2 FTSE 250 dividend growth stocks I'd buy with £2,000 today
While it is relatively straightforward to find shares which offer either a high yield or strong growth prospects, combining the two in one stock can be tough. In many cases, investors have bid-up the prices of such stocks and this can lead to narrow margins of safety that make them unattractive to new investors.
However, the FTSE 250 continues to offer a number of opportunities to generate a high income alongside strong capital growth prospects. Here are two prime examples which could be worth buying today.
Reporting on Friday was defence, security, transport and energy company Ultra Electronics(LSE: ULE). The company released a trading update which showed that conditions in its markets have remained as expected, with it anticipating modest progress in underlying revenue and operating profit for the full year. It expects a second-half weighting to its financial performance, with it investing in increased R&D and capital expenditure.
The company was able to secure a higher volume of orders in the first quarter of the year than in recent years. This resulted in a stronger order book, with it standing at £933m at the end of March versus £914m at the start of the year.
A growing order book suggests that Ultra Electronics could deliver improving financial performance. The company is expected to post a rise in its bottom line of 9% in the next financial year, which puts it on a price-to-earnings growth (PEG) ratio of just 1.4. Alongside a dividend yield of 3.6% which is covered 2.2 times by profit, this suggests that the company has high total return potential in the long run.
Also offering a potent mix of capital growth and dividend potential is consumer goods company PZ Cussons (LSE: PZC). The stock has experienced a challenging period, with its performance in key markets being less impressive than had been anticipated.
However, the company now appears to be on the cusp of a successful comeback. It is expected to post a rise in its bottom line of 11% next year, followed by 10% in the following financial year. This puts it on a PEG ratio of just 1.6, which is relatively cheap for a stock that has exposure to a number of markets via a wide range of brands.
Since PZ Cussons is expected to record improved profitability, its dividend growth rate could be relatively impressive. The company is due to increase its shareholder payouts by over 6% per annum during the next two years. This means it has a forward yield of 3.8% from a dividend that is due to be covered 1.9 times by profit in the next financial year.
Certainly, a fall in profit in the current financial year could cause investor sentiment to come under a degree of pressure. But with a solid total return outlook, the stock seems to offer investment appeal.
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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK owns shares of PZ Cussons. 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.