An unknown dividend stock, priced under £10, that I think could make you a million

These dividend dynamos cost next to nothing and could make you an absolute mint, argues Royston Wild.

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Sausage casings manufacturer Devro (LSE: DVO) may have spooked investors recently on trading difficulties in Russia, the business suffering a bigger-than-expected impact from a weak ruble and tough economic conditions in that country.

But I think investors should make the most of the share price falls that happened around the time of November’s release and treat this as a buying opportunity. A growing global population is creating more mouths to feed, and particularly in emerging regions where Devro is spending big to expand its footprint, and of course which are territories where wealth levels are rocketing.

Sure, Russia may be problematic now, but the huge potential of Devro’s developing territories was underlined in November’s release in which it said in the four months from July 1 it had seen “strong volume performances” in particular in Latin America and South East Asia, as well as  North America.

Those problems in Russia haven’t dented City predictions of soaring earnings growth for the small-cap in the near-term and beyond. The number crunchers expect earnings growth of 19% for 2018, and for this to be followed with additional rises of 12% this year and 10% in 2020.

Meaty profits AND dividend growth

Devro’s share price dive to multi-year lows leaves it on a rock-bottom forward P/E ratio of 9.7 times, much too cheap in my opinion given the bright long-term demand outlook for its collagen products and the rate at which it is increasing capacity.

This is not the only reason to dive in, in my opinion. As I said, Devro is a share that is particularly suitable for those seeking exceptional income flows from their investment portfolios.

And expectations of solid profits growth mean that shareholder payouts are anticipated to keep marching northwards through to 2020, resulting in dividend estimates of 9.6p per share for this year — up from an expected 8.9p for 2018 — and 10.2p for next year. Such projections yield a monster 5.9% and 6.3% respectively.

Safe as houses

Another exceptional, and little known, dividend stock that can be bought today for under £10 is MJ Gleeson (LSE: GLE). It offers great value for money too, the housebuilder boasting an undemanding forward P/E ratio of just 12.4 times.

I’ve spoken long and hard about how construction stocks are unjustifiably cheap and unloved right now, and latest trading details from Gleeson deepened my resolve. It said last week that “strong demand for our low-cost homes” has continued, “supporting both increased build activity on existing sites and the opening of new sites across our target geographic area.”

It’s a performance that’s hardly a surprise given the massive homes shortage in Britain. A market imbalance that City analysts predict will deliver earnings growth of 6% in the year to June 2019 and 11% in the following fiscal period, and one that will keep dividends on a northwards path as well.

A projected 33.6p per share reward for this year yields 4.6%, and the dial moves to 4.8% for fiscal 2020 thanks to the predicted 35.3p dividend. During the past five years, shares in Gleeson have returned some 17% per year, meaning an initial £5,000 investment would leave investors sitting on a handsome £11,000 today. I believe that market conditions should remain favourable enough for it to keep on creating brilliant returns and this, added to the mighty impact that compounding brings, could make some investors millionaires if they hold on to the shares in the decades ahead.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Devro. 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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