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Have £2,000 to invest? Here’s a FTSE 100 dividend growth stock I’d buy today

In an otherwise downbeat day for the FTSE 100, it was up to InterContinental Hotels Group (LSE: IHG) to lift some of the gloom. With some terrific full-year financials, its shares were last dealing 2% higher in Tuesday trade.

A quick glance at IHG’s 2018 release may show little to celebrate, though, with profits missing expectations and diving 26% year-on-year to $485m. This wince-worthy drop was down to a whopping $108m rise in exceptional costs related to restructuring costs, as well as a $112m charge related to a pension fund settlement, the firm said.

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Largely speaking, though, the market was prepared to look past this (admittedly considerable) black mass and concentrate on other good parts of the release, of which there were many. And I’m not just talking about the hotelier’s decision to hike the full-year dividend 10% to 114.4 US cents per share.

Expansion plans paying off

IHG is a stock I’ve been long lauding because of its energetic expansion drive across the entire planet, and today’s release underlined the fruits of this programme. Revenues at the business soared 6% to $4.34bn, helped by the addition of 56,000 new rooms, taking the total global estate to some 837,000 rooms (up 5% from 2017 levels).

Chief executive Keith Barr celebrated the “excellent progress” the business had made in 2018, and commented that “the investments we have made have had a significant impact, allowing us to further evolve our established brands, move quickly to strengthen our portfolio both organically and by acquisition, and create real momentum in our business.”

IHG’s appetite for M&A was underlined again last week when it announced the $300m purchase of Six Senses which operates 16 hotels, spas and resorts all over the globe. The move boosts the company’s position in the luxury end of the market and, with a pipeline of 18 management contracts and more than 50 additional deals currently under active discussion, there’s plenty of room to grow.

Dividends set to keep rising

Last year, IHG witnessed comparable revenues per available room (or RevPAR) grow across all of its regions to illustrate the strength of its markets and thus vindicate the rationale of its expansion strategy. In the Americas these rose 1.9%; in the aggregated region comprising Europe, Middle East, Asia and Africa these rose 2.9%; but its Greater China territory stole the show with comparable RevPAR leaping 6.9% year-on-year.

It’s not a shock then that City analysts are expecting IHG to recover from 2018’s profits drop and to post a 7% earnings rise this year. This leads to predictions that dividends will rise again too, to 101.7p per share to be exact (and resulting in a decent 2.2% yield). Given the company’s strong revenues momentum as well as its robust balance sheet, though, I reckon this payout forecast will be upgraded as the year progresses. And thanks to its bright long-term profits outlook, I’m confident that dividends will keep rising for many more years to come.

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