2 inflation-busting dividend stocks I'd buy today

I like a good dividend. But I like one that's being lifted ahead of inflation even better -- and that's what's on offer from Hogg Robinson Group(LSE: HRG).

Last year's dividend was raised by 5.2%, after an 8.2% hike the year before, and forecasts suggest a further 4.9% uplift this year followed by 6.5% for the year to March 2019.

That would be very attractive even with relatively low current yields, but Hogg Robinson is way ahead of that too, with forecasts suggesting yields of 3.5% this year and 3.8% next.

The firm, which describes itself as a "global B2B services company specialising in travel, payments and expense management," revealed first-half results on Thursday which were pretty much in line with expectations.

New growth strategy

With revenue down 1% (5% at constant exchange rates) and underlying pre-tax profit down 7% (10% at CER), underlying earnings per share dropped 6% -- but that was put down mainly to the rollover impact of some client losses and sales slowdown, together with "planned investment in strategic priorities."

The interim dividend was lifted by 6%, while net debt dropped by £0.9m to £30.1m -- and I'm not really bothered by a debt figure of that level for a company with a market cap of £250m.

Chief executive David Radcliffe called it "early and positive results from our new strategy for growth, the first phase of which has seen us invest in the future of our business," adding that the firm has enjoyed "a pleasing number of new blue-chip client wins."

We're looking at a forward P/E of 11.3 this year, dropping to 9.3 next year when EPS is predicted to grow by 21%, and that looks like bargain territory to me.

Faster rises

There's an even more impressive dividend progression on show from Grainger(LSE: GRI), the UK's largest listed residential landlord -- though it's currently offering more modest yields.

Grainger paid out 2.04p per share in dividends in 2013, and just three three years later the annual payment had more that doubled to 4.5p (and that was covered four times by earnings). Forecasts indicate further rises of 9.1% this year and a whopping 15% next year.

Granted that would provide a yield of only around 2%, largely because the share price has soared by 150% over the past five years, but it's setting the scene for an income stream which could compound nicely in the coming years.

Expansion

The firm's latest news is of a private rented sector acquisition after it exchanged contracts to forward fund and acquire Gilder's Yard in Birmingham, which comprises 156 new purpose-built rental homes, for approximately £28m. Grainger expects to earn a gross yield of 7% over cost once the development is stabilised.

That comes after the £30.5m acquisition of a 139-home rental development in Milton Keynes, and a build-to-rent project of 375 homes in Salford for £80m, both in August.

At the interim stage at 31 March, net debt stood at £791m, but a loan-to-value ratio of 36% means I'm happy enough with that, and a reduction in cost of debt to 3.6% (from 3.9% six months previously) is satisfying.

Net rental income in the period grew by 11%, with pre-tax profit up 13%, and I see the firm's strategy of cost-effective expansion as very attractive for a long-term investment. I see a serious cash cow in the making.

Diversified growth plus dividends

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It's a UK-based business, so there's none of the overseas risk that can beset smaller-cap stocks. And it's been steadily growing its earnings for years and lifting its dividends nicely too.

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Alan Oscroft 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.

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