These 2 under-the-radar stocks have just hiked their dividends more than 10%

Harvey Jones says breakneck dividend growth points to a bright future for these two stocks.

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Dividends are not enough on their own, you also need dividend growth. Companies that regularly hike their payouts offer shareholders a rising income stream, while magnifying the compounding effect for those who reinvest their dividends for growth.

Relx, take it easy

The following two FTSE 250 firms have recently increased their dividends by well over 10%, which doesn’t just give investors a higher rate of income, but also suggests that both are in rude health. Yet they may easily have slipped under your investment radar.

Information service provider Relx (LSE: REL), formerly known as Reed Elsevier, has been a bundle of energy lately, its share price up 14% in the last year, and 178% over five years. In July, it posted a 14% rise in half-year revenues to £3.72bn, with adjusted pre-tax profit up 16% at £1.07bn. Better still, the board lifted its dividend by a thumping 14% to 11.70p per share.

Analyse that!

Relx has worked hard to offset the slide in revenues from traditional print publishing by developing sophisticated information-based analytics tools for a range of professional and business customers, boosting returns and driving more predictable revenue streams.

It has also rewarded shareholders with £500m worth of share buybacks in the first half of the year, and plans to deploy a further £200m in the second half. Its dividend is hardly the biggest on the FTSE 250, with a forecast yield of 2.3%, but it is handsomely covered 2.1 times, and as we have seen, management is highly progressive. Last year it increased the payout 21%.

Dividend delight

Earnings per share growth is forecast to be a steady 12% in 2017, and 7% in 2018. By then, the yield is forecast to hit 2.6%. My only concern is that Relx is a little expensive, trading at a forecast 20.9 times earnings, although this also suggests that shareholders know a good thing when they see one. Maybe one to buy on a market dip?

Sanne Group (LSE: SNN) also promises even more dividend fun. The stock only floated in 2015 so its track record is short, but impressive. The share price is up 64% over the past 12 months, and 175% over two years. Since launch the share price has leapt from 200p to Friday’s 781p. The dividend has been growing at a breakneck pace as well.

Sanne decision

Sanne provides outsourced administration, reporting and fiduciary services to financial institutions and corporates around the world, and reported a dizzying 525% revenue growth in March. It then generously hiked its full-year from 7p to 9.6p, a rise of more than 37%. On Thursday, it posted a 104% rise in revenues to £56.3m with underlying operating profit up 109% to £21.5m. The board lifted the interim half-year dividend by an almost-as-generous 31% to 4.2p.

Sanne now has a forecast yield of 1.8% and although you can get fatter income streams elsewhere, you will find few growing as fast as this one. With EPS forecast to rise a whopping 36% in 2017 and 14% the year after, there is potential for further growth. Yes its forecast valuation of 31.7 times earnings is heady, but a strong pipeline and successful acquisitions make it easy to justify.

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.

Harvey Jones has no position in any of the 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.

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