Some of the best dividend growth stocks are to be found in the mid-cap FTSE 250 index, in my view. With this in mind, three stocks I’d be happy to buy for 2020 are National Express (LSE: NEX), Primary Health Properties (LSE: PHP), and Big Yellow (LSE: BYG). Let me tell you about their dividend records and prospects.
Dividends keep rolling
National Express will be best known to UK investors for its nationwide coach network. It’s the only one in the country and gives NEX a dominant position. However, international expansion – almost 80% of revenue now comes from overseas – has been boosting earnings and dividend growth for many years. And I think this can continue for many years to come.
Following a strong first-half performance in the current year, with the board again demonstrating “confidence in our future growth with another 10% increase in the interim dividend,” the group reported continuing momentum in Q3, “with all divisions growing revenue and profit.”
A forecast full-year dividend of 16.34p – covered a rock-solid 2.2 times by forecast earnings of 35.34p – is 10% ahead of last year, and 59% higher than the payout of five years ago. At a share price of 448p, the dividend yield is an attractive 3.6%, while the earnings multiple of 12.7 is undemanding, in my view.
Real estate investment trust (REIT) Primary Health Properties is a leading investor in modern primary health facilities in the UK, and has also expanded into the Republic of Ireland in recent years. A merger with peer MedicX earlier this year has further increased its scale, and a subsequent £100m placing is helping the group pursue “a strong pipeline of opportunities.”
As a REIT, PHP is obliged to distribute most of its earnings as dividends. A 5.6p payout (up 3.7% on last year) from earnings of 5.7p is expected this year. Despite the low cover imposed by the REIT regime, PHP has an outstanding record of 22 consecutive years of dividend increases.
At a share price of 148p, the prospective dividend yield is 3.8%. The earnings multiple of 26 is relatively high, compared with some property companies. However, I think the premium is justified in a sub-sector known for its stability, where the rent-roll is largely backed by government bodies.
Fellow REIT Big Yellow is in a very different property sub-sector to PHP, but one I think is equally attractive. As my colleague Royston Wild discussed ahead of the company’s recent half-year results (which saw continued “growth in revenue, cash flow and profit”), multiple social and demographic factors are driving rising demand for self-storage. This comes from both business and personal customers, with what PHP describes as a “diversity of … reasons for using storage.”
BYG’s forecast dividend of 34.4p, covered 1.25 times by forecast earnings of 42.9p, is 3.6% ahead of last year, and – like National Express’s – 59% higher than the payout of five years ago. At a share price of 1,119p, the yield is 3.1%.
The company’s earnings multiple of 26.1 is – like Primary Health’s – relatively high. But I think the drivers for growth in the self-storage market, and BYG being the brand leader in it, make the premium merited, and the stock good value.
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.
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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Primary Health Properties. 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.