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2 top dividend growth stocks I’d buy for my retirement

The tough macroeconomic environment means that it’s often difficult to look past the noise and see shares capable of providing some stupendous returns over the long haul. That’s a shame as there are some truly terrific stocks out there that right now are being criminally underrated by the market.

Take Greencore Group (LSE: GNC), for example. Its share price has dropped almost 10% since third-quarter financials were released a fortnight ago, weakness which leaves it trading on a mere forward P/E ratio of 13.7 times.

That release advised that sales from the core food-to-go division grew just 0.6% between April and June, a result which it said reflected “weak market conditions with unseasonal weather [and] a varied trading performance across the customer portfolio.” The result also reflected tough comparatives, but the market remained quite unforgiving. And I consider this to be an extremely short-sighted approach.

Go green

Make no mistake: the food-to-go market is increasingly big business and through its broad range of sandwiches, salads and sushi, Greencore is well placed to capitalise on this. To illustrate this point, think tank IGD suggests that the value of this market will grow by 26.4% between now and 2024 to £23.4bn, more than double the rate of growth (12.5%) expected for the broader grocery market.

Consumers in this industry sub-segment are becoming more and more demanding, and so food retailers are having to consistently develop their menus to keep growing. Fortunately, Greencore’s devotion to food innovation — which means it has around two-and-a-half thousand products in its armoury — puts it in the box seat to ride this theme. And its sophisticated manufacturing and distribution infrastructure gives it the clout to meet soaring sales rates.

No wonder, then, that  the FTSE 250 firm felt confident enough to hike the interim dividend 11.4% to 2.45p per share. This means that for the full year to September 2019, City analysts are expecting a 6.1p reward, up from 5.57p per share last time out. And this yields a chunky 3.1%

There are bigger yields out there, sure, but I’m confident that the company’s bright long-term earnings outlook and its revamped capital structure should help it to continue raising dividends at a rapid pace. So buy it today on expectations of some seriously juicy dividend cheques in the years ahead, I say.

Lok in serious returns

I’d also happily stash the cash in Lok’N Store Group (LSE: LOK) in the hope of building a big nest egg for retirement.

Once again, yields here aren’t the biggest. For the year ending July 2020, this one sits at 2.5%. However, the rate at which the AIM firm is growing its dividends should make income hunters sit up and take serious notice (up 10% in fiscal 2018 to 11p per share, most recent finals showed).

Preliminaries for the year just passed aren’t due until November 4, though there’s plenty of reason to expect payouts to keep ripping higher. Self-storage revenues rose 8.7% in the 12 months, a result which revealed the underlying strength of the market and the impact of Lok’N Store’s outlet expansion programme. What’s more, with the business currently boasting a secured pipeline of eight new locations — sites which will boost trading space by around 27% — the firm looks to be in great shape to keep growing profits, and therefore dividends, for years to come.

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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 Greencore. 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.