Because while the Footsie soars, the valuation gap between the London Stock Exchange and much of the rest of the world remains noticeable.  

The FTSE 100’s trading at 18 times earnings versus nearly 30 for the S&P 500 and 19 for the STOXX Europe 600. And its trailing yield is 3.1% next to a meagre 0.9% for the S&P 500 and 2.5% for Europe’s index. 

According to AJ Bell, investors could be in line for a 3.4% yield from the FTSE 100 in 2026. And dividends are expected to be supported by total pre-tax profits of £260bn for FTSE 100 firms, which if achieved would beat the previous 2022 record of £231bn.

FTSE 250

Meanwhile, the FTSE 250 contains some huge yields and very cheap shares. Over 10 stocks are yielding 9%+!

Admittedly, more of these firms rely on the misfiring UK economy. But there are many global dividend-paying firms in the mid-cap index getting thrown out with the bathwater. So, potential opportunities there.

British billionaire Jim Mellon has been loading up on cheap renewable energy trusts that are yielding 10-12%. So there could also be income opportunities in this space (though future regulatory changes may hurt these trusts’ cash flows).

Small-cap opportunities

It’s the same script with UK small-caps, which have been overlooked for years now.

Historically, these have traded at a premium to large-caps because they have higher growth potential. But in 2026, many are now trading at a discount to FTSE 100 blue-chips, which is a rare historical anomaly. 

Some quality UK small-caps are yielding 4% to 6%, despite still growing earnings strongly. 

As Ken Wotton, manager of the Gresham House UK Smaller Companies fund, points out: “There’s a value play on the UK for investors, and within that there’s a value play at the small and mid-cap end of the market”.

The Gresham House UK Smaller Companies fund has £265m-cap Brooks Macdonald Group (LSE:BRK) as its top position. This is a wealth management firm that last year sold off its international business to focus purely on the UK.

This focus on one market adds risk, of course, especially given the high levels of competition. But the UK’s also a structurally growing market due to the country’s ageing population and complex pension rules.

Brooks Macdonald offers a range of investment management services to private high-net-worth individuals, pension funds, and institutions. It recently moved from AIM to the main market, which should put it on the radar of more investors.

Indeed, this is what the fund above seems to be anticipating. In September, it wrote that Brooks Macdonald is “a leading player in the highly fragmented wealth management sector and is materially undervalued relative to precedent M&A transactions in the space.” 

With Brooks Macdonald’s shares trading at just 11 times forward earnings while offering a 5.4% yield, this small-cap dividend opportunity may be worth exploring further.

Foolish takeaway

Putting all this together, today could still be a once-in-decade chance to lock in some rare passive income opportunities, particularly across the FTSE 250 and small-cap space. Many UK shares here look undervalued.

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Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Tough times

One example has been high-tech instrument, test equipment and software provider Spectris (LSE: SXS).

This FTSE 250 member has an excellent multi-decade history when it comes to raising its dividends. You don’t manage that without doing a lot of things right.

That said, it’s been pretty tough going for holders lately. The share price has dropped 25% in 2024 alone.

The latest leg down came this month following a poorly received update on trading. On June 19, the company said that it now expected full-year adjusted operating profit to be “at, or marginally below, the bottom end” of analyst expectations of between £232m and £259m. Reasons included weaker demand in China and a slowing of sales of electric vehicles.

Looking cheap!

Glass half-full, this period of stodgy trading has brought the valuation down to what might turn out to be an attractive entry point.

Right now, I can pick up the shares for 15 times forecast FY24 earnings. That’s something of a bargain relative to it’s five-year average of 21.

Of course, there’s always a chance that the share price has further to fall. This is quite possible if trading over the second half of the year proves even more sluggish.

For now, however, I think there are reasons to be optimistic. The most recent final dividend (for FY23) was up 5% up on the previous year. Moreover, the payout for 2024 is expected to be covered well over twice by profit.

The shares currently yield 3%.

Green shoots

Another dividend growth hero has been AIM-listed investment manager Brooks Macdonald (LSE: BRK). It’s been raising its payouts consistently since it first listed on the market back in 2005.

I’m confident this trend will continue, even if the tricky economic conditions since the pandemic have made for a rather volatile share price.

On a positive note, it was announced in April that funds under management stood at £17.9bn by the end of Q3. This was an increase on the £17.6bn held at the end of the previous quarter, thanks to “the improving macroeconomic outlook“.

With this in mind, news of a first cut to interest rates by the Bank of England could see sentiment in minnows like Brooks Macdonald radically improve.

Should this happen, the current valuation of 12 times forecast FY25 earnings will look a steal. Again, this is significantly below the five year average price-to-earnings (P/E) ratio of 21.

Above-average yield

This is not to say that I’d necessarily be in for an easy ride if I bought the shares today. While flat in 2024 to date, I can see the price heading south again if inflation comes back to bite.

Still, the 4.3% dividend yield for the next financial year is higher than most small-cap companies. Although not guaranteed, it’s also likely to be covered twice by earnings.

Like Spectris, I’m considering an investment here when funds become available.

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Royston Wild: Games Workshop Group 

The Games Workshop Group (LSE: GAW) share price has fallen off a cliff since it struck record closing highs in September. I think this provides an excellent dip-buying opportunity.  

Though the fantasy wargame maker still trades on an elevated valuation (it carries a forward P/E ratio above 25 times) I think its long record of earnings growth merits a premium. It’s one I was happy to pay when I bought the growth stock late last year. 

Games Workshop has an impressive history of upgrading earnings forecasts. So appetite for the firm has nosedived since it advised in mid-September that recent trading has ‘only’ been in line with forecasts. I think this is an overreaction by the market, and I fully expect rapid international expansion and moves into money-spinning media like video games to keep producing strong and sustained profits growth long into the future. 

Royston Wild owns shares in Games Workshop Group.

Rupert Hargreaves: Dunelm Group

The UK retail sector is incredibly competitive. This makes it hard for most companies to grow. However, some – like Dunelm Group (LSE: DNLM) – seem to have cracked the code.

Since 2018, the group’s earnings per share have risen by 75%, and it does not look as if the company will slow down any time soon. Dunelm has invested heavily in its e-commerce strategy, which has helped the group weather the pandemic.

As the company reinvests its pandemic windfall profits back into growth, I reckon Dunelm can continue to expand. That is why I would buy the growth stock for my portfolio.

Rupert Hargreaves does not own shares in the Dunelm Group.

Christopher Ruane:  S4 Capital

After a recent pullback in its share price, I think now could be a good time to add more S4 Capital (LSE: SFOR) to my portfolio. The digital advertising group has continued its aggressive growth strategy, announcing last month the acquisition of tech specialist Zemoga. With almost 400 staff, it is a sizeable addition to the S4 fold. The deal strengthens S4’s foothold in South America.

Fast growth brings risks, including integrating people. If S4 doesn’t do that well, it could stall profit growth.

Christopher Ruane owns shares in S4 Capital.

Andy Ross: Brooks Macdonald 

Brooks Macdonald (LSE: BRK), is a Jim Slater-style growth stock in my opinion. Its price to earnings growth (PEG) ratio is 0.5, which indicates the shares may be undervalued. A price to earnings ratio (P/E) of 13 adds further credence to that view. Top line growth has been good as well with revenue going from £81m in 2016 to £118m in 2021. Not super exciting, but consistent.  

Recent full year results were good. Group revenue of £118.2 million was up 8.8%. The underlying profit margin was up by 4.7 points to 25.9%.  

All in all, it strikes me as a top growth stock. Best of all, as a financial services firm, it’s not going to be impacted by gas prices, lorry driver shortages or many of the other problems companies are facing.  

Andy Ross does not own shares in Brooks Macdonald.

Zaven Boyrazian: Focusrite

Focusrite (LSE:TUNE) designs and develops a wide range of music production equipment and software for the audio industry. It undoubtedly caters to a niche market. But the demand for audio equipment throughout the pandemic increased as many individuals took up music production to pass the time during lockdown.

Now that lockdown is over, demand remains high as music festivals and other events make their return. Looking at the latest trading update, revenue for its 2021 fiscal year is estimated to be £173m. That’s up from £130m in 2020 and is significantly ahead of analyst expectations.

Management does employ a fairly aggressive acquisitive growth strategy that could create problems if a lousy deal is made. However, given the impressive growth, it’s a risk that I think is worth taking.

Zaven Boyrazian does not own shares in Focusrite.

Roland Head: Hikma Pharmaceuticals

FTSE 250 pharma group Hikma Pharmaceuticals (LSE: HIK) is high-quality business that’s unfairly overlooked by investors, in my view.

This £5.4bn company sells a mix of generic medicines and own-branded products. Profit margins are high.

Recent news includes the launch of a generic version of leading asthma drug Advair and the acquisition of injectables specialist Custopharm. Hikma generates margins of nearly 40% on injectables, so growth here could boost profits.

The main risk I can see is that management will overpay for acquisitions. But I don’t see any sign of this yet.

Analysts expect Hikma’s earnings to rise by 10%-15% per year between now and 2023. With the stock trading on 16 times 2021 forecast earnings, I view Hikma as a buy for growth.

Roland Head does not own shares in Hikma Pharmaceuticals.

G A Chester: The Gym Group 

With firepower of over £100m in cash and credit, The Gym Group (LSE: GYM) is uniquely positioned to take advantage of fallout from the pandemic. All its rivals are more financially constrained. 

Due to the blizzard of retail store closures, GYM is being offered dozens of high-quality sites at very attractive commercial rents. It currently expects to open 40 new gyms by the end of next year, taking its estate to around 230. 

There’s execution risk in the size and speed of the rollout, but this near-term opportunity and structural growth in the low-cost gym segment make GYM my top pick. 

G A Chester has no position in The Gym Group.

Kevin Godbold: Indivior

Pharmaceutical company Indivior (LSE: INDV) will release its third-quarter report on 28 October. Meanwhile, City analysts have pencilled in an uplift in earnings of around 60% for 2022.

Previously, July’s half-year report contained some impressive numbers for revenue and profits. The firm’s SUBLOCADE injection product drove much of the progress, and that’s used for treating opioid use disorder — Indivior specialises in treatments for addiction and serious mental illness.

There’s a positive outlook for the business and the company is engaged in a $100m share buyback programme, which the directors say “appropriately balances returning capital to shareholders with maintaining our ability to execute our patient-focused strategy.”

As the business makes further progress, I think there could be more to come for shareholders here.

Kevin Godbold owns Indivior shares.

Paul Summers: Boohoo Group

Utterly biased I may be but I really do think fast-fashion giant Boohoo (LSE: BOO) offers great value at its current price. At the time of writing, the shares have tumbled nearly 50% in twelve months. For a hugely ambitious company with multiple brands (now including Debenhams). a rapidly growing international presence and 500 million potential customers, that looks very overdone. 

Yes, supply chain problems, ongoing investment in the business and the lowering of guidance on sales growth may also be troubling some. However, I regard these as either temporary setbacks or prudent moves by management that shouldn’t trouble patient holders.

Having fallen so far, I submit the risk/reward trade-off with Boohoo has never been better.

Paul Summers owns shares in Boohoo Group

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Instead, I concentrate on companies with sustainable dividend yields. This often means a lower yield compared to the highest payouts on offer, but a higher level of cover and more room for growth. 

With that in mind, here are two dividend stocks I would buy today for my portfolio with £2,000. 

Dividend stocks to buy

The first company on my list is the self-storage operator Safestore Holdings (LSE: SAFE). Based on current City projections, the firm will offer its investors a dividend yield of 2.3% in 2021. 

The dividend payout is backed by income from the firm’s real estate portfolio. Over the past nine years, the company has steadily increased its distribution as its property portfolio has grown. Net income has expanded from around £109m in 2015 to £178m, and analysts expect further growth in 2021. 

With Safestore’s payout covered 1.7 times by earnings per share, the company has the flexibility to both invest in the business and return cash to investors. As such, I believe it can continue to increase its dividend in the years ahead as management grows the self-storage operation. 

Of course, these are just projections at this stage. Increased competition in the self-storage sector could push down profit margins and restrict the company’s cash flows. This would have a detrimental impact on the dividend. An increase in interest rates may also restrict the amount of cash available for dividends if Safestore’s interest bill jumps. 

Despite these risks and challenges, I would buy the company for my portfolio dividend stocks right now. 

Unloved income 

The other company I would buy right now is Brooks Macdonald (LSE: BRK). With a dividend yield of 3.1% at the time of writing, this firm offers more in the way of income than Safestore. The stock also seems to have more room for dividend growth. The payout is covered a healthy 2.4 times by earnings per share at the time of writing. 

Brooks offers a range of investment management services and related professional advice to high net worth individuals, charities, and trusts. Demand for these services is only growing as the wealth of the world’s richest is increasing. This implies demand for the group’s services should increase, leading to fee growth and higher profits. 

These are the main reasons why I’d buy this firm for my portfolio of dividend stocks. As income grows, I reckon the company will continue to increase the shareholder payout. 

That being said, the wealth management sector is incredibly competitive, and fees have been under pressure for years. Brooks’ position in the market, therefore, should not be taken for granted. If competitors start to steal market share, profits could fall. 

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Beating the market 

Brooks has been punching above its weight in recent years. The firm has expanded rapidly, building on its physical presence around the UK to attract high net worth clients to its award-winning offering. 

According to a trading update issued by the firm today, discretion funds under management totalled £11.66bn at the end of March, a decrease of 0.7% over the quarter. While the decline is disappointing, it’s mostly due to market volatility during the period. Indeed, according to the update, new business totalled £343m for the quarter. Investment performance, on the other hand, detracted £422m from total funds under management. For some comparison, over the period the MSCI WMA Private Investor Balanced Index — a closely watched benchmark for private investor returns — decreased by 4.5%. 

Commenting on these numbers, CEO Caroline Connellan declared that the firm’s performance during the period demonstrated the “value of good active management in difficult markets.” 

As Brooks continues to exhibit “good active management” I believe that the company will continue to produce outsized returns for investors.

Over the past decade, the stock has returned 23.8% per annum. At this rate, a £1,000 investment made 10 years ago would be worth £9,500 today. Earnings growth has been the primary driver behind these gains. If the firm hits City growth targets for the next two years, it will have managed to grow earnings per share 100% in just five years. 

What’s more, over the past six years, the dividend per share has risen at a compound annual rate of 17.3%, and there’s still plenty of room for payout growth. The distribution is covered 2.3 times by earnings per share. 

And despite all of the above, shares in Brooks still look cheap. The stock is currently trading at a forward P/E of 13.8 and supports a yield of 3.1%.

Cash cow 

Another small-cap that I believe can produce significant gains for investors is Advanced Medical Solutions (LSE: AMS). 

A manufacturer of wound care solutions, Advanced’s growth over the past six years has been nothing short of outstanding. Revenues have doubled over this period, and so has net profit. 

But what I really like about this business is its cash generation. Since inception, the group has been a cash cow, and today, the firm has a net cash balance of around £63m, just under 10% of its market capitalisation.

As the business does not require much in capital spending, the company has lots of options regarding what it can do with these funds, including boosting the dividend payout to investors. While the shares only yield 0.4% today, the payout is covered nine times by earnings per share and, according to my figures, the firm has enough cash to maintain its payout for more than 10 years at current rates if profits fall to zero. Management is also “actively reviewing M&A opportunities that will further increase value for shareholders” according to Advanced’s latest full-year results release.

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With that in mind, here’s a look at two growth stocks that I believe have excellent ISA potential.

Boohoo.com

Clothing manufacturer Boohoo.com (LSE: BOO), which offers the latest fashion at affordable prices, is growing at a stunning rate. Indeed, between 2014 and 2017, sales surged from £110m to £295m, a compound annual growth rate (CAGR) of nearly 40%. Profitability in that time climbed significantly higher too, with net profit almost tripling from £8.4m to £24.5m. Can the company keep this growth rate up? I believe it can.

Boohoo released a strong trading update in January, in which it revealed that for the first 10 months of the year, total group revenue had risen to £491m, a huge 97% increase on the same period last year. Of particular note was the performance of subsidiary PrettyLittleThing, which saw its top line rise an incredible 232%, taking year-to-date revenue to £146.4m. Management advised that full-year group revenue is likely to be up around 90% on last year, lifting its guidance from a previous estimate of 80%. City analysts currently have a figure of £563m pencilled in.

Boohoo shares have been a spectacular investment over the last three years, rising from 27p in mid-March 2015 to 175p today. However, if the company continues to grow at such a strong rate, I think there could be plenty more to come from the shares. The stock certainly isn’t cheap, trading on a forward-looking P/E ratio of around 48, however, given that the shares have pulled back around 30% over the last six months, I think now could be a good time to take a closer look at the business.

Brooks MacDonald

If Boohoo.com looks too expensive for you, take a look at Brooks MacDonald (LSE: BRK). It’s an independent investment management company that offers a range of specialised services to individuals, pension funds and institutions. Fund management may not be the most exciting business in the world, but don’t let that put you off – over the last decade the shares have returned around 675%.

Half-year results, released yesterday, showed that the group has momentum at present. Funds under management climbed 26% on the previous year, to £11.7bn, with revenue rising 11% to £48.8m. Earnings per share growth was a little soft at just 1.2%, however, the company did increase its half-year dividend by 13% to 17p per share. Chief Executive Caroline Connellan commented: “Following an encouraging first half of the year and continued momentum in the early weeks of the second half, we remain confident of the significant growth opportunities open to us.”

With analysts forecasting full-year earnings of 114p per share, the forward P/E here is 18.7. A prospective dividend yield (also tax-free within an ISA) of 2.3% is on offer. For a company that should enjoy tailwinds from rising investment markets over time, those metrics look reasonable to me.

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The keys to the firm’s growth remain twofold: improving economies across the markets where it operates; and the shift towards e-commerce that is fuelling demand for its cardboard boxes. In Europe, cardboard box volume demand was up 3% year-on-year in 2017, with Q4 demand increasing 5%.

However in the Americas, volumes were up only 2% when excluding the basket case that Venezuela’s economy has become. This weak performance was mainly due to the rising US dollar making it more expensive to export boxes into Latin America and the continued supply shortfall from its US plant making higher-end, non-recycled kraftliner boxes.   

Despite these headwinds, group sales still rose 5% in 2017 to €8.5bn, with growth accelerating to 7% in Q4 as the effects of price increases began to flow through. And although EBITDA was flat year-on-year at €1.2bn and pre-tax profits dropped 12%, the medium-term outlook for the group still looks quite appealing.

This is because of the aforementioned economic tailwinds as well as industry-wide action that is leading suppliers to increase the prices they charge customers. Passing on these rising input costs has already begun to restore forward margin progress with Q4 EBITDA marching 10% higher than in the year prior.

On top of continued sales increases and renewed margin improvements, Smurfit Kappa also offers investors a very nice full year dividend of 87.6 cents that’s more than covered by basic earnings of 177.2 cents per share. And with net debt comfortably within the target range at 2.3 times EBITDA at year-end, the group’s balance sheet is in good health.

So, with its final dividend payment growing by 12% continuing a run of double-digit dividend increases, earnings growth restored in Q4 and a positive global economic outlook, I reckon Smurfit Kappa could be a great pick for long-term investors at a very attractive valuation.

Benefiting as rivals struggle

Another company with a fast-growing dividend that’s caught my eye is asset manager Brooks Macdonald (LSE: BRK). Since 2013, the group’s payout has nearly doubled from 23p to 41p per share as rapid increases in the group’s assets under management (AuM) are driving revenue and profits higher.

This process continued strongly in the half year to December as AuM rose 12.3% higher to £11.7bn. Encouragingly, this impressive growth was down to both net fund inflows and strong performance from assets already under management.

While some of this growth is coming in lower margin areas, there’s still good potential for the group as a whole to continue increasing underlying pre-tax margins from the 20.1% achieved in full-year 2017. This is especially true as investments in back office functions begin to cut costs and fund inflows domestically and internationally lead to increased benefits of scale.

Although Brooks Macdonald may only kick off a 2% dividend yield based on today’s share price, the group’s high-performing funds are laying the groundwork for even more growth in AuM, profits and dividends.  

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According to the company’s half-year trading update published this morning, for the six months to the end of December, funds under management expanded 12.3% during this period. Net organic growth over the period was 7.7%, with rates of growth remaining strong in UK Investment Management. 

For the three months to the end of December, assets under management expanded 6.8%. The growth was a combination of several factors, including performance (£319m) and net new business (£431m). 

Unfortunately, even though Brooks seems to be attracting new business, management warned today that due to lower yields across the market, performance had deteriorated and this is weighing on margins. Still, a tight grip on costs, management believes, should help offset this pressure. Today’s update said: “Our strong FUM trajectory, combined with a disciplined approach to costs, means we are well placed to mitigate external pressures on revenue yield.“

Improving dividend outlook 

For the full-year to June 2018, City analysts are expecting Brooks to report flat earnings. But next year, growth is expected to return with an expansion of 22% pencilled in, giving a 140p per share estimate of forward earnings. On this basis, the shares do look slightly expensive, trading at a forward P/E of 14.3. However, it’s the company’s dividend potential that interests me. 

Analysts are expecting the firm to pay out 50p per share to investors for 2018, and 60p for 2019 giving a dividend yield of 3.1%. This payout is going to cost around £6m, easily covered by the estimated pre-tax profit of £23m and backstopped by £32m of cash on the balance sheet as of the end of fiscal 2017. 

So not only does it look as if Brooks’ dividend is safe, but it also seems as if management has plenty of room to grow it further in the years ahead. 

Market-beating managers 

Miton Group (LSE: MGR) is another asset manager with a bright dividend future. At the time of writing, the shares support a dividend yield of 3.2%, which is just below the market average. However, over the past four years, the dividend has doubled as earnings per share have risen 100%, and City analysts are expecting growth of 28% for 2017 followed by 14% for 2018.

 This earnings expansion should, according to the City, enable the firm to increase its payout 40% during the next two years. Backing up the distribution is a net cash balance of nearly £20m. 

A trading statement issued by Miton last week confirmed that the company is on track to hit City growth targets for the full year. For the 12 months ended 31 December, assets under management were £3.8bn, up 32% year-on-year. A strong performance by the group’s funds during the period helped convince investors to come on board. 13 out of 15 of Miton’s funds were ranked as “first or second quartile performers since manager tenure.” Also, the group’s top fund manager, Gervais Williams has a significant stake in the firm. 

As long as its fund managers can keep up this rate of outperformance, Miton should continue to throw off cash and fund further dividend increases. 

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That’s particularly the case with smaller companies, where valuations may not have risen by as much as their larger stock market peers in recent years. With that in mind, here are two small-cap stocks which could deliver high returns this year.

Encouraging performance

Reporting on Tuesday was SIPP provider Curtis Banks (LSE: CBP). The company’s performance in 2017 was encouraging, making strong progress with the integration of Suffolk Life Group. It traded in line with management expectations, with new SIPPs during the year amounting to 8,798, and overall SIPP numbers increasing to 76,474. Attrition rates on own SIPPs have remained in line with previous years at 5.7%, with the company’s assets under administration totalling £24.7bn, versus £20.4bn last year.

Looking ahead, Curtis Banks is expected to report a rise in its bottom line of 12% in the current year, followed by further growth of 10% next year. Despite such a strong rate of growth, its shares trade on a price-to-earnings growth (PEG) ratio of only 1.5, which suggests that there could be upside potential ahead.

In addition, the company has improving income prospects. It’s expected to have a dividend yield of around 2.3% in the current year. But with dividends due to be covered 2.5 times by profit, there could be significant growth ahead here. As such, the total return on offer could be high in the long run.

Improving outlook

Also offering investment potential within the wealth management space is Brooks Macdonald (LSE: BRK). The company’s financial performance is linked to that of the stock market, so it’s perhaps to be expected that it’s forecast to deliver strong earnings growth in the near term. In fact next year, the company’s bottom line is expected to rise by 22%, which puts it on a PEG ratio of 0.6. This suggests that it may be deserving of a higher valuation if it’s able to deliver on the upbeat forecasts.

Shareholders are expected to benefit from rising earnings via a higher dividend. In fact, shareholder payouts are forecast to rise by 22% in the next financial year. This would put the stock on a dividend yield of 3.1%, with dividends being covered 2.3 times by profit. This suggests that further double digit dividend growth could be on the cards, which could make Brooks Macdonald a worthwhile income play.

Certainly, the company may not offer the stability of other income stocks over the long run. But for investors who are concerned about inflation, it could be a realistic alternative.

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I’m talking of inflation-beating progressive dividends, which might not offer top yields just yet. If you get in early, you can gear up the effective yield on your initial purchase price over the coming years.

Investment management firm Brooks Macdonald Group (LSE: BRK) looks like one such candidate to me. Although its forecast dividend yield for the year to June 2018 stands at a modest 2.5% on today’s price of 2,000p, that would represent a 125% increase in cash terms in just five years.

If you’d bought shares back then, you’d already be looking at an effective yield this year of 3.8% on your purchase price, and further progressive rises would keep on boosting that.

Five-year record

And you’d have a 50% capital gain over five years too, even after this summer’s share price spike has fallen back — and good dividend stocks are surprisingly good at achieving share price growth too.

In fact, if you’d bought shares at flotation in 2005, you’d now be sitting on a 13-bagger, and this year’s dividend would yield 33% on the flotation price.

A quarterly update Tuesday told us that discretionary funds under management at 30 September had risen 5.1% since 30 June, to £11bn, with the gain consisting of £376m in net new business and £155m in investment performance.

EPS forecasts for this year are actually pretty flat, but that sounds like it might be too pessimistic. On a forward P/E of 18, Brooks Macdonald Group looks like a buy to me.

Little boxes…

…well, boxes of all sizes, with a variety of other packaging products thrown in. That’s the order of business for DS Smith (LSE: SMDS), and it’s been pretty good at it, bringing in years of steady EPS growth — and that all-important progressive dividend too.

From 8p in the year to April 2013, the annual payment is expected to have doubled by the same stage in 2018. The share price, at 497p, has kept in step as earnings have climbed, so the yield has been steady at around the 3.2% to 3.5% level — which is close to the long-term FTSE 100 average.

But what is far from average is that level of dividend growth. Looking at the five-year story again, anyone who bought in late 2012 would be facing an effective dividend yield this year of 7.4% — and a 136% rise in the share price.

They’re cheap

The shares are on forward P/E multiples for this year and next of 14.5 and 13.2 respectively — slightly below the FTSE 100 average, but with a significantly better-than-average track record and long-term expectations.

For a stock with attractive prospects for both growth and dividends, that just looks too cheap to me — and I can’t help wondering if the temporary slip to only single-digit EPS growth predicted for this year is scaring off investors, even though there’s a boost to 10% pencilled in for next year.

Meanwhile, European growth continues, with the company having just snapped up Romania’s EcoPack and EcoPaper for approximately €208m. DS Smith says this will “significantly enhance our capacity to serve customers in this high growth region as well as supporting our wider substantial Eastern European presence.“

Perhaps “Europe” is frightening the punters? It shouldn’t.

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