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A FTSE 250 dividend bargain I’d buy with £2,000 today

When I last wrote about RPC Group (LSE: RPC) in February I lauded the environmental factors that are underpinning demand for the company’s portfolio of recyclable plastics.

Investor appetite has still failed to kick in since then and I believe the market is missing a trick here, particularly in light of more encouraging trading data that has come out.

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RPC declared at the back end of March that “the positive trading trends outlined in the third quarter update have continued, and revenue for the full year is expected to have grown significantly versus last year.” The FTSE 250 company said that on top of solid organic growth, the impact of recent acquisitions, polymer prices and support from foreign exchange movements had all helped to drive the top line.

Dividends pounding higher

Reflecting the bubbly fourth-quarter result, City brokers are predicting earnings growth of 14% in the year to March 2018. And they reckon RPC has plenty left in the tank too, with current forecasts pointing to profits advances of 8% and 6% during fiscal 2019 and 2020 respectively.

This is no surprise as the plastics powerhouse develops its products in line with the industry’s environmental standards. What’s more, the company’s appetite for M&A action also lends support to predictions of strong revenues growth in the near term and beyond. Indeed, RPC commented last month: “The global packaging market continues to consolidate and… growth through acquisition remains an important part of the group’s strategy. RPC continues to build a healthy pipeline of opportunities.”

With earnings and cash generation expected to remain solid, dividends should keep rising at a fair lick as well. The projected 27.6p per share reward for the last year is predicted to swell to 30.3p in the current period and again to 33.2p next year. As a consequence, yields for fiscal 2019 and 2020 clock in at a chubby 3.8% and 4.2% respectively.

As RPC is also carrying a dirt-cheap forward P/E ratio of 10.4 times as I write, I reckon there is plenty for cost-conscious share pickers to get their teeth into today.

Steer clear

But those seeking stocks for brilliant dividend growth in the near term should look beyond forecasts for FirstGroup (LSE: FGP) and give it a wide berth, in my opinion.

The Square Mile’s army of brokers are expecting the transport titan to bounce from a predicted 2% earnings slip in the year to March 2018 with a 12% rise in fiscal 2019. They are also anticipating that a (projected) 1.6p per share dividend for last year will almost double to 3.2p in the present period.

This means the yield stands at 2.7%. What’s more, the extra 3% profits rise expected in fiscal 2020 results in an estimated 3.8p dividend, nudging the yield to a decent 3.3%.

At current prices FirstGroup changes hands on a prospective forward P/E multiple of 8.4 times. But this is a mere reflection of the company’s colossal struggles for its bus operations in both the UK and US, troubles that are in danger of persisting long into the future. There are much better stocks in the FTSE 250 for dividend chasers to tap into, RPC being just one of them.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended RPC 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.

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