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Have £1,000 to invest? FTSE 100 dividend growth stock Santander could help you retire early

The prospects for the world economy continue to be relatively upbeat. Although there is the potential for a full-scale trade war between the US and China, global GDP growth continues to be high. This situation could continue over the medium term, and may mean that the FTSE 100 is able to generate further growth.

Of course, global shares such as Santander (LSE: BNC) could also benefit from a bright future for the world economy. Its dividend growth prospects appear to be bright, which means that it could be worth buying alongside another stock which released an upbeat update on Thursday.

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Encouraging performance

The company in question is data solutions specialist D4T4 (LSE: D4T4). It released an update to coincide with its AGM that showed the business remains confident in its future outlook, with organic revenue growth of 13.7% being delivered in its recent financial period. The company’s focus on its higher-margin real-time customer data platform software, as well as on its hybrid cloud data platform services, seems to be paying off. And with its business investment programme delivering high returns, the prospects for the stock appear to be improving.

D4T4 also confirmed in its investor update that it intends to maintain its progressive dividend policy. In the last three years it has increased dividends per share from 0.56p to 2.5p. Despite this, its dividend is expected to be covered 4.3 times by profit in the current year. This suggests that further dividend growth could be ahead – especially with the company expected to post earnings growth of 12% next year.

While the stock’s dividend yield of 2% may be relatively low, it appears to have growth potential when it comes to shareholder payouts. As such, now could be a good time to buy it for the long term.

Low valuation

Santander’s dividend growth potential may also boost its investors’ retirement prospects. The bank is expected to report a rise in earnings of 5% in the current year, followed by further growth of 9% next year. This means that it has a forward dividend yield of 5.2% for the 2019 financial year. And with shareholder payouts expected to be covered 2.3 times by profit, its dividends could rise at a faster pace than profit over the medium term.

With Santander having improved its financial strength in recent years, it seems to offer a more appealing risk/reward ratio. Its diverse geographical exposure means that it could be catalysed by further global GDP growth, while challenges in one region could be offset by strong performance elsewhere.

Despite its improving prospects, the stock has a price-to-earnings growth (PEG) ratio of just 0.9. This suggests that it offers a wide margin of safety, and may deliver high capital gains as well as an impressive dividend yield. It appears to have the potential to beat the FTSE 100 over the long run.

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Peter Stephens has no position in any of the 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.