2 cheap dividend growth stocks I’d buy as the economy sinks

I’m searching for the best bargains to buy following recent market volatility. Here are two top dividend growth stocks I think could be too cheap to miss.

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I’m still searching for the best dividend growth stocks to buy as economic conditions worsen. Fresh trading news from pawnbroker H&T Group (LSE: HAT) today suggests that this could be the share I’ve been looking for.

Pledge loans are loans that are secured against a customer’s high-worth possessions. And H&T saw its pledge loan book rocket to a record £84.2m as of June, up 74% year-on-year as the cost-of-living crisis worsened

Pawnbrokers face competition from financial services businesses like banks and doorstep lenders. But this business is thriving, and lending is now 40% above pre-pandemic levels.

Splendid all-round value

H&T’s share price has slumped in spite of its proven strength in tough times. As a keen dip-buyer, I think this represents a terrific buying opportunity.

In fact this AIM business offers exceptional bang for my buck at the current price around 330p. City forecasters think earnings at the firm will soar 109% in 2022 and rise an extra 27% next year.

Some large dividend increases are predicted as a result. Payouts of 14p and 18p are anticipated for 2022 and 2023, respectively, which produce fat yields of 4.4% and 5.5%.

Finally H&T trades on a forward price-to-earnings (P/E) ratio of just 10 times.

Another top dividend stock

I think buying some solid defence shares is a good idea for investors too. This isn’t just because government spending on weapons remains solid during all points of the economic cycle.

It’s also because arms expenditure is picking up as the geopolitical landscape deteriorates. Prime Minister Boris Johnson’s announcement on Friday that Britain’s defence spending will reach 2.5% of GDP by 2030 illustrates this line of thinking.

I’d buy Babcock International Group (LSE: BAB) shares right now to capitalise on these themes. The FTSE 250 firm sells a broad range of products and services over land, air and sea. These include everything from providing refuelling services for jets to manufacturing electrical systems for boats.

Payouts to return

I’d buy Babcock today, despite the threat of prolonged supply chain problems denting profits, and particularly because of the excellent value it offers at current prices around 318p per share.

City analysts think the firm’s earnings will soar 19% year-on-year the financial year to March 2023. And they believe annual profits will improve 20% next year as well.

These projections mean Babcock trades on a forward P/E multiple of just 9 times. They also mean the defence giant is tipped to grow the yearly dividend rapidly over the period.

Brokers think the business will pay a 9.8p per share dividend this year after stopping payments due to Covid-19. And they think the annual dividend will reach 14.7p next year. Consequently the yield leaps from a handy 3.1% to an impressive 4.6%.

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 considered so you should 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.

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