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2 stocks with great dividend and growth potential

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Do you invest for dividend income or for growth? If you go for these two, you could have both.

An attractive income play

Shares in Kier Group (LSE: KIW) were hammered by Brexit fallout last year, but they’ve since come bouncing back. At 1,466p, the price has soared by 57% since 2016’s low point in early July, and we’ve seen an overall 13% gain over the past 12 months — as if the turmoil never even happened.

Short-term panic soon gives way to rational judgment, and in the case of this building and civil engineering contractor, the fundamentals are looking good — and I reckon we’re looking at a nice long-term cash cow here.

The first half of the current year brought in a 12% rise in underlying pre-tax profit, with earnings per share up 11%, and the interim dividend was lifted by 5% to 22.5p per share. A similar rise in the final dividend would provide a full-year yield of 4.6%, which looks set to be well covered by dividends and seems safe to me.

The firm enjoys good visibility over future work too — in the words of chief executive Haydn Mursell, Kier is “encouraged by the pipeline in the Property and Residential businesses and our healthy order books of approximately £9bn in the Construction and Services businesses“.

Forecasts put Kier shares on P/E multiples of 12 to 13 or so for the next two years. Net debt of £179m might dent the attractiveness of that a little, but at 1 x EBITDA I don’t see it as a problem. No, I see Kier shares as still good value despite their recent gains, and I expect a healthy stream of future dividends.

Growth star in the making?

Turning to the growth front, Futura Medical (LSE: FUM) is a possible pharmaceuticals and biotechnology winner with interesting prospects.

It’s big in the field of erectile dysfunction with its Eroxon candidate having “the potential to be the world’s fastest-acting treatment for ED“, and its aspirations are supported by a “novel erectogenic condom“. Oh, and it does pain-relief stuff too.

The erectile dysfunction gel is certainly good at getting the share price up — it caused a surge back in September 2016 when Futura announced “breakthrough results” from early trials and spoke of a potential $5bn market. Thursday’s full-year update continued the enthusiasm, telling us the firm intends to “begin a Phase III placebo-controlled parallel group multi-centre clinical study of 700 or more patients in Q4 2017″.

An investment in a company like this, which is not generating profits yet, is definitely not to be undertaken lightly. Indeed, far from a profit, Futura recorded a net loss of £3.7m for the year — though that is down from 2015’s loss of £5.08m, thanks to lower spending on clinical trials.

On the bright side, a share placing in November raised £12m for the coffers, and at 31 December the company had cash resources of £12.35m.

That looks like a reasonably healthy position to me at this stage in the company’s development, but medical progress can be painfully slow and we really can’t tell how long it will be (assuming a successful Phase III and eventual clinical approval) before sales start ramping up enough to achieve profits.

So Futura Medical is still a risky investment, but if you can live with that I’d say it’s one of the more promising of its kind that I’ve seen recently.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.