Inflation could be set to pose significant challenges for long-term investors. Already, it has reached 3% and this means that a wide range of investments offer a negative real yield. As such, finding stocks that can offer a dividend yield in excess of inflation, as well as strong dividend growth potential, could help investors beat a rapidly-rising price level.
The threat of inflation is the key reason why this ‘secret’ dividend growth stock could be a better buy than Motif Bio (LSE: MTFB). That’s despite the biopharmaceutical company’s encouraging progress and strong long-term growth potential.
The ‘secret’ dividend growth stock in question is Ocean Wilsons (LSE: OCN). The company is engaged in the provision of maritime services and logistics in Brazil, and issued a positive third quarter update on Monday. It showed that the company was able to increase revenue by $3.9m to $129.4m versus the same period of the prior year.
Port terminal and logistics revenue was 16% higher. This was mostly due to higher container terminal revenue. The latter was positively impacted by increased container movements as well as higher import revenue. Container volumes in the period were up 7%, with higher transhipment volumes being a key reason behind this growth. Towage and ship agency revenue for the quarter was 3% lower than in the prior year, although in the first nine months of the year the company’s total revenue moved 10% higher when compared to the prior year.
With a dividend yield of 4%, Ocean Wilsons appears to have income appeal at the present time. Its income return is likely to remain ahead of inflation over the coming years, which may make it highly attractive to a number of investors. However, it is the company’s potential for dividend growth which could make it even more enticing. It has a dividend coverage ratio of 1.9, which suggests that dividends could grow at a faster pace than profit in the long run without hurting its ability to reinvest for future growth.
Capital growth potential
As well as its dividend growth prospects, the company could also offer high capital growth. It trades on a price-to-earnings (P/E) ratio of just 13.3, which indicates it may offer good value for money.
Of course, Motif Bio also has high capital growth prospects. The company appears to be making encouraging progress with its clinical trials, and according to its most recent update it has been able to deliver on time its key milestones in the current year. Furthermore, positive top line results from its REVIVE-2 clinical trial show that it could offer improving financial performance in the long run. And with a recent placing, the company appears to have sufficient cash resources to deliver on its growth plans.
Certainly, Motif Bio is a stock with growth potential. The healthcare sector could offer less highly correlated returns at a time when the outlook for the wider stock market is uncertain. As such, it appears to offer investment appeal. However, with Ocean Wilsons having dividend growth potential while inflation moves higher versus no dividend payment for Motif Bio, it could be the better buy at the present time.
Peter Stephens 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.