2 dividend growth stocks I’d buy right now

The two companies I’m going to look at today have increased their dividends by an average of at least 24% each year since 2012.

Shareholders in my first company have seen their payouts increase by 200% since 2012 but my second firm has performed even better, delivering dividend growth of 256% over the same period.

Posh profits

Walker Greenbank (LSE: WGB) produces luxury wallpaper and fabrics for upmarket homes. The company’s British style attracts affluent buyers in markets all over the world. Last year, 30% of brand revenue came from Western Europe, 33% from the U, and 15% came from the Middle East and Asia.

The group said on Wednesday that brand sales have risen by 4.5% since the start of February. Europe and the US are outperforming the UK, where sales have been fairly flat. Despite this, chairman Terry Stannard said that both of the firm’s manufacturing sites have seen a “noticeable increase in export orders from new customers” and have “improving order books”.

Mr Stannard cautioned that it was “too soon to predict the strength of this trend”. Walker Greenbank could certainly suffer if a US or European recession hit spending among affluent customers. However, as yet there’s no sign of this. Management expects full-year results to be in line with expectations.

Broker forecasts suggest that Walker Greenbank will generate adjusted earnings of 15.4p per share this year, putting the stock on a forecast P/E of about 13. An 18% dividend hike is expected, pushing the payout up to 4.3p and implying a yield of 2.1%.

The stock looks affordable to me. The only risk is that market caution about consumer spending will continue to put pressure on the shares, which have lagged the market over the last couple of years.

A Brexit buy?

Kitchen manufacturer Howden Joinery Group (LSE: HWDN) was a big casualty of last year’s post-referendum sell-off. However, unlike housebuilding stocks, Howden hasn’t yet recovered. The group’s shares are still worth 15% less than they were before the UK voted to leave the EU.

There are two main risks for investors in the firm. UK consumer spending could slow, reducing demand for kitchens. A second more complex issue is that the weaker pound will affect the costs of the group’s raw materials and finished products, many of which are imported.

Like Walker Greenbank, Howden shares have performed poorly over the last couple of years. But for investors who believe the UK economy is likely to remain in reasonably good health, I believe this could be a buying opportunity.

Howden has achieved an impressive 18% operating margin in each of the last two years. Return on capital employed has averaged 43.7% since 2011, which is extremely high. This has enabled the group to fund its expansion without debt.

Its operations are extremely cash generative and the dividend has been covered comfortably by both earnings and free cash flow in recent years. An ongoing £80m share buyback should provide further support for the share price and dividend.

With a forecast P/E of 15 and a prospective yield of 2.6%, I believe Howden Joinery could be worth a closer look at current levels.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Howden Joinery Group. 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.