The Motley Fool

These promising dividend growth stocks could help you retire early

Finding shares with high yields is not a particularly challenging task. However, unearthing companies which offer the potential for rising dividends can be more difficult. That’s at least partly because they are dependent upon a range of factors, including earnings growth, financial strength and operating conditions. However, here are two shares which seem to offer scope for dividend growth as well as capital gain potential in the long run.

Interim update

Reporting on Wednesday was software and IT services business Sanderson Group (LSE: SND). It delivered a rise in revenue of over 10% versus the same period of last year, with pre-contracted recurring revenues up to £5.4m from £5.2m in the first half of last year. They now account for around half of total revenue and show that the focus on fostering long-term customer relationships is bearing fruit.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Operating profit was 5% higher, while net cash at the period end was up to £4.5m from £3.4m at the same point last year. The company raised dividends by 10%. While this was ahead of profit growth, Sanderson Group still has a dividend coverage ratio of 2.1. This suggests that dividends could increase at a faster pace than earnings without putting the company’s financial position under pressure over the medium term.

Looking ahead to next year, Sanderson Group is expected to record a rise in its bottom line of 6%. This could help to boost dividends yet further, and they are expected to increase by over 10% next year. While this puts the company on a modest forward dividend yield of 3.5%, more dividend growth could make Sanderson a relatively attractive income share for the long run.

Growth potential

Also offering upbeat growth potential is escrow and assurance service provider NCC (LSE: NCC). Its dividend yield of 2.8% is also below that of the FTSE 100, but the company is expected to deliver improving earnings growth over the next two years. This could act as a positive catalyst on shareholder payouts.

For example, NCC is forecast to record a rise in earnings of 16% per annum over the next two years. Given that it has a dividend coverage ratio of 1.6, this could lead to a fast-paced dividend growth outlook. In fact, shareholder payouts are expected to rise at an annualised rate of 8.6% over the course of the next two years. This rate of growth is likely to be above and beyond the rate of inflation, which could make NCC a more popular income share.

As well as its income prospects, NCC also offers clear upside potential. It has a price-to-earnings (P/E) ratio of 23, which, when combined with its growth outlook, translates into a price-to-earnings growth (PEG) ratio of just 1.4. Given the company’s track record of growth and the sound business model which it has adopted, now could be the right time to buy it for the long term.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK owns shares of NCC. 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.