Two great FTSE 250 income stocks that could double their dividends

Edward Sheldon looks at two stocks in the FTSE 250 (INDEXFTSE: MCX) that are lifting their dividends regularly.

| 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.

Stack of new bank notes

Image source: Getty Images.

While dividend growth at the top end of the market has been subdued in recent years (companies such as Royal Dutch Shell, GSK and HSBC haven’t raised their payouts in years) there are plenty of mid-sized companies in the UK that are lifting their dividends at a healthy rate. They also have the financial firepower to keep increasing their payouts in the future. 

Here’s a look at two FTSE 250 stocks that I believe could double their dividends in the coming years.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

OneSavings Bank

Investors love it when a company lifts its dividend significantly and one that’s doing exactly that is challenger bank OneSavings Bank (LSE: OSB). Since its 2014 IPO, the company has paid divis of 3.9p, 8.7p, 10.5p and 12.8p per share, meaning that the group has lifted its payout by 228% in the space of just three years. Can the dividend growth continue?

The bank released half-year numbers yesterday and, for income investors, there was more good news. Thanks to net loan book growth of 11% and a 17% increase in profit before tax for the half year, the group decided to lift its interim dividend by another 23% to 4.3p per share. Looking ahead, analysts expect a payout of 14.6p per share for the full year, which translates to a prospective yield of 3.4% at the current share price.

One thing I really like about OSB’s dividend prospects is the amount of dividend coverage the bank has. Earnings per share this year are forecast to come in at 53.3p per share, which would provide dividend coverage of a very healthy 3.7 times on the estimated payout of 14.6p. In other words, profits could halve here and the dividend would still look sustainable.

Of course, as a UK bank that focuses on the buy-to-let market, there are risks to the investment case. For example, yesterday’s results showed an increase in the bank’s loan loss ratio as growth in property values slowed. Yet overall, OSB appears to have momentum at present, and I envisage further dividend growth from the bank in the coming years.

Bellway

Housebuilder Bellway (LSE: BWY) is another company that appears to have strong dividend prospects and the potential to double its payout in coming years. The group has registered some of the highest dividend growth across the entire FTSE 350 index in the recent past, and has paid out 52p, 77p, 108p and 122p per share between FY2014 and FY2017. That represents a compound annual growth rate (CAGR) of an incredible 33%.

Bellway looks well placed to keep rewarding investors with big dividends, in my view. In a recent trading update, the group announced that it had just built 10,000 homes in a year for the first time in its 70-year history and that revenue for the period was up around 16%. As such, City analysts are expecting the group to lift its dividend by another 13.2% to 138.1p per share (a prospective yield of 4.7%) when it reports full-year results on 16 October.

Like OneSavings Bank, Bellway has a high level of dividend coverage, with analysts expecting earnings to cover this year’s payout approximately three times. While it’s worth keeping in mind that housebuilding is cyclical and that dividends could dry up if the UK’s housing market crashed, I think Bellway’s dividend has plenty of room for future growth given current market dynamics.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Edward Sheldon owns shares in Royal Dutch Shell. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended HSBC Holdings. 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.

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.

More on Investing Articles

Lady researching stocks
Investing Articles

Here’s why I’m avoiding this dirt-cheap dividend penny stock!

A dirt-cheap, dividend-paying penny stock with a vast presence sounds good on the surface. This Fool isn't convinced, however.

Read more »

Asian Indian male white collar worker on wheelchair having video conference with his business partners
Investing Articles

These top income stocks look dirt cheap to me. I’d buy them now

I'm taking advantage of today's stock market weakness to load up on top value income stocks

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

Excessive stock trading erodes long-term gains!

Are high trading fees eating away at your returns? Research suggests that excessive stock trading could be to blame.

Read more »

Young woman sat at laptop by a window
Investing Articles

Pearson shares are up 25% since the market correction! Should I buy now?

Why have Pearson shares rallied since the market correction? This Fool looks at the educational provider in more detail and…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Recession ready! I’d buy these FTSE 100 stocks for tough times

Jon Smith explains some of his favourite options for defensive FTSE 100 stocks that he's thinking of adding to his…

Read more »

A graph made of neon tubes in a room
Investing Articles

Down 45%, are these UK shares no-brainer bargains right now? 

Several top UK shares are down significantly and two companies on my list look like possible attractive buys right now.…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

I bought these 2 FTSE 100 shares two years ago. Should I now add to them?

Andrew Woods asks if he should add to his current holding in these two FTSE 100 shares ahead of a…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Has the Deliveroo share price bottomed?

The Deliveroo share price (LON:ROO) is down nearly 60% in 2022. Paul Summers asks whether it's now hit bargain territory.

Read more »