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

These FTSE 250 (INDEXFTSE:MCX) dividend growth stocks could be unstoppable, says Roland Head.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »