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Two bargain dividend stocks that should provide an income for life

Image: McCarthy & Stone: Fair use

With the UK population forecast to grow over the coming years, demand for housing is expected to increase significantly. Furthermore, the population is also ageing, and demand for retirement housing is also expected to rise. Similarly, spending on healthcare may also gradually increase for people of all ages in the long run. As such, investing in those types of industries could prove to be worthwhile. Here are two dividend stocks which may therefore be worth buying right now.

A difficult period

Reporting on Wednesday was retirement housebuilder McCarthy & Stone (LSE: MCS). Its half-year results showed that it faced a difficult start to the year, with trading constrained by the lower forward order book brought into the year. This resulted from the market uncertainty following the EU referendum, as well as the anticipated weighting of legal completions from higher margin sites into the second half of the year and the lower number of sales releases during the period.

As such, McCarthy & Stone’s revenue declined by 5% and its operating profit moved 23% lower. However, its future performance is expected to be significantly better. It is forecast to record a rise in earnings of 13% in the current year, followed by further growth of 27% next year. This shows that the long-term trend within the industry is positive, and also that the company’s current strategy is working well.

Despite this, McCarthy & Stone trades on a price-to-earnings growth (PEG) ratio of just 0.3. This indicates it offers a wide margin of safety, as well as capital growth potential. With a dividend yield of 2.7%, it may lack income appeal today. However, with dividends covered 3.2 times by profit and forecast to rise by 27% next year, it could quickly become a must-have income share for the long run.

Growth potential

Also offering dividend growth potential is social care company CareTech (LSE: CTH). It looks set to experience rising demand for its services as spending on healthcare continues to increase. Therefore, while its performance in the short run may be somewhat mixed, in future years it could prove to be a relatively solid growth play.

As with McCarthy & Stone, CareTech has a relatively low valuation. It trades on a price-to-earnings (P/E) ratio of just 10.6, which indicates that a wide margin of safety is on offer. And with growth in its bottom line forecast for next year, a gradual rise in its share price could be warranted.

With a dividend yield of 2.6%, CareTech may not be one of the highest-yielding shares around at the present time. However, with dividends covered 3.6 times by profit, the company should be able to raise shareholder payouts at a rapid rate without hurting its long-term growth potential. Its bottom line growth should also mean dividends can be moved higher, which could make it a strong income stock for the long term.

Finding the best dividend stocks

Of course, CareTech and McCarthy & Stone aren't the only companies that could be worth buying at the present time. With that in mind, the analysts at The Motley Fool have written a free and without obligation guide called Five Shares You Can Retire On.

The five companies in question offer upbeat income prospects and relatively wide margins of safety. Therefore, they could positively impact on your portfolio performance in 2017 and beyond.

Click here to find out all about them - it's completely free and without obligation to do so.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.