£2k to invest? I’d forget the Cash ISA and buy this FTSE 250 dividend growth stock

Forget about Cash ISAs. Royston Wild would splash the cash on this income hero instead.

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There was quite a buzz around Cash ISAs during the final months of 2018. Banks and building societies were belatedly responding to Bank of England base rate hikes in the summer by raising the interest rates on their savings products, and it wasn’t wholly surprising to see savers rejoice given the pathetic returns that have been on offer from cash products over the past decade. However, interest rates still weren’t much to shout about late last year, and over the past few months, these increases have ground to a halt.

Right now the best Cash ISA rate currently on offer is 1.46% and offered up by Leeds Building Society (according to Moneysupermarket.com). This clearly isn’t the sort of product that’s going to make you chunky returns on your cash, and the situation is unlikely to improve any time soon as the weak UK economy likely encourages the Bank of England to hold off on raising benchmark rates.

Dividend exploder

Why accept such paltry rates when there are so many great dividend stocks out there waiting to pay you a fortune? Take 4Imprint Group (LSE: FOUR), for example.

The business, which manufactures pens, T-shirts, magnets and a broad range of paraphernalia for marketing purposes, doesn’t offer the biggest yields out there. For the current fiscal year and next, these sit at 2.3% and 2.6% respectively, some way below the large-cap average which sits at 4.5% (but still more than a Cash ISA).

However, the rate at which it’s hiked dividends in recent times — and is expected to continue doing so — should be enough to make any shrewd income seeker sit up and take notice. In 2018 4Imprint raised the total ordinary dividend 25% to 53.15p per share, and in 2019 and 2020 respectively rewards of 60.2p and 67.7p are anticipated by City analysts.

More special dividends too?

What’s more, it’s quite possible, given the rate at which 4Imprint’s profits are swelling and cash exploding, that it will keep paying special dividends as well (on top of that 53.15p per share ordinary dividend the firm paid a 43.17p supplementary dividend last year).

Revenues at the FTSE 250 firm exploded by almost a fifth in 2018, to $738.4m and pre-tax profits subsequently sailed 9% higher to $44.2m. 4Imprint has designs on driving sales through the $1bn milestone by 2022 and why wouldn’t it be so ambitious?

Chairman Paul Moody recently commented that “our market opportunity remains substantial.” Judging by the reception it’s received to recent TV advertising campaigns to improve brand awareness (steps that saw new customer numbers rising 14% last year and its customer service and back office operations pushed to breaking point) he’s not wrong.

Indeed, news that trading in the first few weeks of 2019 had been “encouraging” shows that conditions remain fertile enough for earnings at 4Imprint to keep rising. It’s why City brokers are expecting bottom-line rises of 19% in 2019 and 7% in 2020, figures I believe could be upgraded as the months roll by, given the strength of economic conditions in its core US territory and those marketing improvements.

A forward P/E ratio of 23 times makes the business expensive on paper, but for my money it’s worth every penny and, unlike a Cash ISA, could well make you a fortune in the years to come.

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 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

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »