The UK market is filled with dividend stocks that pay out handsome rewards. But every once in a while, a rare sight emerges. What if a dividend stock could also be capable of enormous growth? This week I’ve spotted two companies that I believe could do that, one of which is already in my portfolio. Let’s explore.
Of all UK dividend growth stocks, is this the best?
Somero Enterprises (LSE:SOM) is a company I’ve explored before. But as a reminder, this business designs and manufactures concrete-laying screed machines. That’s hardly the most exciting business out there. But by accelerating and partially automating a good chunk of the construction process, Somero has quickly become a leader within its space.
Over the last 12 months, the stock is up over 35%. And looking at its latest trading update, it’s not hard to see why. Total revenue for 2021 is expected to come in at around $133m (£98m). That’s 50% higher than a year ago and 49% higher than pre-pandemic levels. Moreover, underlying earnings are also anticipated to smash previous guidance, jumping by 83% to $48m (£35m)!
As growth goes, these are some pretty exciting figures. And topping it off with a 4.5% yield makes Somero Enterprises potentially one of the best UK dividend growth stocks to buy today. At least, that’s what I think.
Having said that, there are always risks to consider. While the business may have carved out a pretty wide moat against competitors, it can’t do much against the weather. Laying concrete in the rain compromises its strength. So, if the weather takes a turn for the worse, as recently, the group’s growth and dividends could become compromised as construction projects are delayed.
The firm suffered through such a scenario in 2019. But while it will undoubtedly happen again in the future, management has a big chunk of cash at its disposal should bad weather interrupt operations. That’s why I still believe increasing my existing stake in this dividend growth stock could be a lucrative decision in the long run.
Becoming a landlord without a mortgage
Warehouse REIT (LSE:WHR) acquires and revamps dilapidated old warehouses in prime locations. It then rents them out to businesses like Amazon and Screwfix at a higher price, returning the profits to shareholders through a 4% dividend yield.
There are plenty of other UK stocks that offer a similar passive income. But what makes Warehouse REIT far more interesting, in my opinion, is its growth capability.
With e-commerce adoption accelerated by the pandemic, demand for ideally placed warehouse space is surging. And consequently, the price per square foot is doing the same. So, I’m not surprised to see that in its latest half-year results, revenue and operating profits surged by 49% and 55%, respectively.
But it does come with its fair share of risks. The increase in demand hasn’t gone unnoticed by the competition. And as other warehouse operators seek to capitalise on the opportunity, supply might eventually meet demand, sending rental prices down.
Regardless, with e-commerce expected to continue trending upward, I don’t think the demand for prime-location warehouse space will disappear. That’s why I think Warehouse REIT could be one of the best UK dividend growth stocks to add to my portfolio today.
