2 proven dividend growth stocks I’d buy to beat the State Pension

With market-beating yields and a record of returning cash to investors, these stock could be perfect income investments.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When it comes to income stocks, Devro (LSE: DVO) flies under most investors’ radars. However, I believe this overlooked income play is a hidden gem and could help you boost your income in retirement.

Dividend track record

Over the past five years, the producer of collagen products for the food industry has struggled to generate revenue growth. A number of factors have weighed on performance, including uncertain demand and increasing competition. For example, in a trading update published today, the company informed investors that due to the “impact from Russia’s economic and currency environment, and the slightly lower than anticipated ramp-up rate of our new Fine Ultra platform,” sales volumes of edible collagen casings are weaker than expected.

But the reason why I believe that Devro is a great stock to include in any pension portfolio is the defensive nature of the business. Global food demand is only increasing and, while the company might have had a rough time of it over the past three years, I reckon the firm should thrive over the long term as it profits from the world’s ever-expanding food demands.

Should you invest £1,000 in Devro Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Devro Plc made the list?

See the 6 stocks

Nevertheless, management is coping well with all of the headwinds facing the group. To deal with falling demand in Russia, cost-saving initiatives are under way, and this means management’s full-year targets remain in place.

Efforts to help stabilise the business over the past five years have enabled the group to maintain its dividend distribution to investors. And while it has been touch and go over the past three years, analysts are expecting the cover to return to a comfortable 1.7 times in 2018, which gives me confidence that this payout is sustainable. 

Right now, the shares support a dividend yield of 5.5% and trade at a relatively undemanding forward P/E of 10.2. 

Margin of safety 

As Devro has floundered in recent years, homebuilder Redrow (LSE: RDW) has seen its profits surge five-fold thanks to booming demand for homes in the UK. 

However, it is difficult to tell at this point if firms such as this will continue to grow at the rate they have done over the past few years in the next few. The outlook for the UK housing market is mixed, and I believe the same could be said for developers.

That being said, shares in Redrow already appeared to be priced for the uncertainty. Right now they are changing hands for just six times forward earnings, a multiple that in my view significantly undervalued the business and its prospects. On top of this attractive valuation, the shares offer a dividend yield of 5.3%, which is supported by a positive net cash balance of £63m.

In my opinion, Redrow’s discount valuation gives a wide margin of safety for investors buying the stock today. We don’t know what the future holds for the UK housing market, although over the long term we know that demand for houses will only increase.

So, even if Redrow struggles in the near term, over the long run, investors should profit. In the meantime, there’s a 5.3% dividend yield on offer.

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of and has recommended Devro. The Motley Fool UK has recommended Redrow. 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.

More on Investing Articles

Investing Articles

FTSE shares: a generational opportunity to get rich?

FTSE shares haven’t rewarded investors as well as they could have done over the past decade. However, this could represent…

Read more »

New year resolutions 2025 on desk. 2025 resolutions list with notebook, coffee cup on table.
Investing Articles

Here are the latest Lloyds share price and dividend forecasts for 2025

The City's outlook for the Lloyds share price in 2025 seems positive right now, but we need to get through…

Read more »

Investing Articles

2 FTSE 100 growth stocks to consider that could help investors reach £1,000,000

Stephen Wright highlights two FTSE 100 stocks with strong growth prospects for the long term that could be ideal for…

Read more »

Investing Articles

Could Greggs shares shine in 2025?

Having given him great profits in the past, Paul Summers remains a huge fan of Greggs shares. Has the time…

Read more »

Investing Articles

Can the S&P 500 rise another 20% this year, or will the FTSE fight back?

Harvey Jones has been dazzled by the stellar performance of the S&P 500, like everyone else. Yet today he'd rather…

Read more »

Investing Articles

ChatGPT thinks this is the best FTSE 100 value stock to consider buying now

Can an AI bot help investors pick great value stocks? Paul Summers runs an experiment to find out and is…

Read more »

Investing Articles

After falling 10% last year, this passive income stock yields 9.9%, and I love it

The FTSE 100 is an absolute treasure trove for passive income seekers right now. It’s packed with top dividend stocks,…

Read more »

Happy young female stock-picker in a cafe
Growth Shares

These FTSE 100 shares boosted my portfolio in 2024. Can they do it again?

Having outperformed all his other FTSE 100 stocks last year, our writer considers whether these two stocks will do well…

Read more »