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Two FTSE 250 dividend plus growth stocks I’d buy and hold in my ISA

Today, shares in gaming company 888 Holdings (LSE: 888) are falling after the firm reported a drop-in pre-tax profit of 68% to $18.8m from $59.2m, as well as a cut in its full-year dividend payment to 15.5 cents per share, from 19.4 cents in 2016 and 15.5 cents in 2015.

While these figures are disappointing, I’m not that concerned about the company’s lack of profitability for 2017. Indeed, if we look at just the’s top line, revenue increased by 4% for the year to $541m. Some of the firm’s business lines grew faster than others, including sports betting revenue which soared 45% higher. 

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Overall, earnings before interest, tax, depreciation and amortisation increased 12% on an adjusted basis, and the group’s adjusted EBITDA margin rose to 19.5% at constant currency from 2016’s 17.3%.

One-off charge 

The reason why the company’s earnings suffered during the year was an exceptional expense of $50.8m of which $45.3m related to “potential past VAT matters” and $5.5m was incurred as part of a UK Gambling Commission settlement. These charges coupled with “regulatory developments” (relating to operations on the continent) have led management to conclude that it is prudent to reduce the payout for the year. 888 reported a net cash balance of $179m at year-end, so this move is not an indication that the group is struggling to pay off creditors.

And I believe that, as long as the VAT obligation does not increase in 2018, the company’s dividend will return to growth. City analysts expect the same, with payout growth of 10% pencilled in for 2018. Based on these projections the shares are set to support a dividend yield of 3.9% for fiscal 2018 and currently trade at a forward P/E of 20.3. 

Considering that 888’s earnings per share have grown by roughly 30% per annum over the past six years, I believe it’s worth paying a premium valuation to get your hands on the shares.

Steady utility growth

Another ‘dividend plus’ stock that I believe could be a great investment for your ISA is utility provider Telecom Plus (LSE: TEP). What makes this business stand out is the fact that over the past five years, while its peers in the utility sector have been struggling, Telecom Plus has gone from strength to strength. 

City analysts are projecting a net profit of £46m for fiscal 2018, compared to 2013’s reported figure of £27m. As the company continues to win over customers, City analysts expect earnings to grow by a further 10% in 2018.

Telecom Plus as always been a dividend champion and it doesn’t look as if this will change any time soon. The stock currently supports a dividend yield of 4.1% and the payout is covered 1.1 times by earnings per share. Analysts have pencilled in growth of 6% for 2019, giving a dividend yield of 4.3%.

The company’s interim results confirmed that it is on track to surpass City projections for growth for the year. To the end of September, revenue grew 2.6%, and earnings per share jumped 6%, which allowed management to increase the interim dividend payout by 4.3%. So if you are looking for steady dividend growth from a defensive telecoms business, this one seems to me to be a business worthy of further research.

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Rupert Hargreaves owns no share 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.