The FTSE 100 is the popular hunting ground for income seekers but there are also some terrific dividend stocks in the FTSE 250. Today I’m looking at two mid-caps that I’d be happy to buy and hold for my retirement. Together they offer an attractive combination of dividend yield and payout growth prospects.
First up is pubs group Greene King (LSE: GNK), which released its annual results this morning.
All companies go through lean spells but if the business is fundamentally sound, it can be a great time to buy the shares. This is the situation I see with Greene King at the moment. Its shares were above 900p a couple of years ago but are currently around 600p.
They were out of favour again today, despite the headline numbers in the results being in line with City consensus forecasts, as shown in the table below.
|Adjusted pre-tax profit (£m)||242||243|
|Adjusted earnings per share (p)||62.5||62.7|
|Dividend per share (p)||33.2||33.2|
* Source: Digital Look
Group revenue was down 1.8% year-on-year, with like-for-like pub sales down 1.2% (excluding snow). Adjusted pre-tax profit and earnings per share (EPS) were both 11% lower. However, cash generation was strong and the board said it was maintaining the dividend at the same level as the prior year, “reflecting our confidence in the long-term prospects of the business.”
Pub like-for-like sales are up 2.2% in the eight weeks since the 29 April financial year end — aided by good weather and sporting fixtures — and management is targeting positive like-for-like growth for the full year. Nevertheless, it expects “the trading environment to remain challenging for some time.” As such, City analysts are forecasting a flat year for EPS this year, followed by only modest growth next year.
Greene King’s policy is to pay a dividend twice covered by earnings, so with little EPS growth forecast in the near term, we can also expect little uplift in the dividend. The compensation is a yield of 5.5% and a cheap price-to-earnings (P/E) ratio of 9.6. This looks excellent value to me, if — as I expect — the business remains resilient and returns to growth in due course.
Pizza the action
To complement Greene King’s high yield but low short-term growth prospects, I see Domino’s Pizza (LSE: DOM) as a strong pick. In a trading update in April, the company said: “The year has started well, with continued good growth in all of our markets.” Group system sales increased 18.3% or 10.4% on a constant currency basis and excluding the impact of acquisitions/disposals. UK like-for-like sales were up 7%.
Unsurprisingly, Domino’s is more highly rated by the market than Greene King. However, a recent drop in the pizza group’s share price represents a good buying opportunity, in my view. The shares were above 380p just a few weeks ago but have fallen quite heavily since the company announced the departure of its finance director. However, I don’t see this as a huge upheaval, because other directors are well established in the boardroom.
At a current share price of 350p, the forward P/E is 21.2 and a forecast 7.8% dividend increase gives a prospective yield of 2.8%. The P/E falls below 20 and the yield rises above 3% on forecasts of double-digit EPS and dividend growth next year. I see this as a nice stock to sit alongside Greene King and some FTSE 100 dividend champs.
G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Domino's Pizza. 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.