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2 impressive FTSE 250 dividend growth stocks you’re probably overlooking

WH Smith (LSE: SMWH) emerged as one of the belles of the ball in 2017. Encouraged by the exceptional progress that the newsagent’s Travel division had seen making investors pile in with gusto, sending the company’s share price more than 50% higher in the process.

The FTSE 250 has lost significant momentum since then and the record highs around £23.50 per share struck on the final trading day of last year now seem a very long time ago. Sentiment has soured after WH Smith declared at the top of 2018 that troubles at its High Street arm had weighed heavily on group performance during the start of the current fiscal year.

What remained apparent, though, in that release as well as in subsequent updates, is that the huge profits potential of its Travel division remain intact. Indeed, the company’s most recent release of August underlined its exceptional potential when it advised that Travel “continues to perform strongly with good sales across all of our channels.”

It had earlier declared that like-for-like sales had risen 3% in the 13 weeks to June 2, and that total sales had risen 8% as it has expanded its store network in the UK and in overseas markets.

WH Smith’s international network now takes in just below 300 news, books and convenience stores and, as the world’s airports and rail stations see more and more travellers flooding across their concourses, it has no intention of curtailing its expansion programme any time soon.

Dividend darling

Supported by a sustained run of earnings growth, WH Smith has been able to lift dividends at a brisk pace over the past half a decade. The newsagent lifted the full-year payout 10% in the 12 months to August 2017 to 48.2p per share, and when it declares results for fiscal 2018 it’s expected to raise it to 51.7p, helped by an anticipated 4% earnings improvement.

Looking to the current period, a 7% profits rise is predicted and this means the dividend is expected to rise to 55.8p, a figure that yields 2.7%.

At current prices WH Smith carries a forward P/E ratio of just 18.8 times. While marginally expensive on paper, I still consider this to be great value given the brilliant profits opportunities created by its Travel expansion and ongoing restructuring measures at the High Street unit.

The only way is up

SIG (LSE: SHI) is another FTSE 250 share tipped to grow dividends at a healthy rate. The building products supplier fell out of favour a couple of years ago when it was forced to rebase the dividend amid no little earnings pressure and a stretched balance sheet. But having rebuilt its capital base City analysts are expecting shareholder rewards to march higher again.

Last year’s 3.75p per share reward is expected to rise to 3.9p in 2018, helped by predictions of a modest 3% profits rise. Things really get exciting next year however. With earnings anticipated to rise 17%, the 2019 dividend is estimated to shoot to 4.5p. These payout projections yield a chunky 3.1% and 3.6% respectively.

While conditions in the UK remain tough for SIG, I am encouraged by the progress of its divisions in Ireland and in Mainland Europe. At current prices it carries a prospective P/E ratio of 12.5 times and this is too cheap given its strong performances abroad.

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