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Got £2k to invest? One FTSE 100 dividend stock I’d buy today

FTSE 100 dividend stocks are often a good choice for a reliable income. But they’re not always able to deliver enough growth to outperform the wider market.

Today, I’m looking at a FTSE 100 stock whose share price has risen by 120% over the last five years. That’s more than double the 47% gain delivered by the index over the same period.

The company concerned is Carnival (LSE: CCL), the world’s largest cruise ship operator. Alongside its flagship signature brand, the group operates other famous cruising brands such as Cunard, P&O Cruises, Princess Cruises, and Holland America. In 2018, it carried more than 12m passengers on 105 ships. This generated sales of $13.9bn and a net profit of $3.2bn. It’s a pretty big business.

Can growth be maintained?

You might think that Carnival must now be fully grown. I’m not so sure. In results released just before Christmas, the firm said that advance bookings for the 2019 year were already “considerably ahead” of 2018, with prices broadly unchanged.

Management expects adjusted earnings between $4.50 and $4.80 per share this year, compared to $4.26 last year. That’s an increase of 5-12%.

Another attraction for investors is the firm’s focus on shareholder returns. Since late 2015, Carnival has returned $4.6bn to shareholders through buybacks, in addition to its regular dividend.

The cruise ship sector appears to be booming. This may not continue forever. But Carnival has market-leading scale and some valuable brands. I’d expect it to be a long-term winner.

Last year’s market sell off has left the shares trading on about 11 times forecast earnings, with a 4.3% dividend yield. At this level, I think investors could enjoy smooth sailing.

A smaller choice

I believe Carnival can continue to grow. But I don’t expect the shares to double again over the next five years. If you’re looking for this kind of performance, then I think you may need to focus on companies at the smaller end of the market.

One such stock I own myself is staffing and training specialist Staffline Group (LSE: STAF). Shares in this firm have doubled over the last five years, while profits have risen by nearly 150%.

Uncertainty

Brexit uncertainty has hit this business, which supplies more than 60,000 blue collar staff each day to UK businesses. Many of these are EU nationals, so the outlook beyond Brexit isn’t clear.

The group’s training and education business is also in the middle of a period of change, which is expected to result in exceptional costs of £20m for 2018. As a result, net debt is expected to have risen by 70% to £63m since the end of June.

This is a little surprising, and the group’s shares are down by nearly 10% as I write. But it’s worth remembering that this firm does have a fairly good track record of delivering sustainable growth.

Strong management

Staffline’s dividend has risen by 1,300% since 2004, from 1.9p per share to 26.7p per share. During the same period, its share price has risen by 1,225% to 1,140p. Cash generation has been consistently good.

For now, I’m going to give management the benefit of the doubt. The underlying business is said to be performing well and costs should fall in 2019. With the shares trading on 10 times forecast earnings and offering a 2.3% yield, I continue to view this business as a buy for growth.

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Roland Head owns shares of Staffline Group. The Motley Fool UK has recommended Carnival. 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.