What kind of shares should you buy for your Self-Invested Personal Pension (SIPP)?
In my view, a good choice is to focus on mid-cap stocks that can deliver a good mix of growth and income. Left alone, investments like this can often multiply in value over the years, as their proven business models generate reliable repeat profits.
Today I’m looking at two FTSE 250 dividend growth stocks I’d consider for a SIPP.
Major new growth opportunity
The share price of gaming group GVC Holdings (LSE: GVC) has risen by more than 30% over the last year. One reason for this excitement is that the legalisation of US sports betting has created a massive opportunity for UK groups with experience in this area.
In today’s half-year results, chief executive Kenneth Alexander was keen to stress that the company’s US partnership with MGM Resorts “puts the group in the best possible position” to profit from this potentially large growth opportunity.
Right now, US profits are still in the future. Fortunately, today’s figures show that GVC’s UK business is performing quite well, following this year’s acquisition of Ladbrokes Coral.
This bold deal has tripled revenue and profits. But even on a pro forma basis — as if Ladbrokes Coral had always been part of GVC — revenue rose by 8% to £1,717m, while underlying operating profit climbed 17% to £277.9m.
Why I’d buy
During the first half of the year, GVC’s online operations generated a 19% rise in sports-betting revenue and a 13% increase in gaming revenue.
Management expects to carve out £130m of cost savings from the integration of Ladbrokes Coral. Delivering this should help to improve the profitability of the group’s high street bookies, which have come under pressure following the government’s crackdown on fixed-odds betting terminals.
Alongside this, the US market appears to offer a big growth opportunity. Against this backdrop, I think GVC’s forecast P/E of 13.6 and dividend yield of 3.3% look like a good entry point for long-term growth.
This legend should bounce back
Shares of Domino’s Pizza Group (LSE: DOM) are worth nearly five times more than they were 10 years ago. And investors who picked up the stock in September 2000 are now sitting on a profit of more than 4,500%.
Despite this, the group’s progress has slowed recently. Domino’s share price has fallen by more than 25% since early June, due to concerns over international growth.
While the UK business remains a money-spinner — system sales rose by 8.1% to £565m during the first half of the year — international growth has been slower. Pre-tax profit for the group fell by 9.7% to £41.7m during the six months to 1 July, while net debt rose by £121m to £182m.
Insider unrest
There are other concerns too. Domino’s has lost three finance directors in the last three years. And according to recent press reports, some of the group’s largest UK franchisees (who own and run Domino’s stores) are unhappy with the firm’s approach to cost sharing.
These factors could combine to slow growth and put pressure on profit margins.
However, this remains a very profitable business, with an operating margin of 13.9% over the last 12 months. I suspect the firm’s growing pains will gradually be resolved.
With the shares now trading on 17 times 2018 earnings and offering a 3.3% yield, I’m starting to get interested.
