2 cheap, high-yield growth stocks I’d buy

These two shares could offer a mix of capital growth and dividend appeal.

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Finding shares which offer a mix of capital growth and income potential at a low price is tough. Usually, stocks fall into either ‘income’ or ‘growth’ categories. Those which fall into both tend to trade on premium valuations. However, that is not always the case. There are some affordable stocks which offer a mix of value, capital growth and dividend potential. Here are two prime examples which could be worth buying for the long run.

Upbeat prospects

Reporting on Tuesday was challenger bank Virgin Money (LSE: VM). The company’s profitability, earnings and underlying return on tangible equity were all in line with expectations in the third quarter of the year. It had a 3.5% market share of the gross mortgage lending market, while net mortgage lending of £3.2bn gave it a market share of 10%. The company has seen continued stable credit performance across mortgages and cards, with it reaffirming guidance for the full financial year.

Looking ahead, Virgin Money is expected to record a rise in its bottom line of 24% in the current year, followed by additional growth of 6% next year. Despite a positive outlook, it trades on a price-to-earnings (P/E) ratio of just 8.2 and this suggests that it offers a wide margin of safety at the present time.

Furthermore, the company is expected to increase dividends by 25% over the next two financial years. This may put it on a forward dividend yield of just 2.1%, however dividends are due to represent just 17% of profit in 2018. This means that dividend growth could remain at high levels over the long run. This could turn Virgin Money into a desirable income stock and mean that it has a mix of income and growth potential for the long term.

Investment potential

Also offering a bright future for investors is Aldermore (LSE: ALD). The lender has recorded a rise in its share price of 86% in the last year, with some of that growth coming in recent days as a potential offer being made for the business by FirstRand has been announced. While there is no guarantee that an offer will be made, the board of Aldermore has indicated that it would be likely to recommend a firm offer at the current level.

Of course, it appears to be cheap at its current share price. The company trades on a P/E of just 9.8 and is forecast to post a rise in its bottom line of 23% in the current year. And with dividends due to rise by 183% next year, it appears to have significant income appeal for the long run.

Certainly, the outlook for the UK economy is uncertain. Brexit talks are slow and this theme may continue, with there being a potentially negative impact on confidence among businesses and consumers. However, with such a low valuation and bright earnings, as well as dividend growth prospects, the company could be worth buying for the long term.

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 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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