The Motley Fool

3 FTSE 250 dividend stocks that have doubled and still have room to grow

If you want to make money in stocks, many investors believe the best approach is to focus on proven success stories.

Today, I’m going to look at three profitable, growing companies from the FTSE 250. Each has doubled (or more) in under 10 years and offers a growing dividend. I believe all three are likely to continue growing.

Sales top £1bn for first time

Food-to-go bakery chain Greggs (LSE: GRG) needs no introduction. The firm’s new vegan sausage roll has contributed to an impressive 9.6% increase in like-for-like sales during the first six weeks of 2019. Growth like this helps explain why the Greggs share price has doubled since November 2016.

Thursday’s full-year results suggest that the firm is maintaining its strong record of growth. Total sales rose by 7.2% to £1,029.3m last year, while pre-tax profit climbed 15% to £82.6m.

The shareholder dividend will rise by 10.5% to 35.7p for 2018. With the shares trading at record levels, this payout only gives the stock a 2% dividend yield. This highlights a risk for investors — Greggs looks expensive to me, trading on 23 times 2019 forecast earnings.

Chief executive Roger Whiteside expects the business to continue expanding and I share this view. I think Greggs is a very good business, but the shares look fully priced to me. I’d hold at current levels and look to buy on any future dips.

An unstoppable growth business?

The market for self-storage in the UK’s towns and cities appears to be growing strongly. During the three months to 31 January, FTSE 250 firm Safestore Holdings (LSE: SAFE) said its occupancy increased by 2.2%, despite average prices also rising by 2.2%.

The figures suggest that last year’s strong progress — when underlying sales and profits both rose by about 11% — may continue in 2019. The company now operates in the UK and Paris and is now letting 32% more space than it was three years ago.

The share price has reflected this growth and Safestore stock has doubled since April 2015. The shares now trade on 21 times 2019 forecast earnings, with a 2.9% dividend yield. Although this isn’t cheap, I’d view this as a fair price and rate the stock as a long-term buy.

No dividend cut for 25 years

Bus and train operator Go-Ahead Group (LSE: GOG) has faced challenges in recent years. But the group’s core attraction for investors — strong cash generation — has allowed the group to maintain its dividend despite a drop in profits. Indeed, Go-Ahead’s dividend has not been cut since its flotation in 1994, 25 years ago.

The firm’s shares have doubled over the last 10 years, during which shareholders have received a total dividend of about 880p, or about 43% of the current market-cap.

The secret to the firm’s financial success seems to be that operating public transport can generate attractive returns on capital invested. Go-Ahead Group generated a return on capital employed of 19% last year, well above the 15% threshold I use to screen for highly profitable companies.

Profit forecasts for the current year were upgraded following February’s half-year results and the shares have now climbed by 35% so far in 2019. However, they remain well below 2015 highs of 2,600p+. Trading on 12 times forecast earnings and with a 5% dividend yield, I believe the shares remain good value and continue to deserve a buy rating.

You Really Could Make A Million

Of course, picking the right shares and the strategy to be successful in the stock market isn't easy. But you can get ahead of the herd by reading the Motley Fool's FREE guide, "10 Steps To Making A Million In The Market".

The Motley Fool's experts show how a seven-figure-sum stock portfolio is within the reach of many ordinary investors in this straightforward step-by-step guide. Simply click here for your free copy.

Roland Head owns shares of Go-Ahead Group. 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.