Next plc isn't the only bargain dividend growth stock I'd buy today

The Motley Fool

While the wider retail sector continues to struggle, Next(LSE: NXT) seems to be performing relatively well at the present time. Although its sales growth is lacking overall, it appears to have a positive future. This could mean higher dividend growth in the long run.

However, it's not the only company that could offer an impressive income outlook. Outside of the retail sector is a stock that released a positive set of results on Wednesday and which could generate impressive total returns.

Improving performance

The company in question is Centaur Media(LSE: CAU). The business to business information, insight and events company delivered a rise in revenue of 6% in the most recent financial year. This represents progress against its transformation programme, with the company having successfully reshaped its portfolio, improved the long-term quality of its revenues and reduced exposure to advertising.

Clearly, there is still some way to go until its turnaround is complete. However, overhead savings of £1.8m and an improved revenue mix could help it to generate rising profitability in future. This could make its dividend more sustainable, as well as offer scope for a higher shareholder payout over the coming years.

At the present time, Centaur Media has a dividend yield of 6.3%. This is highly attractive at a time when inflation is less than half that figure. Although dividends are due to be covered only 1.1 times by profit this year, the potential for a rapid rise in payouts could be high in the long term. Under its new strategy, the stock could become a sound income play.

Difficult period

Next also has the potential to deliver a high income return in the long run. Clearly, the prospects for the UK retail sector are incredibly challenging at the present time. Inflation has moved ahead of wage growth and this has caused consumer confidence to deteriorate. Against this backdrop, a number of retailers are finding sales growth and profit rises somewhat elusive. As such, the company's near term performance could disappoint to some extent.

However, with the stock due to record a rise in its bottom line of 3% in the next financial year, it could see investor sentiment improve over the medium term. Since it trades on a price-to-earnings (P/E) ratio of around 11.5, it seems to offer a wide margin of safety in case trading conditions deteriorate yet further. This could protect investors against share price falls in the wider retail sector, as well as provide scope for a higher level of capital growth in the long run.

Therefore, with Next having a dividend yield of 3.4% from a payout which is covered 2.6 times by profit, it appears to offer a solid income future. The potential for special dividends means that its dividend appeal could improve - especially if trading conditions do likewise in future years.

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Peter Stephens 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.