Two bargain dividend-growth stocks I'd buy today

The last few years have been rocky for tour operator Thomas Cook(LSE: TCG) as it has tried to compete with the rapidly growing online travel market. In 2012 the group crashed to a loss of nearly £600m thanks to its restructuring efforts, and for the next two years, losses continued.

However, since 2015 the firm has been steadily getting back on track and this year City analysts are expecting it to roar back to growth.

Back on track

Analysts are expecting Thomas Cook to report a net profit of £169m for fiscal 2018 followed by a net profit of £194m for fiscal 2019. If the company can achieve these targets, it should report normalised earnings per share of 11p for 2018, rising to 12p for 2019. On this basis, the shares are trading at a forward P/E of just 10.1 for 2019.

Analysts are also expecting the group's dividend payout to multiply as earnings per share expand. Specifically, the City is expecting Thomas Cook to hike its per share payout by 77% for this year to 1.1p and then 66% for 2019 to 1.8. This growth will leave the stock supporting a dividend yield of 1.4%, which isn't much. But considering the payout should be covered more than seven times by earnings per share, it's incredibly likely that in the years following, management will authorise further increases.

Growth supports the outlook

Unfortunately, as Thomas Cook has disappointed so many times, it's clear that the market is sceptical about the company's ability to hit these lofty growth targets. The firm's fiscal Q1 trading update, published this morning, should reassure shareholders.

Indeed, according to the update, management believes the company is on track to hit growth forecasts for the year. Gross profit for the period improved by £16m to £376m, while revenues have risen 7% year-on-year. Moreover, the underlying seasonal loss from operations has been reduced by £10m to £42m, and total bookings for the full year are currently up 8%.

As long as the company can continue an improved performance for the rest of the year, I see no reason why it cannot hit City forecast for growth, which is why I believe it's one of the best bargain dividend growth stocks on the market today.

Rising demand

Another dividend growth champion I like the look of is packing group Smurfit Kappa(LSE: SKG). The company is a leading producer of paper-based packaging products, a tedious business but one that is highly lucrative. Over the past five years, the group's earnings per share grew at a rate of around 13% per annum, and an operating profit margin of 10% means that the bulk of this earnings growth has gone to shareholders.

Over the past six years, the dividend per share has risen by an average of 26% per annum and today the stock trades with a dividend yield of 3.2%. That being said, over the next two years City analysts are expecting payout growth to slow to less than 5% per annum. But considering the firm's historical record growth, I believe these forecasts are too pessimistic. Over the same period, earnings per share are expected to leap by around 33%.

As the payout is already covered twice by earnings per share, there is plenty of headroom for further dividend growth as Smurfit continues to capitalise on the rising demand for paper-based packaging products around the world.

Dividend champion

If these two companies are too risky for you, you might be interested in this dividend-growth stock.

Over the past five years, this firm has already increased its dividend payout by more than 100%, and it looks as if there's further growth ahead.

Indeed, our analysts are so excited about the firm's outlook that they've labelled it one of the market's top small-caps!

Click here to download the free, no obligation report today.

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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