2 exciting dividend stocks with massive potential
The outlook for the UK economy is highly uncertain. The general election is just a couple of weeks away and Brexit talks are set to move ahead over the coming months. With inflation moving higher, the UK economy could realistically experience a further downgrade to its growth outlook. As such, obtaining wide margins of safety on shares could be key for investors. With that in mind, here are two stocks which could be worth buying right now.
Improving performance
Real Estate Investment Trust (REIT) McKay Securities(LSE: MCKS) reported improving profit for the full year on Monday. Its adjusted profit before tax increased by 8.3%, with gross rental income up 3.1% to a historic high. It also recorded an increase in its property portfolio value of 7.2%, which generated a 1.7% valuation surplus. The company also made good progress with its contracted rental income, which moved 11% higher.
With the company focused on London and the south east, its outlook is somewhat challenging. In the current financial year it is forecast to report a rise in its bottom line of just 3%, followed by further growth of only 4% next year. Despite this low growth rate, the company's dividend is expected to increase by around 2.2%. This puts it on a forward yield of around 4%, which should keep its shares popular among income investors as inflation moves higher.
While its outlook is relatively uncertain, McKay Securities offers a wide margin of safety. For example, it trades on a price-to-book (P/B) ratio of only 0.8. This suggests that while there is scope for property valuations and rental income in the UK to come under pressure, McKay Securities' share price could offer a sound risk/reward ratio over the long run.
Low valuation
Also offering upside potential is property investment and development company Town Centre Securities (LSE: TOWN). Unlike McKay Securities, it is forecast to post a rise in its bottom line which is well ahead of the wider index. Its earnings are due to rise by 13% in the current year, and by an additional 11% next year. When combined with a relatively low rating, this equates to a price-to-earnings growth (PEG) ratio of only 1.6.
As well as offering growth at a reasonable price, Town Centre Securities appears to have income appeal. It has a dividend yield of 4%, and with dividends due to rise by almost 5% next year, its income return should stay ahead of inflation. Beyond 2018, further scope for dividend growth is on the cards, since it has a dividend coverage ratio of 1.2. This is relatively healthy for the property investment sector and indicates that sufficient capital is available for reinvestment.
The last five years have been a prosperous period for Town Centre Securities, as evidenced by a share price which is up 82% during the period. With a low valuation, growth potential and an attractive income outlook, more growth could be ahead.
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Peter Stephens has no position in any 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.
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