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2 dividend growth stocks I’d buy for my ISA and hold for 10 years

With just over two weeks to go until this year’s ISA deadline, I’m on the hunt for stocks I’d be happy to buy and hold for the long haul.

Today, I’m looking at two stocks offering a mix of income and growth. Both are highly profitable and appear to be performing well. I believe they could be profitable stocks to tuck away for the next decade.

Bowling for cash

Bowling alley operator Ten Entertainment Group (LSE: TEG) operates the Tenpin chain of bowling centres, which has 43 sites around the UK. This company only floated on the stock market in April 2017, but has performed well so far and has already earned a place on my watch list.

Last summer’s heatwave wasn’t good for indoor attractions, but like-for-like sales at the firm’s venues still rose by 2.7% last year. Four new sites added to total sales, which rose by 7.5% to £76.4m. Adjusted pre-tax profit was 4% higher, at £13.5m.

Despite a challenging summer, the group generated an operating profit margin of 14.9% in 2018 and earned a return on capital employed of 18.2%. This figure shows that the firm generated £182 of profit for each £1,000 of capital tied up in the business last year. That’s a good result.

A buying opportunity?

At the time of writing, Ten’s shares were trading at about 220p, more than 20% below last summer’s 280p+ highs.

I think this could be a buying opportunity. 2019 has started well with the firm, with a 5.1% increase in like-for-like sales during the first 11 weeks of the year. Analysts expect the group’s adjusted earnings to rise by about 25% this year. A similar increase is expected to the dividend.

These forecasts put the stock on a 2019 price/earnings ratio of 10.5, with a dividend yield of 5.6%. In my view that looks good value for such a profitable business. I’d be happy to pick up some stock at this level.

Sun, sea and sand

My next pick is online travel agent On the Beach Group (LSE: OTB). This group specialises in European beach holidays and has a 20%+ share of this market in the UK.

Unlike struggling rivals such as TUI and Thomas Cook, On the Beach doesn’t operate aeroplanes or hotels. It simply uses its buying power and technology to negotiate good deals with established operators. Customers like On the Beach because they can book personalised holidays quickly and simply online.

The company’s business model requires very little upfront investment, making it extremely profitable. Figures for the year to 30 September 2018 show On the Beach generated an operating margin of 25% and a return on capital employed of 21% last year. Pre-tax profit rose by 23.7% to £26.1m, while net cash rose from £33m to £47m.

Analysts expect the group’s profits to rise by a further 20% in 2019. And although the dividend yield is low, at just 0.9%, I believe this firm’s hefty cash balance should mean that shareholder returns will rise quickly. I think there’s also a chance this business could become a takeover target.

The shares have pulled back from last year’s highs of more than 600p. Trading at about 450p, On the Beach has a forecast price/earnings ratio of 18 for the current year. I rate the shares as a long-term buy at this level.

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Roland Head has no position in any of the shares mentioned. 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.