Two cheap dividend growth stocks that are outside the FTSE 100

Edward Sheldon looks at two dividend stocks outside the FTSE 100 (INDEXFTSE: UKX) that can be picked up at bargain valuations.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Many investors often stick to the FTSE 100 when building a portfolio of dividend stocks. And that makes sense, to a degree, as many Footsie companies are stable, well managed, and with excellent dividend track records.

However, the FTSE 250 index, which contains the largest 250 stocks outside the FTSE 100, also contains a number of dividend stocks that have strong track records and may be worth considering for a dividend portfolio. Here’s a look at two that are trading cheaply right now.

Bellway

Over the last five years, housebuilder Bellway (LSE: BWY) has been a dividend growth investor’s dream. Not only has the company lifted its payout from 20p per share to 122p, but shareholders have also enjoyed fantastic capital gains, with Bellway’s share price rising from around 1,300p to 3,370p, a gain of 160%. Are there more gains to come?

A trading update for the period 1 February to 3 June, released this morning, suggests that there certainly could be. The group advised that market conditions remain stable, demand for new homes is strong and that, for the full year, it’s on target to complete the sale of over 10,000 homes for the first time in its history and achieve another record year of earnings. At 3 June, the company’s order book stood at 6,144 homes, growth of 7.8% on last year. Executive chairman John Watson commented: “This has been another successful trading period for Bellway, in which the demand for new build homes remained strong, enabling the Group to continue delivering its long term and sustainable strategy of increasing shareholder value through responsible volume growth.

While it’s important to note that housebuilding is a highly cyclical business, in the near term, the prospects for investors look good, in my view. For example, City analysts currently expect Bellway to increase its dividend payout by 13% this year to 138p per share, which equates to a prospective yield of 4.1% at the current share price. With the stock trading on a forward P/E of just 8.1, I think this housebuilder is certainly worth a closer look.

Greene King

Another FTSE 250 dividend stock trading at an extremely low valuation is pub operator Greene King (LSE: GNK). The shares have been quite unpopular for much of the last 48 months, however, sentiment looks to be slowly improving. And with the World Cup only two days away, I think now could be a good time to consider the stock for its big dividend.

It’s worth noting that despite the cyclical nature of the hospitality industry, Greene King has increased its dividend every year since 1997, which is a fantastic achievement. Last year, the group paid out 33.2p per share in dividends, which equates to a high yield of 5.3% at the current share price. While the company does have a fair chunk of debt on its balance sheet, the dividend looks sustainable in my view, as dividend coverage last year was healthy at a ratio of 2.1 times.

The shares have jumped around 30% since a mid-April trading update in which the company advised that Easter sales were strong and that the group is “well placed to deliver long-term value to shareholders.” Yet the stock can still be picked up on a forward P/E of under 10 right now. I think that valuation looks attractive.

However, if neither of these stocks appeals to you, feel free to take a look at the free report below for more dividend stock ideas. 

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 considered so you should consider taking independent financial advice.

Edward Sheldon owns shares in Greene King. 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.

More on Investing Articles

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Are Warren Buffett and Michael Burry preparing for a stock market crash?

Warren Buffett has been holding off investing and Michael Burry has been selling stocks. Is this a sign that they’re…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

3 reasons why Rolls-Royce shares could be a big winner in 2023 

Rolls-Royce shares are up 12% since May 2022. And I think recent developments could propel the engineering firm to new…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Rolls-Royce’s share price is recovering! Time to buy?

Rolls-Royce's share price has clawed back ground after plunging earlier this month. Should I buy the FTSE 100 firm on…

Read more »

Happy couple showing relief at news
Investing Articles

I’d buy this FTSE stock to boost my passive income stream for years to come!

Jabran Khan is looking for stocks to boost his passive income and dissects one FTSE stock he currently likes.

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

Darktrace share price soars 20% on takeover news! Who could be next?

Takeover talks are in the air. Our writer considers several potential takeover targets following the Darktrace share price jump.

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

Here’s 1 growth stock I like for long-term growth and returns!

Jabran Khan delves deeper into a growth stock he is considering for his holdings to boost returns now and in…

Read more »

Road trip. Father and son travelling together by car
Investing Articles

This FTSE 100 stock could be perfect for dividends and growth!

This Fool is looking to boost his passive income stream with stocks that have growth prospects. Here’s one FTSE 100…

Read more »

Jumbo jet preparing to take off on a runway at sunset
Investing Articles

Should I be buying IAG shares today?

Since IAG reported its H1 results, its share price has been stagnant. So, should I buy its stock now to…

Read more »