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2 FTSE 100 dividend growth stocks I’d buy with £1,000

Today I’d like to discuss the outlook for Bunzl (LSE: BNZL), the multinational distribution and outsourcing firm, and Micro Focus International (LSE: MCRO), the enterprise software group.

I regard both of them as reliable FTSE 100 shares with robust growth prospects that may deserve a place in a diversified portfolio.

Growth and stability

With a market cap of £8.2bn and operations in 30 countries across five continents, Bunzl is one of UK’s largest distributors of non-food items, such as cleaning supplies, food packaging, disposable tableware, and healthcare consumables. Its clients range from retailers to hotels, restaurants, grocery stores, hospitals, retirement homes, and airlines. But about 86% of sales come from outside the UK and the US is its largest market.

The group is famed for its acquisition strategy: it buys up smaller operators globally and integrates them into the business well, leading to increased profitability and cash flow.

On 25 February, BNZL released its annual results for the year to 31 December and the firm hailed its “strong organic revenue growth of 4.3%.”

Its pre-tax profit also grew 3% to £559m and the company reported a respectable 15% return on invested capital (ROIC), a profitability ratio that shows how well it turns capital into profit.

Analysts cheered the financials and growth metrics of this stable, cash generative business. The share price has recently reached an all-time high of 2,547p, which means there might be some profit-taking in the stock in the short-term.

Strongly-performing stocks tend to keep on winning so I would regard any dip in the price as a chance to buy into the shares. And anyone who buys can also enjoy dividend income, which now stands at a yield of 2.1%.

Improved performance

Newbury-based Micro Focus is an enterprise software company that develops, sells, and supports software products and solutions to about 50,000 companies worldwide.  Analysts regard its software business model as dependable, high-margin, and cash-generating.  Revenues are also resilient thanks to the sticky client base. The group is the seventh-largest software company in the world by revenue. 

On 14 February, it published the preliminary results for the 18 months to 31 October and reported “strong free cash flow of $789.7m” and high“operating margins at 37.7%.”

The company beat expectations with revenues of $4.75bn and adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) of $1.53bn.

In November 2018, the group had announced a $400m share buy-back programme and in its February report, it extended it by up to $110m.

The upbeat results in cash flow, margins, and revenues came as relief to investors who had been concerned about the effects of the 2017 acquisition of Hewlett Packard Enterprise’s Software division by Micro Focus. Although City analysts at the time had believed that the enlarged company would have more competitive advantage via increased resources, the merger brought operational problems too. 

As a result, 2018 was not a good year for investors and the stock price suffered. In March 2018, it saw a 52-week low of 97.6p. However, things have steadily improved for the FTSE 100 blue-chip over the year and the share price now reflects increased confidence that management is getting on top of the integration of the two companies.

The stock price has doubled to a 52-week high of 1,933.5p and I except this  business to keep rewarding shareholders. Its healthy stream of dividends with a yield of 3.4% is an added bonus.

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tezcang has no position in any of the shares mentioned. The Motley Fool UK has recommended Micro Focus. 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.