The Motley Fool

2 of the best growing dividend stocks to buy now

Image source: Getty Images.

There’s more to successful dividend-led investing than simply choosing the highest dividend yields. I think a decent yield needs to be backed by solid cash flow from a strong business. Ideally, that business should be making progress and growing.

Here are two stocks I’d buy today and hold in my long-term portfolio. I like their potential to pay a dividend income while growing.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

2 of the best dividend stocks

AG Barr (LSE: BAG) runs a soft drinks business. The company’s brands include IRN-BRU, Rubicon, Simply, Sun exotic, Funkin, Snapple, Strathmore, Tizer and Strathmore.

The business has defensive qualities but earnings did take a dent from the coronavirus crisis. In an update released at the end of January, the company said operations “remained strongly cash generative throughout the year” and there’s around £50m net cash in the bank. I reckon such strong finances reflect the quality of the business.

Looking ahead, chief executive Roger White said he expects the months ahead to be “challenging” but he’s “confident” in the firm’s ability to trade through these uncertain times. And part of the director’s Covid response was the halting of shareholder dividends.

But payments should resume in 2021. And with the share price near 497p, the forward-looking yield for this year is about 2.6%. City analysts predict a healthy mid-single-digit percentage increase in the dividend for 2022.

We’ll find out more with the full-year results due on 30 March. But BAG’s strong balance sheet, its defensive operations, and its growth expectations make the dividend attractive to me.

However, if growth fails to materialise (say, through a slower-than-expected return to normal life or a general move towards more ‘healthy’ drinks), the share price could decline from here. 

Strong cash flow and a big dividend

Also operating in the fast-moving consumer goods space is FTSE 100 smoking products maker British American Tobacco (LSE: BATS). I think it’s fair to say that smoking is a habit in long-term decline in the western world. And it’s also fair to assume that tobacco companies have lost favour with investors, particularly the big institutions focused on ethical investing. Indeed, the stock has fallen a long way since its peak in the summer of 2017.

But BATS has been growing its market share both organically and via acquisitions when possible. And it’s been doing a good job returning much of its prodigious cash inflow to shareholders with the dividend. City analysts expect the dividend to grow by single-digit percentage increments this year and in 2022.

Part of the company’s strategy is to build up sales of its non-combustible and less dangerous products. However, I reckon the entire industry is vulnerable to legislation and scrutiny that could compromise the business in the future. Perhaps that’s the biggest risk of holding the shares today. And BATS could find itself in trouble because of its big pile of debt.

But with the shares at 2,577p, the forward-looking dividend yield is around 8.5% for 2022. I’d describe that as tempting.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended AG Barr. 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.