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.
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.
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.
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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.