 shares have excellent long-term investment potential, says Royston Wild. Here's why he thinks they might also be…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Has the 2024 Scottish Mortgage share price rise gone under the radar?

The Scottish Mortgage share price rise has meant a good year for the trust so far, but not as good…

Read more »

Investing Articles

Will the easyJet share price hit £10 in 2025?

easyJet has been trading well with rising earnings, which reflects in the elevated share price, but there may be more…

Read more »

Investing Articles

2 FTSE shares I won’t touch with a bargepole in 2025

The FTSE 100 and the FTSE 250 have some quality stocks. But there are others that Stephen Wright thinks he…

Read more »

Dividend Shares

How investing £15 a day could yield £3.4k in annual passive income

Jon Smith flags up how by accumulating regular modest amounts and investing in dividend shares, an investor can build passive…

Read more »