2 growth and dividend stocks that could lead you to a wealthy retirement

A combination of growth and dividends could be the perfect answer to your retirement questions.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Pensions specialist Xafinity (LSE: XAF) listed on the London Stock Exchange in February, and there has been very little overall change in its share price since then — a rise of 1.3% as of Tuesday, but with a drop after Wednesday’s full-year results the shares are now down an overall 3.4%.

It’s tricky to evaluate this set of figures, as it’s blighted by one-off IPO items — which is what led to the pre-tax loss of £12.8m after a profit of £3m in 2016.

But adjusted earnings per share of 8.1p, up 4%, suggests a P/E of a little over 20, implying there’s significant growth built in to the current share price — and I think that growth potential is there.

£50m raised from the flotation was used to repay some existing debt facilities, dropping the debt figure to £33m immediately after flotation, from £86m. And since then it’s been reduced further to £28m. That’s 1.6 times adjusted EBITDA, and does not look onerous.

Pensions freedom

National Pension Trust assets under management rose by around 67%, and the firm was “awarded a trivial commutation mandate on a FTSE30 client with an £11bn scheme“. Xafinity also signed up eight new clients, and clients should get hold of the firm’s newly-developed pensions modelling software during the current year.

Liabilities afflicting the nation’s defined benefit pension schemes, together with increasing demand for alternative opportunities for transferring defined contribution schemes, should provide a fair bit of momentum for firms like Xafinity, which provide both de-risking services and Master Trust pension schemes.

That suggests to me that we’re looking at a decent growth opportunity — especially with worthwhile dividends expected to kick in from next year.

Outsourcing profits

Turning to a far longer established company, shares in Bunzl (LSE: BNZL) are up 3.6% at the time of writing, following an upbeat trading statement.

The distribution and outsourcing group reckons its first-half revenue should be up around 7% at constant exchange rates (with an extra 12% due to currency movements), due to a combination of underlying growth of 3%-4% coupled with the effect of acquisitions.

Acquisitions are “an important part of the company’s strategy for growth“, with the firm also announcing the takeover of three new businesses in Spain and Canada — that’s eight new businesses snapped up so far this year for a total of around £290m, adding an extra £370m to annual revenue.

The shares are on a forward P/E of around 20 now, which is arguably modest for company with significant growth potential, but I’m also attracted by what I see as a hidden income opportunity too.

Deceptive dividend

Bunzl’s dividend yield might look deceptively low at only around 2%, but it’s been strongly progressive over the past few years. Forecasts suggest the rate of rise should slow a little but still keep comfortably ahead of inflation, and I think progressive long-term growth is more important than a higher-but-static yield today.

If you’d bought some shares near the end of 2012 at around 924p, you’d now be looking at an effective forecast dividend yield of 4.9% on your original purchase price — and you’d have enjoyed a share price appreciation of approximately 150%.

Overall, I see Bunzl as a company offering a solid and well-managed business where acquisition is a desirable strategy, and capable of providing an attractive stream of returns through capital growth and income.

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 assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any 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.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »