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2 rising dividend stocks I’d buy for my ISA with £2,000 today

When I looked at Mitie Group (LSE: MTO) in November last year, I thought I saw signs of recovery, but I wanted to see more support for the housing services firm’s hoped-for return to a progressive dividend before I’d consider buying.

The dividend had been slashed to 4p per share in 2017 (from 12.1p a year previously), and looked set to remain pegged at that level for at least another couple of years.

After I held back, the share price fell further, but since the start of 2019, it’s been picking up again.

With the company’s current year ending 31 March and results due on 6 June, Mitie has put out a pre-close statement for the year, and it’s looking encouraging to me.

Renewed growth

Revenue should grow by 7% to 8%. That does include a contribution from the acquisition of Vision Security Group, but without that we should still see underlying growth of around 4%, with organic revenue growth expected to continue at 3% to 4% per year.

Operating profit of £84m to £87m is on the cards, nicely ahead of the adjusted 2018 figure of £77.1m. And crucially, Mitie’s 31 March 2018 net debt figure of £193.5m should be down to between £160m and £180m.

Slightly disappointing is the news that the firm’s order book is expected to decline by 10% over the full year, but we are seeing progress in winning new contracts. On the whole, I think we should probably be satisfied at this stage.

Dividends should remain at 4p per share this year, but analysts are starting to get a little bullish for the near future with forecasts of a 15% hike over the next two years. And with Mitie’s turnaround progress looking encouraging, I’m optimistic too.

Engineering

I’ve always liked the long-term prospects for Meggitt (LSE: MGGT). While a few tough years for the worldwide defence industry have taken their toll, Meggitt shares have actually kept pretty close to the FTSE 100‘s (admittedly less than sparkling) performance.

And if we look back 10 years, Meggitt shares have quadrupled in value while the Footsie has gained 83%.

And because Meggitt only pays dividends that are well-covered by earnings, it’s been comfortably able to keep its annual shareholder payments growing ahead of inflation.

That’s what I like to see for providing steady income in my retirement, and it helps smooth the shorter-term cyclical nature of the engineering and defence business. I really don’t care if earnings are a little erratic from year to year providing a company can keep its dividends rising.

Progressive

Dividend yields are a little below the FTSE 100 average at around 3.5%, but if they continue their record of beating inflation, they should appreciate in real terms in the coming decades.

Work is looking up for Meggitt too as its order book is growing in strength, and it’s just been boosted by the announcement of a new contract win from General Dynamics Land Systems. Worth $37m, it will see Meggitt continuing to provide auxiliary cooling and power systems for General Dynamics’ Abrams tank developments.

In valuation terms we’re looking at P/E multiples of 13 to 14, which is around the FTSE 100 long-term average. It think that’s attractive for a quality company with such long-term prospects.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Meggitt. 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.