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Only £2k to spend? A budget growth AND dividend stock I expect to surge in 2020

We might still be in the height of summer, but it’s never too early to consider what shares could sink or swim in 2020.

There are plenty of important questions that need to be answered before the New Year fireworks. Will the US have resolved its trade dispute with China by then, and will President Trump be targeting the EU? Will the UK have concluded Brexit? Will central banks keep slashing rates?And there are sure to be plenty of other significant issues emerging in the final few months of 2019 and as we move into 2020.

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That said, there are many stocks out there I think have what it takes to continue thriving in the New Year, however the above issues pan out in the short-to-medium term. And Devro (LSE: DVO) is one of them, a stock that has already risen almost 25% in value in the year to date.

Self-help paying off

The sausage casings manufacturer has retreated from the 2019 highs above 220p per share struck in July (it currently sits at 200p), though I expect a fresh upward assault in the very near future.

Business at Devro has been a little more sobre of late, and revenues flatlined in the six months to June, thanks to mixed performances of late in core markets. The Glasgow firm has a few tricks up its sleeve to turbocharge sales in the latter part of the year though, from the continued rollout of its Fine Ultra product platform across Europe and Asia to the development of new ranges for the fast-growing Chinese marketplace.

Barring any unexpected mishaps, things look good for the share price in the second half of 2019. But it’s not just about Devro’s strong sales outlook. The execution of the company’s ‘Devro 100’ transformation programme in 2016 has been nothing short of brilliant, the business announcing in February that it would deliver savings at the upper end of its £13m-£16m target by the end of the year.

But further outperformance on this front since then has seen it upgrade its full-year target to a cool £17m. Never mind the impact of rising input costs, Devro has proved it has the mettle to offset the worst of this problem.

A tasty all-rounder

It’s no wonder that City analysts are expecting earnings to keep rising at a spritely rate, an 11% rise for 2019 forecast to be followed by a 9% increase in 2020. And by ramping up manufacturing investment, for example to speed up US plant production and increase capacity there, Devro’s setting itself up for sales growth to accelerate beyond the latter part of this year.

This bright growth outlook means that annual dividends should keep rising as well. In the more immediate term, full-year rewards of 9.3p and 9.7p per share are estimated for this year and next respectively, figures that yield a chubby 4.7% and 4.9%.

Right now, Devro trades on a forward P/E ratio of 12.3 times, a multiple which, all things considered, provides investors with some pretty epic value. And it also sets the food giant up for some more monster share price gains over the coming months. In my opinion it’s a top buy right now.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Devro. 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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