Two overlooked FTSE 250 dividend growth shares I’d buy today and hold forever

These two FTSE 250 (INDEXFTSE:MCX) stocks could offer high dividend growth prospects, in my opinion.

| 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.

Buying dividend growth stocks in the FTSE 250 could be a worthwhile strategy over the long run. Certainly, there may be higher and more reliable income returns available in the FTSE 100. But mid-cap shares that are posting fast-rising dividends could offer capital growth, as well as income returns, due to improving investor sentiment.

With that in mind, here are two FTSE 250 shares that could offer a high rate of dividend growth. As such, now could be the right time to buy them for the long term.

Electrocomponents

Electronic and industrial supplies distributor Electrocomponents (LSE: ECM) released a positive set of results for the 2019 financial year on Tuesday. The company’s revenue increased 10.5% to £1,884.4m, while adjusted operating profit moved 20.8% higher to £220.3m. It was able to post strong market share gains, while its Digital and RS Pro segments outperformed the wider business.

With the company having raised dividends per share by around 7% per year in the last five years, it has a solid track record of improving income returns. Since its dividends are covered 2.4 times by net profit, there appears to be scope for them to rise at a fast pace in the coming years.

With Electrocomponents set to invest in its scalable infrastructure, it has the potential to further improve its efficiency and differentiate itself from sector peers. While also managing its costs in a disciplined manner, this could lead to an improving financial outlook that leads to a rising dividend.

While the stock may yield just 2.5% at present, it appears to offer an improving income outlook alongside the potential to generate impressive capital growth.

Bovis

Housebuilder Bovis (LSE: BVS) is part-way through delivering a revised strategy that’s expected to lead to a stronger business that offers a more sustainable growth outlook for the long run.

It has slowed the rate of growth in completions, instead focusing on improving its customer satisfaction rating. Progress is being made in this area, which could mean it’s able to ramp-up the number of completions over the medium term.

With the stock having a dividend yield of over 10% when its special dividend is included, it already has significant income appeal. Although there may be uncertainty ahead for the housebuilding sector as a result of the economic and political risks facing the UK, a price-to-earnings (P/E) ratio of 9 suggests investors may have factored in many of these risks.

As such, with Bovis having a low valuation and a high income return, it could offer improving total returns. With policies such as Help to Buy expected to continue over the medium term, the company may also benefit from trading conditions that are stronger than many investors currently anticipate. This could lead to an even higher rate of dividend growth, and a more appealing income investing outlook.

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.

Peter Stephens 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.

More on Investing Articles

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

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

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

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

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »