I am looking to diversify my portfolio and have been reviewing travel stocks recently. One stock I am currently interested in is National Express (LSE:NEX). Could the shares be a shrewd addition to my holdings? Let’s take a closer look.

Helping people travel

As a quick reminder, National Express is a bus, train, light rail, express coach, and airport services travel provider based in the UK. It also has international operations in the US and Australia.

So what’s happening with National Express shares currently? Well, as I write, they’re trading for 186p. At this time last year, the stock was trading for 270p, which is a 31% decline over a 12-month period. It is worth noting that many travel stocks have seen their share prices struggle since the pandemic.

The bull and bear case

Firstly, I believe that National Express has a distinct advantage over many of its competitors in the travel sector. Its large size, coupled with its geographical footprint, is advantageous. Next, due to its profile and presence, it often wins lucrative contracts, which is positive for me as a potential investor. Contractual agreements usually offer stable revenue streams.

When the pandemic struck, National Express shares suffered badly. Demand for public transport dwindled and 2020 performance was reflected in this too. Revenue and profit levels dropped in 2020, after previous years of growth. The good news is that 2021 performance surpassed 2020, which means the business is on the right track once more. I am keen to see 2022 performance but in terms of looking back, I do understand past performance is not a guarantee of the future.

Next, at current levels, National Express shares look good value for money on a price-to-earnings ratio of just six. This tells me they could be excellent value to buy now and hold on to for the long term for growth and eventual returns.

National Express must navigate some serious headwinds currently, however. Soaring inflation, coupled with rising costs have placed real pressure on operations, performance, and returns. Profit margins are being squeezed by rising costs such as for fuel.

Finally, there have been talks of strikes across the travel sector in recent months, especially here in the UK where some have taken place. This could affect performance and returns, as well as investor sentiment for National Express.

My verdict

Overall, I would buy National Express shares for my holdings. I am buoyed by its profile, presence, and its past track record. The shares also look too good to miss on current levels.

I am not concerned by the current headwinds, and don’t foresee these as longer-term issues. In fact, the current cost-of-living crisis could be beneficial for National Express shares. This is because cheaper, low-cost travel options will increase in demand for consumers. This could boost performance and returns upwards.

The post Are National Express shares one of the best travel stocks to buy? appeared first on The Motley Fool UK.

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Jabran Khan 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.

Asset management firm JP Morgan is one professional investor that has looked away from the FTSE 100. It has taken advantage of the lower prices resulting from the stock market crash and analysed the new values of many FTSE 250 companies. Renowned for discovering potential profitable opportunities for investment, JPM has recently bought a 5% stake in bus operator National Express (LSE: NEX). 

So what does the top-tier investment bank like about the firm? 

Impressive revenues prior to the crash

National Express reported revenue growth of 9% for Q1 to March. And prior to the coronavirus-induced stock market crash, it was on track for 17% growth.

I think this is impressive and shows how far the firm has come from its more troubled days of 2008/09. Indeed, this journey is reflected in its steadily climbing share price. Over the last five years it outperformed the FTSE 250 before the recent plunge.

Before the stock market crash, National Express was in very good shape and efficiency savings had made a noticeable difference to the firm’s operating margins, which are now over 8%. 

The company has been taking every opportunity to transform itself from a UK-focused business. Up to 75% of its revenues now come from outside the UK, with 45% from North America and 30% from Europe and North Africa. Like many leading FTSE 250 firms, it’s sales base is highly diversified and its business model profitable. 2019 showed a return on capital employed ratio of 9.58. Although still below the industry average of 13, it’s growing and demonstrates improving use of capital.  

The company reassured shareholders recently too. It issued a Covid-19 update saying a great many of its contracts are being honoured and government support was available. Its shares rebounded in response

Year-on-year dividend growth

Sadly, the stock market crash meant that the firm cancelled the April 2020 dividend, in line with many of its FTSE 250 peers. However, prior to this, National Express has produced dividend growth year-on-year for at least the previous half decade. And it had dividend cover of 2 in 2019.

Following the share price crash, National Express currently offers a potential dividend yield of 6.86%. The shares are trading around 233p, and it has a price-to-earnings (P/E) rating of around 8. It’s trading much lower than the fair value many analysts attributed to the FTSE 250 firm prior to the stock market crash. This was around 433p and may suggest National Express is currently undervalued.

It’s easy to see why National Express caught the eye of JP Morgan. I think it’s a great stock to add to a diversified portfolio that could provide you with future value.

The post Stock market crash: like JP Morgan, I’d buy this FTSE 250 bargain! appeared first on The Motley Fool UK.

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Rachael FitzGerald-Finch 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.

Today, I’m going to give my views on the valuation and prospects of National Express (LSE: NEX), which released its half-year results today, and over-50s specialist firm Saga (LSE: SAGA). While the latter is officially in the insurance sector, travel is actually its largest segment by revenue.

Express delivery

Moving people from A to B can be quite a lucrative business, if executed well. National Express has been doing it in the UK for years, but increasingly has also tapped into targeted high-growth markets abroad.

The company today reported another set of record results. It said the performance was “primarily driven by organic revenue, profit and margin growth in every division,” and added, “we are currently trading ahead of expectations.”

Group revenue increased 10.5% (7.8% at constant currency), with earnings per share rising 12.7%. The board lifted the interim dividend 10%, continuing the company’s record of strong payout growth.

In early trading, the shares jumped as much as 6% to a new multi-year high of 450p, but have come off a little and are changing hands at 438p, as I’m writing. At this price, City analysts’ full-year forecasts put the stock on a price-to-earnings (P/E) ratio of 12.6, with a prospective dividend yield of 3.7%.

I think this represents good value for a company whose prospects for continuing growth appear excellent. I’d happily buy the stock today.

Quite a saga

I looked at Saga exactly a month ago when its shares were trading a whisker above 33p — a far cry from its 2014 stock market flotation price of 185p. I thought 33p was good value, and wrote: “Because the stock is so cheap, I also see potential for a bid from private equity or for activist investors to come in and push for a break-up of the group. I think this may limit further downside for the shares.”

Well blow me down, not only did 33p prove to be a floor, but also an activist investor arrived on the shareholder register last week. Elliott Capital Advisors, which previously agitated for Whitbread to break up Premier Inn and Costa Coffee, disclosed a 5.1% stake in Saga. Bloomberg reported Elliott wants Saga “to explore options to boost returns for shareholders, including potentially separating its insurance and cruise businesses.”

The share price had started to head north before Elliot came on the scene, but it’s risen higher since. The question now is whether, after soaring 50% to 49.5p in the space of just a month, the stock currently offers good value for investors.

The margin of safety to allow for any earnings disappointment isn’t as high as it was a month ago, but a forward P/E of 6.6 remains attractive, in my opinion. Also, with it targeting a 50% payout ratio for the dividend, a prospective yield of 7.6% could bear quite a substantial downgrade and still be generous.

All of this without even considering potential value-enhancing break-up options. Personally, I continue to rate the stock a ‘buy’.

The post Why I think it’s not too late to buy the soaring Saga share price appeared first on The Motley Fool UK.

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G A Chester 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.

I believe the three FTSE 250 stocks you’ll read about in this article fit the bill. I reckon they’re capable of delivering steady and sustainable annual earnings and dividend growth in the mid-to-high single-digit region, and I’d be happy to buy them in May and hold them for the long term.

Healthy prospects

When it comes to steady and sustainable growth, Primary Health Properties (LSE: PHP) is an outstanding candidate. This specialist real estate investment trust is focused on primary medical assets in the UK and Republic of Ireland.

These assets are local hubs, housing GP surgeries, pharmacies and other medical services. Occupancy is consistently close to 100%, over 90% of rental income is government backed, and most of the rents are subject to fixed or inflation-linked uplifts. This low-risk, non-cyclical backdrop has enabled Primary Health to deliver 22 years unbroken dividend growth.

When I last wrote about the company, it had agreed an all-share merger with smaller peer MedicX. I viewed the deal favourably, and expected shareholders of both firms to back it, which they subsequently did.

A recent post-merger research report by Hardman & Co forecasts average annual earnings growth of over 10% for the next two years, with average annual dividend growth at a little over 4%. Hardman suggests the earnings growth trend will feed through to accelerating dividend growth at some stage. Buyers of the stock at 131p today should secure an initial dividend yield of 4.3%.

Powering ahead

I expect most readers have used a National Express (LSE: NEX) coach at some point in their lives. What you may not know is that the company’s international expansion means it also carries many bus and coach users in North America, Spain and Morocco, and rail users in Germany. In fact, over 80% of the group’s operating profit now comes from outside the UK.

City analysts see average annual earnings growth of over 5% for the next two years, with average annual dividend growth of 8%. Earnings expectations could be upgraded, as the company continues its strategy of winning new contracts and making strategic acquisitions, such as the recently announced acquisition of a majority stake in Silicon Valley’s premier employee shuttle company WeDriveU.

National Express has a prospective 4% initial yield for buyers of the shares at a current price of 410p.

Gold star

Gold miner Polymetal International (LSE: POLY) is forecast to deliver average annual earnings growth of near 9% for the next two years, with average annual dividend growth just into double figures. Rising production is expected from 2020, and with the company’s focus on operating performance and costs, the stage looks set, as my Foolish colleague Royston Wild recently wrote, for profits to keep rising well into the next decade.

Buyers of the stock at 805p today should bag an initial dividend yield of 5.2%.

As with many precious metals miners, there’s some geographical concentration and geopolitical risk in terms of where Polymetal’s assets are located: namely, Russia and Kazakhstan. Investors could mitigate this by going for a half-holding with another dividend-paying gold miner in a different part of the world, such as Egypt-based Centamin.

The post 3 FTSE 250 dividend stocks I’d buy in May appeared first on The Motley Fool UK.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Primary Health Properties. 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.

With time running out to make the most of the current year’s ISA allowance, two FTSE 250 dividend stocks I’d be happy to buy right now are transport provider National Express (LSE: NEX) and gold miner Centamin (LSE: CEY). I believe both stocks are trading at attractive valuations, and could make for highly rewarding long-term investments.

Driving growth

National Express continues to thrive under the stewardship of chief executive Dean Finch. Revenue has advanced at a compound annual growth rate (CAGR) of 5.3% over the last five years. Profit before tax and earnings per share — at CAGRs of 8.9% — have increased faster than revenue, and have supported dividend growth of a similar order (8.2%). These are all signs of a healthy, growing business.

This increasingly diversified international group now generates over 75% of its revenue from outside the UK, compared with around 60% five years ago. Every division accelerated revenue growth in the second half of 2018, and made strategic acquisitions or undertook complementary market expansion. Management was able to hail not only “record results,” but also “growing momentum.”

City analysts have pencilled-in annual EPS growth in mid-single digits for 2019 and 2020. However, I wouldn’t be surprised to see upgrades to these forecasts as time goes on, because further strategic acquisitions are highly likely. Even in the absence of upgrades, I view a rating of 12.2 times the current forecast for 2019 earnings as undemanding, and a prospective initial dividend yield of 3.8% as highly attractive.

Gold and miner

I believe it’s a good idea for investors to have some exposure to gold. When the gold price is below its previous highs, as it currently is, I’d be happy to buy shares in ETFS Physical Gold. This offers a simple, cost-efficient way to gain exposure to the yellow metal.

However, I also believe now could be a great time to pick up some shares in miner Centamin. The company offers something that physical gold doesn’t. Its policy is to pay out “at least 30%” of its net free cash flow in dividends.

Bright outlook

I see particular value in Centamin at the moment. I believe operational challenges in 2018, and guidance of a relatively modest increase in production in 2019 (and higher costs), have depressed the share price to a level that doesn’t reflect a bright longer-term outlook.

I think probably another disappointment was the 2018 dividend. While the payout of $63m (5.5 cents a share), represented 100% of net free cash flow, some analysts and investors were expecting the board to top up the dividend by dipping into the company’s cash pile of $283m.

Nevertheless, I reckon Centamin is now an attractive investment proposition on a rating of 19.8 times analysts’ current-year earnings forecasts, with a prospective yield matching National Express’s 3.8%. Earnings and dividend growth in excess of 20% pencilled-in for 2020 add to the appeal.

The post 2 FTSE 250 dividend stocks I’d buy for my ISA appeared first on The Motley Fool UK.

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G A Chester 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.

However, I have doubts about the sustainability of the dividends of many of these mega-yielders. I’m much more interested in seeking out opportunities to buy into strong businesses, with decent yields and good prospects of delivering dividend growth long into the future. Here are three companies I reckon fit the bill and that I’d be happy to buy a slice of today.

Long-life assets

HICL Infrastructure (LSE: HICL) is an investor in infrastructure assets, such as schools, hospitals, libraries, barracks, roads and rail. It has more than 100 projects in its portfolio, providing it with long-term, stable and predictable cash flows, often with good inflation correlation. Its latest half-year results showed 64% of income coming from the UK, 16% from Europe, 16% from North America and 4% from Australia.

Since listing on the stock market in 2006, the company’s annual dividend has increased 32%. In the half-year results, the board said it’s on target to deliver an 8.05p dividend for its current financial year ending 31 March 2019. This would be a 5.1% uplift on last year and give a yield of around 5% at the current share price. I’m not concerned by the rise of rhetoric about nationalisation of infrastructure assets in UK political circles, because I’m confident that if HICL were to lose any of its assets, it would have to be fairly compensated.

Inflation-smashing dividends

National Express (LSE: NEX) is another FTSE 250 stock I’m keen on right now. This long-established transport provider will be well known to UK readers, but what you may not know is that more than 80% of its operating profit comes from overseas. In addition to the UK, it provides bus and coach services in North America, Spain and Morocco, as well as rail services in Germany.

As my colleague Alan Oscroft commented, covering its latest solid trading update, the company has been “paying attractive dividends for years, [and]its annual rises have been coming in way ahead of inflation too.” City analysts are forecasting another inflation-smashing rise for the current year — namely, a 10% increase to 14.86p, giving a yield of around 4%. A further hefty uplift in the payout is pencilled in for 2019, raising the yield to 4.4%.

Healthy returns

My third FTSE 250 dividend pick for 2019 and beyond is Primary Health Properties (LSE: PHP). This company invests in the freehold or long leasehold of modern purpose-built healthcare facilities in the UK and Ireland. Its portfolio consists of over 300 facilities. The majority are GP surgeries, and other properties are let to NHS organisations, pharmacies and dentists. With most of its rental income coming directly or indirectly from a government body, and subject to upward-only or indexed rent reviews, this is a low-risk, long-term and non-cyclical business.

The company has delivered 21 successive years of dividend growth, and City analysts expect this to continue with a 2.9% increase this year to 5.4p, and a similar rise in 2019. At the current share price, this gives a yield of a little under, rising to a little over, 5%.

The post My top FTSE 250 dividend picks for 2019 and beyond appeared first on The Motley Fool UK.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Primary Health Properties. 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.

I’m not disheartened. At least, not much. I may have paid slightly too much for my original holding, but I’m fairly confident the shares are worth more than their current price of about 1,175p.

To put my money where my mouth is, earlier this week I bought some more shares. Averaging down in this way can be a risky strategy — if I’m wrong, I’ll simply lose more money. So it’s something I only do when I’m strongly convinced that a stock is underpriced.

Why I’ve bought more

In my opinion, easyJet is probably the best-run and most attractive of the UK-listed airline stocks (with one possible exception).

Unlike Ryanair and British Airways-owner IAG, the orange-topped airline has largely avoided self-inflicted problems such as strikes, cancellations and IT meltdowns. Instead, management has focused on continued growth, taking advantage of the failure of former rivals such as Monarch.

This hard work seems to be paying off. easyJet recently confirmed that profits are expected to be in the upper half of the firm’s target range for this year. That means a headline pre-tax profit of between £570m and £580m, which is 40% higher than last year’s figure of £408m.

Analysts’ consensus estimates put the stock on a 2018 forecast P/E of 9.8, with a prospective yield of 4.6%. In 2019, the company is expected to jack up its dividend payments by 19%, giving the shares a forecast yield of 5.4%.

I see easyJet as a stock that could bounce back quickly if the government manages to agree some kind of Brexit deal. I’d rate the shares as a buy at current levels.

A low-risk alternative?

Even if airline travel is hit by Brexit, I don’t expect bus and coach services to be affected. Indeed, history suggests that demand for affordable public transport sometimes increases when fuel prices rise, as they have done recently.

All of this suggests to me that National Express (LSE: NEX) could be worth considering for a dividend-growth portfolio. Although it’s well known for its bus and coach services in the UK, this FTSE 250 firm actually makes the majority of its money overseas.

During the first half of this year, bus services in North America delivered £547.5m of revenue, 45% of the group’s £1,207m of total sales. Spain-based subsidiary ALSA — which operates in countries including Morocco — delivered a further £348m. Only £273m came from the UK. Profits were split in a similar way, with just 26% of adjusted operating profit coming from the UK.

Earlier this year, ALSA won a €1bn contract that will make it the largest bus operator in Morocco. Profits are expected to start arriving in 2020.

In my view, National Express stock offers investors exposure to an attractive, diversified and growing business. Analysts following the stock expect earnings to rise by 11% this year and 6% in 2019. Dividend growth is expected to be at a similar level.

These projections put the shares on a 2018 forecast P/E of 12 with a dividend yield of 3.7%. In my view this could be a profitable time to buy.

The post Why I think the easyJet share price is a FTSE 100 bargain (and I’ve bought more) appeared first on The Motley Fool UK.

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Roland Head owns shares of easyJet. 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.

Over the past 12 months, easyJet has delivered an 18.4% total return for investors, soaring way above the 7.2% posted by the FTSE 100. Furthermore, its long-term performance has been just as impressive, averaging 19.6% annually over the last decade compared with the index’s 7.7%.

I believe easyJet and another outperforming firm in the travel sector offer good value at current levels. As such, I’d be happy to buy a stake in both businesses on the basis that I see them continuing to fly higher than the wider market.

From strength to strength

easyJet said its strong Q3 performance came on the back of “robust consumer demand” and “a benign competitor environment, with unfilled Monarch capacity and challenges for competitors in France.” This helped the company increase Q3 revenue by 14%, while the upgrade to full-year headline profit guidance came despite some industry-wide headwinds in costs, European industrial action and severe weather.

Such challenges tend to wax and wane, but the key thing is that easyJet goes from strength to strength. It continues to have plenty of scope for growth, as demonstrated by its move to introduce higher-capacity (lower-cost) planes on its most popular routes and its rapid expansion at Berlin Tegel airport, following the acquisition of parts of insolvent Air Berlin.

I see little risk from a new chief executive, following Carolyn McCall’s move to ITV after over eight year’s at easyJet. New boss Johan Lundgren is a travel sector veteran, latterly as group deputy chief executive at TUI. I reckon today’s profit upgrade at the midpoint will translate into earnings per share (EPS) of around 117p. At a share price of 1,700p, this gives a price-to-earnings (P/E) ratio of 14.5. Add in a prospective dividend yield of 3.3% and sector-leading balance sheet strength (£655m net cash at the last half-year end) and this is a stock I’d be happy to board.

Continuing positive performance

Meanwhile on terra firma, National Express (LSE: NEX) is another travel stock I’ve been keen on for a while and where I continue to see value. The road has been a profitable one for investors since Dean Finch took the driving seat in 2010. The annual total return over the last five years has averaged 13.7% compared with 7% from the FTSE 100. Over the past 12 months, the returns have been 14.9% versus 7.2%.

The provider of bus and coach services in the UK, North America, Spain and Morocco (and rail services in Germany) earned more than 80% of its operating profit from overseas in its last financial year. This helped it post an 11% increase in underlying EPS. It reported a “positive performance across all divisions” for the first four months of the current year at its AGM in May and analysts are forecasting another 11% rise in EPS (to 32.25p) for the full year. At a share price of 407p, I see great value here with a P/E of 12.6 and prospective dividend yield of 3.7%.

The post Why the easyJet share price could continue to soar higher than the FTSE 100 appeared first on The Motley Fool UK.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV. 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.

The figures for last year were fairly strong. Sales rose by 7.9% to £3,965.2m, completions were 4.6% higher at 14,842, and adjusted operating profit climbed 10% to £841.2m. So why did the shares fall by around 5% after these figures were released?

Profits could peak

One risk is that housebuilders’ profit margins may have peaked. Taylor Wimpey expects operating costs to rise by 3-4% this year. This happened in 2017 too, but the company was able to offset higher costs by increasing average selling prices by 3.5% as well.

If house prices deliver a flatter performance in 2018, as some experts expect, then margins could fall slightly.

That’s certainly a risk, but I think it’s worth remembering that the group generated an adjusted operating margin of 21.2% last year. That’s pretty high and was enough to lift net cash by 40% to £511.8m during the period.

More of the same, please

I believe that if Taylor Wimpey can continue cranking out houses with an operating margin of about 20%, shareholders should continue to do well.

The group’s policy of returning surplus cash to shareholders means that its ordinary and special dividends for 2017 totalled 13.94p per share, giving a trailing yield of 7.5%. A payout of 15.2p per share is forecast for this year, indicating an 8.2% yield.

These payouts are likely to fall if the housing market heads south. But the outlook for the next few years seems reasonably stable. I think Taylor Wimpey remains worth considering for dividend investors.

A dividend stock I’d buy today

Over the last year, bus and train operator National Express Group (LSE: NEX) has been a standout performer in its sector, trading broadly flat while some rivals have lost 20-30% of their value.

Today’ results provide some clues as to why the group has been able to avoid this fate. Revenue rose by 6.1% to £2.32bn last year, while operating profit climbed 7.7% to £197.9m. Earnings per share were 11.7% higher at 25.7p.

That’s a fairly creditable performance. One reason for these gains was that National Express doesn’t operate any UK rail services. Its domestic operations are restricted to bus and coach services, both of which tend to be more profitable than rail and less at risk from political interference.

A second attraction is that more than most rivals, National Express has diversified overseas. It operates bus services in North America, Spain and Morocco and rail services in Germany. In total, more than 80% of operating profit comes from outside the UK.

A cash machine

The group’s operations generated an operating margin of 8.5% last year and free cash flow of £146.4m. The board is recommending a 10% dividend increase, taking the total payout to 13.51p. My calculations suggest that this should be covered twice by free cash flow, making it affordable and suggesting that there’s still room for further growth.

The shares now trade with a forecast P/E of 11.2 and a price to free cash flow ratio of about 12. These figures look affordable to me and should provide good support for this year’s forecast dividend yield of 4.2%. I’d rate this stock as an income buy.

The post Why Taylor Wimpey plc isn’t the only cheap dividend stock that could help you retire early appeared first on The Motley Fool UK.

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Roland Head 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.

In my view, there’s a better strategy – dividend-growth investing. This involves investing in companies that are increasing their payouts. One of the main benefits of this strategy is that a rising dividend tends to put upwards pressure on a company’s share price. The result is that investors can benefit not only from the dividends, but from capital gains too, therefore generating healthy ‘total returns.’

Today, I’m looking at two dividend-growth stocks that I rate highly right now. Neither stock has a super high yield, but both have ample dividend coverage and have grown their payouts significantly in recent years.

DS Smith

DS Smith (LSE: SMDS) is a newcomer to the FTSE 100, having joined the index in December. The £5.5bn market cap group is a leading provider of packaging, operating in 37 countries and counting Amazon UK as a key customer.

As a packaging specialist, DS Smith is benefitting from the rise in e-commerce. Revenue jumped 18% last year, and City analysts expect a further 18% growth in sales for FY2018. Half-year results released in early December were solid, with sales rising 19% and adjusted operating profit increasing 11%. Chief Executive Miles Roberts commented: “We continue to see exciting opportunities for growth, both in Europe and in North America, and, accordingly, the Board remains confident about the outlook for DS Smith.”

Analysts expect the company to pay 16.3p per share in dividends this year, which equates to a healthy yield of 3.2% at the current share price. Coverage is anticipated to be strong, at 2.1 times. Recent dividend growth is impressive, with the payout rising over 50% in the last three years. Analysts expect further growth of 7.2% this year and 8.4% next year.

Turning to the valuation, DS Smith currently trades on a forward P/E of a reasonable 15.1. As a result, I believe the stock is positioned well to provide investors with capital growth and dividends in the medium-to-long term.

National Express

Looking outside the FTSE 100, I also like the dividend prospects of international transport company National Express (LSE: NEX). The group is well diversified geographically, now generating around 80% of its earnings outside the UK, with operations in North America, Europe, Africa and the Middle East

Half-year results released in October were decent, with group revenue rising 6.4% and normalised profit before tax up 12.3%. The company said it was on track to deliver its profit, free cash and leverage targets for the year.

The £2bn market cap company has recorded seven consecutive dividend increases now, with the payout increasing from 6p per share in 2010 to 12.3p per share in 2016. For FY2017 and FY2018, analysts expect further growth of 10% and 9%, which takes the prospective yields to 3.5% and 3.8% at the current share price. Coverage for FY2017 is forecast to be around 2.1 times. 

Trading on an estimated P/E of 13.6, shares in National Express look attractively valued. Long-term shareholders could be rewarded with solid total returns, in my view.

The post 2 of my top dividend stock picks for 2018 appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in DS Smith. The Motley Fool UK has recommended DS Smith. 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.