While the FTSE 100 is generally considered to be one of the best places to find dividend growth stocks, I don’t think investors should overlook the FTSE 250.
Indeed, this index is stuffed full of growth stocks. These organisations may offer better dividend growth potential in the long run. Today, I’m going to take a look at two FTSE 250 companies I’ve been eyeing up based on their dividend credentials.
FTSE 250 dividend growth stocks
Gold miner Centamin (LSE: CEY) might not appear to be a traditional dividend candidate. However, the company is highly cash generative as it’s one of the most efficient gold miners on the London market.
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The company’s production costs are incredibly low, which means it has benefited significantly for the rising gold price in 2020. During the second quarter, the cash cost of each ounce of gold produced was $682. That’s compared to the current gold price of $1,800.
Centamin also boasts a robust cash-rich balance sheet with over $360m with net cash at the end of the third quarter.
The group’s fat profit margins and solid balance sheet have allowed it to return considerable sums to investors. Management is proud of this track record, with the company’s website boasting that Centamin has “generated over $1.2bn of returns for its stakeholders over the last six years.”
Those are the reasons why I’m considering adding the FTSE 250 dividend growth stock to my portfolio. At current levels, the stock supports a dividend yield of around 8%.
Cash-flow king
I’ve also been taking a closer look at Moneysupermarket.com (LSE: MONY) recently. This FTSE 250 business, which owns the price comparison website of the same name, operates a relatively simple business model. It connects potential buyers of financial products and utilities with sellers. It receives money for each transaction between the two parties.
Consumers like the offering because it allows them to compare different providers. Meanwhile, providers like the business because it gives them exposure. Smaller companies, for example, would struggle to compete in the market against larger peers if price comparison websites didn’t offer a way to stand toe-to-toe with the competition.
The great thing about this business model is it’s incredibly cash generative. Last year, Moneysupermarket generated £100m of free cash from operations. With no debt to pay off, management was able to return all of this profit to investors.
I reckon the FTSE 250 firm will follow the same path next year, and for the foreseeable future. That’s why I’ve been taking a closer look at the shares recently. I believe this business could be a long-term income buy that will provide a steady stream of cash for my portfolio.
Cash flow forecasts suggest Moneysupermarket’s dividend yield will average 4.5% for the next two years. In my opinion, this level of income is incredibly attractive in the current interest rate environment.
