Does the idea of buying stocks with a good starting dividend yield appeal to you? Stocks that also have prospects of delivering inflation-busting annual increases, backed by strong and sustainable earnings growth?
I believe the three FTSE 250 stocks you’ll read about in this article fit the bill. I reckon they’re capable of delivering steady and sustainable annual earnings and dividend growth in the mid-to-high single-digit region, and I’d be happy to buy them in May and hold them for the long term.
When it comes to steady and sustainable growth, Primary Health Properties (LSE: PHP) is an outstanding candidate. This specialist real estate investment trust is focused on primary medical assets in the UK and Republic of Ireland.
These assets are local hubs, housing GP surgeries, pharmacies and other medical services. Occupancy is consistently close to 100%, over 90% of rental income is government backed, and most of the rents are subject to fixed or inflation-linked uplifts. This low-risk, non-cyclical backdrop has enabled Primary Health to deliver 22 years unbroken dividend growth.
When I last wrote about the company, it had agreed an all-share merger with smaller peer MedicX. I viewed the deal favourably, and expected shareholders of both firms to back it, which they subsequently did.
A recent post-merger research report by Hardman & Co forecasts average annual earnings growth of over 10% for the next two years, with average annual dividend growth at a little over 4%. Hardman suggests the earnings growth trend will feed through to accelerating dividend growth at some stage. Buyers of the stock at 131p today should secure an initial dividend yield of 4.3%.
I expect most readers have used a National Express (LSE: NEX) coach at some point in their lives. What you may not know is that the company’s international expansion means it also carries many bus and coach users in North America, Spain and Morocco, and rail users in Germany. In fact, over 80% of the group’s operating profit now comes from outside the UK.
City analysts see average annual earnings growth of over 5% for the next two years, with average annual dividend growth of 8%. Earnings expectations could be upgraded, as the company continues its strategy of winning new contracts and making strategic acquisitions, such as the recently announced acquisition of a majority stake in Silicon Valley’s premier employee shuttle company WeDriveU.
National Express has a prospective 4% initial yield for buyers of the shares at a current price of 410p.
Gold miner Polymetal International (LSE: POLY) is forecast to deliver average annual earnings growth of near 9% for the next two years, with average annual dividend growth just into double figures. Rising production is expected from 2020, and with the company’s focus on operating performance and costs, the stage looks set, as my Foolish colleague Royston Wild recently wrote, for profits to keep rising well into the next decade.
Buyers of the stock at 805p today should bag an initial dividend yield of 5.2%.
As with many precious metals miners, there’s some geographical concentration and geopolitical risk in terms of where Polymetal’s assets are located: namely, Russia and Kazakhstan. Investors could mitigate this by going for a half-holding with another dividend-paying gold miner in a different part of the world, such as Egypt-based Centamin.
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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Primary Health Properties. 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.