For many investors, buying a stock that has risen sharply in recent months may not seem like a great idea. After all, it could indicate a narrow margin of safety and a valuation that’s excessive. However, it could also mean that a company’s financial outlook has improved, or that it is becoming popular among investors due to changes in the economic outlook. With inflation moving higher, the following two dividend growth stocks could see their share prices continue the upward trends recorded in 2017.
Ambitious strategy
Multinational sports betting and gaming group GVC (LSE: GVC) reported upbeat results on Thursday. They showed that the company’s ambitious growth strategy is working well. The acquisition of bwin.party in February 2016 boosted the company’s performance last year. The integration has proved successful so far, with improved stability and a wider product offering helping GVC to post improving financial performance.
In fact, its revenue increased by 8% and EBITDA (earnings before interest, tax, depreciation and amortisation) moved 26% higher. It expects more positive performance this year, with earnings forecast to move 72% higher. This is due to be followed by growth of 25% in 2018, which means the company’s dividend could be set for a rapid rise. GVC is due to yield as much as 4.2% in 2018, with dividend growth beyond next year highly probable as a result of the dividend being covered almost two times.
While the gaming sector is undergoing a period of rapid change, GVC seems to have the right strategy to cope. Further synergies from the bwin.party acquisition should help to boost its performance, while a diversified business model should help it to overcome any challenges posed by Brexit. Therefore, it seems to be a sound buy even after its 12% share price gain since the start of the year.
Reliable growth
Also making gains since the start of the year has been infrastructure products and galvanizing services specialist Hill & Smith (LSE: HILS). Its shares have risen by 7% in the year-to-date and, judging by the company’s reliable track record of growth, more gains could lie ahead.
In the last five years, Hill & Smith has increased its bottom line at an annualised rate of over 13%. This has allowed it to deliver a dividend increase in line with profit growth, due partly to the relatively consistent performance of the company. Its earnings have grown in each of those five years, and are forecast to do the same in 2017 and 2018. This should allow for further dividend growth over the medium term, since shareholder payouts are currently covered 2.5 times by profit.
While Hill & Smith may only yield 2.2% at present, its potential for rapid dividend growth could lead to improved investor sentiment as inflation edges higher. In addition, its price-to-earnings (P/E) ratio of 17.9 indicates fair value for money, given its relatively high chance of strong earnings growth in future.
