2 cheap dividend growth shares that could help you beat the FTSE 100

With the FTSE 100 being up around 5% in the last year, its total return is approximately 9%. That is a relatively strong return from the index - especially when the uncertain economic outlook during the period is factored-in.

Looking ahead, there could be additional volatility from Brexit, as well as the threat of a US-China trade war. However, beating the FTSE 100 is still likely to lead to high returns in the long run. And with that in mind, here are two shares with growing dividends that appear to be undervalued at the present time.

Improving performance

Reporting on Tuesday was infrastructure services, buildings and developments, as well as housing company Kier Group(LSE: KIE). The company's trading update for the financial year to 30 June 2018 showed that its profitability is expected to be in line with previous guidance. Its net debt is due to be between £170m and £190m, which is as per expectations. It has been able to increase its construction and services order books to over £10bn, which provides a 90% secured revenue position in these segments for 2019.

Looking ahead, the company is confident in its medium-term outlook. Its core business continues to be underpinned by robust macroeconomic and demographic fundamentals. It is also seeking to reduce its net debt, while growing its order books.

With Kier forecast to post a rise in its bottom line of 13% in the current financial year, its price-to-earnings growth (PEG) ratio stands at just 0.6. this suggests that it offers a wide margin of safety. And with dividends having grown at an annualised rate of around 5% from 2015 onwards, its 7.2% dividend yield could become even more appealing over the medium term.

Bright future

Also offering impressive income prospects and the opportunity to beat the FTSE 100 is diversified mining company Anglo American(LSE: AAL). The company is in the midst of a resurgence, with a growing world economy helping to provide improving trading conditions for a variety of commodity prices. As a result, the stock's bottom line has grown rapidly over the last two years. This has allowed dividend payments to be restarted after a suspension in 2016.

With Anglo American currently yielding around 4.8%, it seems to offer a solid income return. Certainly, there is a risk that commodity prices fall and its profitability returns to being under pressure. However, with the company having made asset disposals and refocused its capital on core operations, it now seems to be in a stronger position to deliver more consistent performance in the long run.

While there are risks ahead to the world economy, the outlook for the US and China continues to be upbeat. As such, now could be the right time to buy into the resources sector boom, with Anglo American having the potential to grow dividends and beat the FTSE 100 over the long term.

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Peter Stephens 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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