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Vodafone Group plc isn’t the only dividend stock I’d buy with £1,000

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The dividend appeal of Vodafone (LSE: VOD) continues to increase. The company has been able to generate improving financial performance under its current strategy, and this is set to create the potential for dividend growth in future years.

However, it’s not the only dividend stock that could be worth buying today. Reporting on Wednesday was a FTSE 250 property investment company that could generate a high income return for its investors over the long run.

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Improving performance

The company in question is CLS Holdings (LSE: CLI). It released full year results for 2017 which showed that it was able to generate a rise in profit before tax of 91.2%, with it increasing from £100.1m in the previous year to £191.4m. Its overall financial performance was boosted by the sale of the Vauxhall Square development for £144.1m. This contributed towards proceeds of disposals on properties across the UK of £170m, while a further £32m of disposals were made in Germany and France.

During the year, CLS was able to reduce its weighted average cost of debt by 40 basis points to 2.51%. This is 269 basis points lower than its net initial yield of 5.2% and could provide it with improving financial performance in the long run.

With a dividend yield of 2.7%, CLS may not be the highest-yielding share in the FTSE 350. However, with its bottom line due to rise 11% this year and by a further 6% next year, it could deliver strong dividend growth over the medium term. And with its net asset value per share rising by 16.5% in 2017, its total return potential appears to be high.

Upbeat outlook

Clearly, Vodafone is likely to appeal to investors given its dividend yield stands at 6.5%. However, the company could also deliver high dividend growth in future years. The reason for this is the high profit growth forecasts which are in place for the business. It is due to deliver a rise in earnings of 11% in the next financial year, followed by additional growth of 24% in the 2020 financial year.

Such strong growth in profitability is expected to prompt a rise in dividends of 6% over the next two years. This puts the stock on a dividend yield for the 2020 financial year that is around 7%. Given the sustainability and diversity of the business, this would represent an excellent income return for investors.

Furthermore, the growth potential of Vodafone may create demand for its shares among growth investors. With a strategy that is focused on investment in its long term product offering within what remains a lucrative quad play industry, the prospects for the business seem to be positive. Therefore, the total returns on offer from the stock could be high, while its risk/reward ratio appears to be highly enticing for the long term.

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Peter Stephens owns shares in Vodafone. 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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