The Motley Fool

Forget Bitcoin! I’d rather buy dynamic FTSE 250 dividend stocks like this one

I reckon Bitcoin appeals to many because of its potential to shoot up from time to time on the back of rampant speculation. But it strikes me as a dangerous game in which to participate because spectacular plunges are also common with cryptocurrencies.

But you don’t have to head for the cryptocurrency casino for dramatic action. Some FTSE 250 shares have also proved themselves to be capable of shooting up, such as Pets at Home (LSE: PETS), which has risen more than 90% in 2019 alone.

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Dividend progress

And the great thing is that the rise looks sustainable because the stock is backed by a decent business that has shifted into a faster gear for growth. At the beginning of the year, the company was out of favour with investors but now the investing community seems to be waking up to the firm’s new growth potential and the valuation has been adjusting up accordingly.

I think the retail and pet services proposition with Pets at Home is a far better bet than Bitcoin. For a start, if I held the shares I’d begin receiving dividend payments for my trouble. The recent share price close to 224p puts the forward-looking dividend yield near 3.4% for the trading year to March 2021. Secondly, I’d expect the dividend to rise a little each year. Over the past four years, the payment has elevated around 40% reflecting the underlying operational progress of the business.

Meanwhile, I find today’s first-quarter trading statement to be encouraging. Overall revenue rose almost 10% compared to the equivalent period last year with like-for-like sales up 8%. Looking ahead, the directors now expect the underlying profit for the year to be “slightly above” current market expectations.

Cross-selling momentum

In the last full trading year to March 2019, the company generated around 75% of its underlying Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) from retail operations selling pet food, accessories and services such as grooming. The remaining 25% of EBITDA came from a fast-growing involvement in veterinary services.

One of the drivers of increased sales is the way the firm is getting more of its customers to take up its complete pet care offer, which enables it to “take a greater share of their overall spend.” It’s an old and time-tested tactic to cross-sell additional products and services to existing customers, and I’m glad to see the firm focused on extracting as much money as it can from every customer who walks through the door.

Some outcomes of the strategy in action include a year-on-year increase of 23% in the number of customers buying both products and a service, driven by increased use of both the firm’s Groom Room and First Opinion vet services. And the number of subscription customers now numbers around 765,000, suggesting steady income for the company.

With a forward-looking earnings multiple running just below 16 for next year, I think there’s a fair bit of optimism in the valuation. But I like the unfolding growth story here and would be inclined to pounce on the shares on dips and down-days while ignoring Bitcoin completely!

A Growth Gem

Research into unloved sectors can often unearth fantastic growth opportunities to help boost your wealth – and one of Fool UK’s contributors believes they’ve identified one such winner, which could be a bona-fide bargain at recent levels!

To find out the name of this company, and to get the full research report absolutely free of charge, click here now.

Kevin Godbold has no position in any share 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.