2 inflation-busting dividend growth stocks for a starter ISA

International distributor of commercial floor coverings James Halstead (LSE: JHD) might not be the first company you think of when considering inflation-busting dividend growth stocks, but that's precisely what shares in the firm offer.

Indeed, over the past five years the dividend distribution to investors has grown by around 10% per annum and, if today's interim numbers are anything to go by, it looks as if this is set to continue.

On the up

Today, James Halstead reported what CEO Mark Halstead described as "yet another record half-year for sales and profit." Revenue for the period to 31 December increased 5.4% to £126m, and pre-tax profit ticked higher by 20% to £23.7m. Earnings per share rose by 3.5% to 8.8p and off the back of these figures, management increased the interim dividend by 2.7% to a "record" 3.9p.

For the full year, City analysts have pencilled in dividend growth of 7.7% taking the fiscal 2018 distribution to 14p per share, up around 100% in seven years, and giving an inflation-busting dividend yield today of 3.6%.

And even though James Halstead's earnings growth rate is in the low single-digits, I believe the company can continue to grow its distribution above the rate of inflation for the foreseeable future.

The dividend is currently covered 1.3 times by earnings per share, which gives management scope to increase the payout at a rate slightly more than earnings growth -- precisely what the City is expecting for the next two years. Further, the distribution is backed by just under £48m of cash on the balance sheet, which according to my calculations is enough to maintain the payout for as long as two years if profit disappears altogether.

Customer support

Another inflation-busting dividend champion I would consider including in my ISA is Games Workshop(LSE: GAW).

What I like about this producer of fantasy gaming products is its robust reputation with customers and cash generation. While the retail sector in general has suffered from (and continues to do so) changing consumer preferences, Games Workshop's unique customer base has continued to support the business. Over the crucial Christmas trading period, the company saw a "cracking" performance across its business, which continued through January and prompted management to inform the market that full-year profits are now going to be ahead of expectations.

A 71% increase in online sales for the six months to 26 November highlights just how strong demand for the firm's brands is, contrary to broader retail sector trends.

With sales multiplying, cash generated from operations more than doubled during the six months, and with relatively low capital spending requirements, management is returning as much money as possible to investors. For the full year, City analysts are expecting the business to return 120p per share via dividends, giving an inflation-busting dividend yield of 5.5% at current prices. The distribution will be covered 1.5 times by earnings per share and is further supported by £29m of net cash on the balance sheet (at the end of the fiscal first half).

Over the past five years, the company's dividend has grown by just under 20% per annum, which gives me confidence that the payout can continue to grow above the rate of inflation in the years ahead.

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Rupert Hargreaves owns no 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.

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