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Forget a Cash ISA, I’d buy these FTSE 100 dividend growth stocks today

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Invest in a Cash ISA at pathetic interest rates of only around 1.5%, or worse? Not a chance, especially when the FTSE 100 is full of cracking dividend providers. Here are two with impressive records.

Steady growth

Croda International (LSE: CRDA) shares are down 4%, as I write, on the back of first-half results showing a 3.5% drop in pre-tax profit and a 3% dip in basic EPS.

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The manufacturer of speciality and industrial chemicals puts the pre-tax profit weakness down to higher interest charges, and operating profit did record only a 0.6% fall. The firm says its free cash flow is up more than 50%, and that its new product pipeline is bearing fruit — sales of new and protected products are up 28%.

Why the lukewarm market reaction? We’re looking at a growth stock that’s had a very good run, with a five-year gain of 99%, and they shares are now on a prospective P/E multiple of 24.

As often happens with a growth stock whose results wobble even slightly, I think we’re now seeing some profit taking. And with the shares down 14% since their 21 June peak, we could be facing a typical growth share downwards re-rating.

What do I think now? I reckon we could be seeing a rare combination of a growth stock (with further long-term potential still there), but with defensive characteristics. Croda’s products are industrial essentials and I see the wide variety of end-users of those products as providing significant economic diversification for this one company.

I think Croda has the makings of a dividend star too. Though yields are relatively low right now, at around 2%, annual dividend rises have been strongly progressive — 2019 forecasts suggest a rise of 34% over five years. I’m a bit concerned about today’s high valuation, but I think a short-term spell of price weakness could provide us with a buying opportunity.

Dividend champion

If you want to see some serious dividend growth, look no further than equipment rental firm Ashtead Group (LSE: AHT). If forecasts for the year to April 2020 come good, Ashtead will have grown its dividend by 180% over a five-year period.

If you’d bought the shares in April 2015 at around 1,100p, in anticipation of that year’s 15.25p dividend (which yielded 1.4%), the mooted 43p for 2020 would provide you with an effective yield of 3.9% on that 2015 price.

But that’s not all. According to the latest Dividend Dashboard from AJ Bell, Ashtead’s dividends have rewarded shareholders with a compound annual growth rate of 29.3% over the period, from 2009 to 2018. What’s more, Bell points out the estimated 2019 dividend would provide a 67% yield on the 2009 share price.

That, without doubt, is a cracking income investment result. But after all those years of dividend success, the shares must be on a premium valuation today, surely? Actually, no. After several years of double-digit earnings growth, Ashtead’s prospective P/E stands at a very modest 11, dropping to 10 on 2021 forecasts.

Net debt did rise in the past year, to 1.8 times EBITDA (from 1.6 times), and I’d really like to see that lower (and, perhaps, some of the cash spent on share buybacks going to reduce debt instead).

But I still see Ashtead as a solid long-term progressive dividend pick. And in the nature of its business, I’m again seeing defensive qualities.

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Alan Oscroft 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.

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