The FTSE 250 is a collection of stocks that includes some innovative and exciting companies. Every so often, I like to scan the index to find stocks to buy and hold for the long term. I think I’ve found two that demonstrate strong historical growth and may enjoy favourable future conditions. Why do I think these shares may be good for me to purchase with a spare £1,000? Let’s take a closer look.
A FTSE 250 homewares firm
The first company is Dunelm (LSE:DNLM), a homewares retailer. It sells just about all the home and garden furnishings consumers might need at ‘affordable’ prices.
For the year ended July, between 2017 and 2021, it showed sustained growth. During this period, revenue increased from £955m to £1.3bn.
In addition, profit before tax grew from £92.4m to £157.8m. In a similar vein, earnings-per-share (EPS) rose from 43.1p to 63.7p. By my calculation, this means Dunelm has a compound annual EPS growth rate of 8.1%. That’s both strong and consistent.
In January, the business announced that it was lifting profit guidance for the year ended July. Furthermore, for the three months to Christmas 2021, sales grew 13% year on year.
In February, Dunelm stated that it would pay an interim dividend of 14p per share. This was an increase from 12p the previous year. It’s good to know that I could also earn passive income by holding this stock.
But there’s a future risk of cost inflation that may increase the price of the raw materials used in the company’s products, and supply chain issues may mean stock availability problems for big-ticket items.
A high street baker
The second firm is Greggs (LSE:GRG), a food retailer specialising in baked goods. Between the 2017 and 2021 calendar years, EPS grew to 115.7p from 64.5p. Revenue for this period rose from £960m to £1.2bn.
In addition, profit before tax increased from £71.94m to £145m. This is especially strong, considering that the business swung to a £13.7m loss in 2020. This was chiefly because of store closures during the pandemic.
It should be noted, however, that past performance is not necessarily indicative of future performance.
Like Dunelm, Greggs is also vulnerable to wage and cost inflation pressures. This may affect the price of ingredients for the baked goods and possibly higher pay for employees. These pressures may potentially eat into future balance sheets.
For the 2021 calendar year, sales were up 5.3% when compared with 2019 and in March, the company announced a final dividend of 42p per share. Furthermore, it declared a 40p special dividend. The business paid no dividends in 2020.
Overall, I like both of these businesses. Although they exhibit strong historical growth, they’re not immune from future inflation pressures. I think that these problems will eventually subside, but I will wait a little longer before using my spare £1,000 to buy some shares as there may be further downward price movement in the near term.
