2 dirt-cheap dividend giants I’d buy today

Roulette wheel

Rank Group (LSE: RNK) remained basically unmoved in Thursday business despite the release of solid trading details. I reckon this should prompt value and dividend chasers in particular to take a closer look.

The owner of the Mecca Bingo and Grosvenor Casinogambling houses announced that like-for-like revenues rose 2% during the 16 weeks to October 15.

Sales at Rank Group’s venues continued to fall during the period, with like-for-like takings at Grosvenor and Mecca ducking 1% and 2% respectively. But once again activity across the company’s digital operations saved the day — at its bingo and casino brands these rose 11% and 34% in the four months.

These robust numbers prompted Rank Group to affirm its predictions for the full year.

Bet on Rank

The FTSE 250 firm’s rampant progress in the fast-growing digital area puts it in great shape to deliver stonking earnings growth in the near term and beyond, in my opinion. And I also think the share’s excellent value for money, which makes it a particularly enticing pick right now.

Even though City predictions suggest a fractional earnings rise in the year to June 2018, this results in a forward P/E ratio of 14.2 times, underneath the broadly-accepted value benchmark of 15 times.

What’s more, I also reckon the Maidenhead firm’s ultra-progressive dividend policy makes it worthy of serious attention. Last year Rank Group lifted the full-year payout to 7.3p per share from 6.5p in the prior period, and the number crunchers are expecting it to leap again to 8.1p in the current year.

As a result, Rank Group rocks up with a meaty 3.5% yield. And thanks to its abundant cash flows and bright profits prospects, I am convinced dividends should continue marching steadily higher.

Check it out

Thanks to recent share price weakness, I reckon McCarthy and Stone (LSE: MCS) is another mega-cheap FTSE 250 dividend share worth checking out right now.

The business, which specialises in the construction of retirement properties, is expected to report a 2% earnings uplift in the 12 months ending August 2017. And McCarthy and Stone’s plans to hike building work at its sites is predicted to drive profits 19% higher in the current fiscal period.

Not only does this forward projection mean that it boasts a P/E ratio of just 9.5 times, but it also carries a corresponding PEG reading of 0.5. These expectations of perky profits expansion are anticipated to feed into extra handsome dividend growth too.

The total reward of 4.5p per share shelled out in fiscal 2016 is anticipated to rise to 4.9p in the year just passed, and to jump again to 5.6p in the current 12 months. As a result, the construction colossus sports a meaty 3.5% yield.

I am convinced the consequences of Britain’s ageing population should continue to drive demand for McCarthy and Stone’s properties in the years to come, a trend the business is aiming to capitalise on by lighting a fire under build rates. Indeed, forward orders were up 21% year-on-year as of September as it increased the number of properties it put up.

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Royston Wild 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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2 small-cap dividend stocks that could be millionaire-makers

luxury-yacht-millionaire

Finding undervalued small-cap stocks isn’t easy in today’s strong market conditions. But I’ve identified two which I think could deliver significant gains for investors.

The first of these is data analytics software group Oxford Metrics (LSE: OMG). The firm’s shares rose by 7% on Thursday, after it announced that adjusted pre-tax profit for the year ended 30 September is expected to be “slightly ahead of market expectations”.

Broker forecasts previously were for earnings of 2.3p per share for the year. In my view, the wording of Thursday’s update suggests that the final figure could be 5%-10% higher than this — perhaps 2.4p-2.5p.

That would still leave the shares looking fairly pricey, on around 25 times forecast earnings. But the company is expected to deliver substantial further gains in 2018. Recent forecasts suggest that earnings per share could rise by as much as 50% to 3.5p next year. That would give the shares a more reasonable P/E of 18.

Just another expensive tech stock?

Valuations for some tech stocks have become pretty steep in recent months. But in my view, Oxford Metrics’ fundamental quality suggests its valuation might be justified.

The first point to note is that it’s highly profitable and generates plenty of cash. The group’s operating margin was 18% last year, while return on capital employed (ROCE) — a key measure of profitability — was about 16%. Both figures are well above average.

Today’s trading update also suggests that Oxford Metrics has continued to generate strong free cash flow this year. Net cash for the year just ended was £9.8m, up from £8.3m the previous year.

High profitability and strong cash generation provide good support for the group’s dividend. This payout has grown by an average of 27% since 2011, and now offers a forecast yield of 1.7%. I plan to continue holding my shares following today’s gains.

A high-yield alternative

If you’re looking for small-cap stocks with a high dividend yield, you might want to consider spread-betting and stockbroking firm CMC Markets (LSE: CMCX). Its shares halved in value last year, when the FSA announced plans to limit the amount of leverage that could be offered to retail customers.

We don’t yet know what form these new rules will take. But in its latest trading statement, CMC emphasised its focus “high-value, experienced clients”, whose activity may be less affected by any changes to the rules. The group is also continuing its expansion into stockbroking through a partnership with one of Australia’s largest banks.

According to a recent trading statement, half-year profits are expected to be “significantly higher” than for the same period last year. The market has certainly regained its confidence in the business, as the shares have now risen by more than 50% from last year’s lows.

Is this view correct? It’s too soon to say. In the firm’s H1 trading statement, management warned that it “remains cautious about the future outlook given the ongoing regulatory uncertainty”.

However, the shares now trade on a 2017/18 forecast P/E of 12.5, with a prospective yield of 4.5%. In my view this is probably cheap enough to discount the risk from regulatory changes. I’d continue to hold.

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Roland Head owns shares of Oxford Metrics. 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.

2 red hot growth stocks I would buy today

fire

The following two UK stocks have been on fire, up a flaming hot 145% and 95% over the last five years. Both have reported results this week so can they carry on sizzling?

Segro grows

Investment trust Segro (LSE: SGRO) is a REIT specialising in logistics properties such as warehouses and distribution centres, with interests in the UK, France, Germany, Italy and Poland. Today it published its trading update for 1 July to 18 October, with CEO David Sleath hailing continued positive momentum, which has driven increased rental income across existing and new properties.

Segro completed new big box distribution warehouses for Yoox Net-A-Porter and Amazon in Italy, and a new urban parcel distribution warehouse for Fedex/TNT in Paris, as e-commerce continued to drive the business. Sleath said: 

“Investor appetite for prime warehouse assets remains strong, attracted by the structural drivers of occupier demand, limited supply and the prospect of rental growth particularly in the UK and in urban warehousing in Continental Europe.”

Inside the box

These trends in occupier and investor demand should support performance throughout 2017 and 2018, Sleath said. If today’s market response was subdued, that is because the investment community already knows the Segro story. It is booming but expensive, now trading at 28 times earnings.

However, this £5.4bn trust has been expensive for some time, and more than justified that valuation. It also yields a steady 2.97%. Strong lettings and development completions in the third quarter have helped shrink the group’s vacancy rate from 5.5% to 4.1% since 30 June.

To the bone

Management has also been concentrating on paying down debt, reducing annual interest costs by £10m through refinancing. City forecasters predict strong revenue growth, rising from a forecast £300m in 2017 to £351m in 2018, with earnings per share up 10% in 2018. By then, the yield is expected to have increased to 3.2%.

Wealth manager Rathbone Brothers (LSE: RAT) has also been in the money lately, its share price up 44% over the year, and 95% over five years. Financial advisory firms like this one are often seen as a geared play on healthy stock markets, and it has been a success on that score. 

High value

Yesterday it published its trading update for the three months ended 30 September to an upbeat response, although investors are also wary with the stock now trading at just over 20 times earnings. Highlights included a solid 2.5% rise in total funds to £37.5bn, against an increase of 0.8% in the FTSE 100 Index, and a more eye-catching 7% year-on-year rise in underlying net operating income to £70.5m. 

Rathbone now has £5bn under management in unit trusts, up 8.7% since June. Net inflows for the quarter were a record £342m, up from £170m a year ago. Net operating income of £8m for the quarter was up 19.4% on a year earlier.

Market men

Performance has been boosted by a steady rise in the FTSE 100, which ended the quarter at 7,373, up 6.9% from 6,899 one year earlier. Chief executive Philip Howell said investment markets remained relatively benign over the period, but of course, that may not continue.

City analysts are positive, forecasting earnings per share (EPS) growth of 5% this year, then 10% in 2018. The stock also offers a solid if unspectacular yield of 2.2%. Should you pay that valuation? The answer depends on where you think stock markets might go next. Rathbone looks pricey, but a correction could quickly change that.

You might find this hot growth stock is more your style.

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Harvey Jones 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.

2 growth kings trading much too cheaply

beach

I have long talked up the brilliant opportunities for earnings growth at On The Beach (LSE: OTB) and Thursday’s full year trading statement has firmed up my faith even further.

The online holidays play advised that revenues rose 17% during the 12 months to September, in line with expectations, with sales in the second half rising by an impressive 26%.

On The Beach said that it “experienced significant growth for the majority of the key summer trading period, despite some softness in the weeks that followed the Barcelona terrorist attack in August and we have exited the financial year with strong forward momentum.”

The Cheadle-based company’s full year performance was impressive in both home and overseas markets. On foreign soil, On The Beach saw revenues leap 48% in the full fiscal year, with top-line growth revving up to 70% in the final six months of the period.

The strong performance in its international territories prompted chief executive Simon Cooper to comment: “We have continued to increase market share in our international markets and delivered strong revenue growth in the year [and] as a result of this performance, we are pleased to be launching in our third international market, Denmark, early in 2018.”

Flying high

On The Beach is clearly a company on the move, helped by its recent acquisition of internet rival Sunshine.co.uk (without this unit, full-year sales would have grown by 14%). And the firm has plenty of cash in the bank to keep growing revenues either through organic investment or further M&A action.

The City is certainly predicting great things and earnings are anticipated to grow by an additional 28% in the current fiscal year. And this makes the business brilliant value for money.

Sure, a corresponding P/E multiple of 19.2 times is clearly not much to shout about. But a sub-1 PEG reading indicates that On The Beach is actually attractively priced relative to its growth prospects.

Boxing champ

Boxbuilder DS Smith (LSE: SMDS) is another earnings star I reckon is undervalued by the market right now.

In the year to April 2018, the London-based firm is expected to see profits expansion cool from the double-digit advances of recent years, and a 2% is rise predicted by City brokers. But this projection still creates an appetising forward P/E ratio of 14.7 times, below the widely-accepted value watermark of 15 times.

Besides, DS Smith is expected to regain momentum again from fiscal 2019, for which a 10% bottom-line rise is presently predicted.

And I am confident the business, which designs and manufactures packaging solutions for the fast moving consumer goods segment, has the tools to keep delivering meaty earnings rises thanks to its aggressive acquisition strategy.

Indeed, just this week DS Smith snapped up Romanian packaging and paper group EcoPack and EcoPaper for €208m to bolster its position in the vast growth markets of Eastern Europe still further. I am confident DS Smith could make you very decent returns on a shoestring.

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Royston Wild has no position in any of the shares mentioned. 
The Motley Fool UK has recommended DS Smith. 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.

These stellar small-cap stocks could be good for your wealth

Various pills

Searching for confirmation on the merits of small-cap investing? Look no further than infection prevention product manufacturer Tristel (LSE: TSTL). Over the last five years, the price of its stock has more than seven-bagged. While many would consider this kind of return to be more than sufficient, today’s full-year results suggest there’s still considerable upside ahead.

Exceeding expectations 

Revenue climbed 19% to just over £20m in the year to the end of June, with pre-tax profit coming in 24% higher at £4.1m. According to CEO Paul Swinney, these numbers exceeded both market and management expectations. 

Much of today’s good news can be attributed to the company’s strong performance overseas. Having soared 43% to £9.6m over the reporting period, international sales now represent almost half of the Snailwell-based small-cap’s total revenue. While a proportion of growth can be explained by favourable currency movements, Tristel’s decision to acquire its Australian distributor has clearly done no harm at all to its top line.

Given that the company is now on the cusp of making huge strides in the North American market, having recently made its first regulatory submission, I think there could be a lot more good news coming for holders in 2018. While some investors were clearly disappointed by the recent announcement that there would be a delay to the approval timetable, Tristel’s management remain unfazed with first sales still expected in the next financial year. This, combined with recent investment in Mobile ODT (which connects point-of-care diagnostic devices to smart phones), not to mention the company’s net cash position (£5.1m) and lack of debt, make me very bullish on the £126m cap’s future.

So, no downsides? Not quite. The huge potential for increasing sales of the company’s chlorine dioxide formulation means that Tristel’s shares are now very expensive to buy and, some would say, priced to perfection. Based on earnings per share of 8.06p over the last year, the company’s stock has a trailing price-to-earnings ratio of 35. Whether that’s a price worth paying is up to you.

Multibagger in the making?

Tristel isn’t the only small-cap stock with a very promising outlook. Another company that’s caught my attention recently has been specialist drug discovery and development business ImmuPharma (LSE: IMM). Based on recent share price performance, it seems I’m not alone. Shares have pretty much doubled from the 50p mark reached one month ago as expectations continue to build surrounding Lupozor — the company’s key drug designed to tackle Lupus, the potentially life-threatening auto-immune disease. With all patients having passed through the six-month stage of testing, it now expects to report top-line results from its Phase III trial in Q1 2018. The fact that the company has already begun to prepare regulatory submissions suggests that management is already confident of a successful outcome. 

Aside from this, interim results in late September revealed the company’s finances to be in good order with net assets of £6.4m by the end of the reporting period. While this continues to be a lossmaking business, research and development expenses are slowly reducing and the £4.1m fundraising in March should give the £129m cap more than enough cash to play with going forward.

A riskier play than Tristel? Sure. Nevertheless, if results from the aforementioned trial go the company’s way, the recent increase in ImmuPharma’s valuation could be just the beginning. 

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Paul Summers 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.

1 FTSE 250 stock I’d buy instead of a FTSE 100 tracker

bricks

There’s a lot of cyclicality in the FTSE 100 with big banks and miners commanding a disproportionate weighting in index tracking funds because of their massive market capitalisations.

Out-and-out cyclical stocks tend to rise and fall with the undulations of the macroeconomic environment and we can never be sure when the next cyclical plunge in profits and share prices will arrive.

Hidden nasties

I’m nervous about holding the FTSE 100 because the cyclicality is not in plain view. With 100 or so stocks jumping up and down within a tracker investment, it’s hard for me to keep tabs on what factors could be affecting the price. If I did invest in a FTSE 100 tracking fund, I’d treat the whole thing as a cyclical trade and only invest when the index is on the floor in the hope of riding the next cyclical up-leg. Then I’d sell when the index is once again near its highs.

Rather than the FTSE 100, I’d go for a firm that is performing well, such as Travis Perkins (LSE: TPK), which updated the market today. As well as trading under its own name, it has a stable of brands including well-known names such as Wickes, City Plumbing, PlumbNation, BSS and PTS. The theme of today’s third-quarter update was that “trading is on track despite a challenging market backdrop.”

Inflation-driven sales increases

Third-quarter sales came in 3.5% higher than a year ago with like-for-like sales up 4.1%. For the year so far, sales lifted 3.3% with like-for-likes 3.4% up. However, the gains in like-for-like sales came from price increases driven by inflation with sales volumes coming in flat. That said, the company reckons it saw ongoing strong growth within businesses in its Contracts division and “significant” improvement in sales performance within the Plumbing & Heating division.

Chief executive John Carter said of the outlook that trading conditions in our markets continue to be mixed, with consumer discretionary spending under pressure from rising inflation and on-going uncertainty in the UK economy.” Yet despite this apparently harsh trading environment, he assured us that the directors have confidence in the long-term fundamental drivers of the firm’s markets. And he said “this underpins our plan to invest in our businesses to improve our customer propositions and extend our competitive advantage.”

A good financial record

Although cautious on the market outlook, Mr Carter told us that the firm is on course to meet full-year expectations. According to City analysts following the firm, that means a decline in earnings per share of 5% for the current year followed by a 5% rebound during 2018, which looks like a potential steady-as-she-goes immediate outcome.

The firm has a good financial record and has lifted its dividend by 80% over the past four years and further dividend increases look set to arrive this year and next. Meanwhile, at today’s share price around 1,503p, the forward dividend yield runs just over 3.2% and those forward earnings should cover the payment around two-and-a-half times.

Assuming the economy is not about to fall off a cliff, I think Travis Perkins looks more attractive than a FTSE 100 tracker right now. 

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Kevin Godbold 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.

2 bargain growth stocks that could make you a millionaire

Genel Energy Taq Taq well

The five-year share price chart for Genel Energy (LSE: GENL) might not make your mind immediately reach for the word ‘growth’. In fact, since a peak of over £11.40 in early 2014, there’s been a slump of nearly 90% to today’s 122p. 

But if we look closer, we see the shares have started to climb back, more than doubling since late March 2017. There’s a good reason for that growth spurt, which I think could be the start of a nice long-term run — and my confidence is boosted by Thursday’s update.

Genel’s problems had largely been twofold. Firstly, remaining reserves in its key Taq Taq field in the Kurdistan Region of Iraq had been downgraded. And more worryingly, the company had been struggling to get payment for the oil it was shipping — and that led to a big loss in 2016.

Cash flowing

But a third-quarter update Thursday reiterated that the company had reached a “landmark settlement” with the Kurdistan regional government, which has led to regular payments so far this year. And production is going as planned.

Unsurprisingly, Genel says that should “materially enhance our cash flows“, but pointed out that even before the start of payments, the company was still generating “meaningful free cash flow” and reducing its debt.

Analysts are already predicting a return to profit this year, followed by a near doubling in earnings per share (EPS) for 2018 — and that would drop the P/E to under 12, which looks like a good valuation to me.

The oil business in Iraq is clearly not without risk, but I reckon the growth story should be back on for Genel. And I see the shares as a bargain right now.

A Woodford pick

The housebuilding business is down in the dumps right now, but you’d never guess by looking at Countryside Properties (LSE: CSP). Neil Woodford snapped up a load of Countryside shares this summer and his funds now hold 10% of the company. It’s not hard to see why.

In 2016, Countryside’s EPS nearly trebled to 16.3p, and the City’s experts are predicting further growth this year of 66%, followed by another 27% in 2018. But that expected rate of growth looks well hidden by the shares’ forward P/E ratings, which would drop from a mooted 13.5 for the end of 2017 to just 10.5 a year later.

And that gives tasty PEG ratings of just 0.2 and 0.4 for the two years, which should have those growth investors who look for 0.7 or less jumping with excitement.

But that’s not all. Countryside is also handing out decent dividends. Now, the forecast yield of just 2.2% this year is not up there with the 6.7% expected from Taylor Wimpey or the 4.8% from Persimmon.

But it’s strongly progressive. From nothing in 2015, through 3.4p per share last year, there’s 8.1p on the cards for this year and 10.35p for 2018. You don’t need to worry about inflation with dividend growth like that.

Strong year

In an update ahead of full-year results (due 22 November), Countryside reported a 28% rise in completions to 3,389 homes, with a private forward order book up 8% to £242.4m. Average private selling prices dropped 8% to £430,000, but I don’t read any fear of a price collapse into that.

The company has a strong land bank of 19,826 plots (of which 83% have been “sourced strategically“), after adding an extra 2,896 plots during the year.

Countryside Properties looks cheap to me.

Wealth through growth

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Alan Oscroft has no position in any 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.

2 small-cap growth stocks I’d buy and hold for 25 years

Ophir Energy

Buying shares in companies that have delivered disappointing returns in recent months can be a lossmaking strategy at times. Momentum can be on the downside and this can lead to further falls in a company’s share price.

However, falling share prices can also present opportunities for investors to profit. They may offer a wider margin of safety than they previously did, and this can lead to high returns over a sustained period of time. Certainly, it can take time for those gains to be realised, but in the long run the idea of buying low and selling high can be highly effective. With that in mind, here are two underperforming stocks which could post successful turnarounds.

Improving outlook

Reporting on Thursday was oil and gas company Amerisur Resources (LSE: AMER). The South America-focused business reported encouraging results regarding Platanillo-25, which is a medium step out directional well that was recently drilled. The outcome of the drilling supports the view that there is significant further upside in the Platanillo field.

It was drilled to a total depth of 8,699ft and the company is now side-tracking Platanillo-25 in order to locate a production well further up-dip and nearer to Platanillo-21. There it expects to find better reservoir quality and additional pay thickness, which could mean more sustainable production. Once the side track is complete, Platanillo-27 will be drilled.

The company also reported that the long-term test (LTT) off Matiposa-1 is on track to start at the end of October. This could help to diversify the company’s production base, and will also add further material production to the company in the near term.

With progress being made on its strategy, Amerisur could become more popular among investors and this could help to push its share price higher. Clearly, it is dependent upon further news from its projects, but it appears to have growth potential in the long run due partly to its price-to-earnings (P/E) ratio being only 11.2.

Growth potential

Also offering growth potential in the long run is sector peer Ophir Energy (LSE: OPHR). The Asia and Africa-focused company is forecast to move back into the black in the next financial year, with a pre-tax profit of £22m being anticipated by the market. This could help to improve investor sentiment in the stock and may lead to an improved outlook for its share price following a fall of 13% during the last year.

Clearly, the company’s financial outlook is dependent on the oil price. In recent months, it has increased as supply cuts have started to rebalance demand and supply across the industry. Looking ahead, further rises could be possible due to the potential for further cuts and continued growth in demand. Therefore, now could be an opportune moment to buy a slice of Ophir Energy ahead of what may prove to be a stronger period for the wider oil and gas industry.

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Peter Stephens does not own shares in any company mentioned. The Motley Fool UK has recommended Amerisur Resources. 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.

2 dividend growth stocks for the long run

Games Workshop shop

Since inflation has moved to 3% recently, buying shares which offer high dividend growth potential could be important to income investors. After all, a number of companies may not have the financial flexibility to increase their payout ratios, or may see their earnings growth rate come under pressure as Brexit talks continue.

With that in mind, here are two companies which appear to offer a potent mix of high yields and dividend growth. As such, they could provide inflation-beating returns over a sustained period.

Impressive outlook

Reporting on Thursday was designer, manufacturer and seller of fantasy miniatures Games Workshop (LSE: GAW). The company’s share price increased by 9% in response to what was a relatively short update. It stated that sales have continued to be strong since the previous announcement in September. Due to the high operational gearing of the business, any movement in sales is directly reflected in profitability. As such, the company’s profits have been well ahead of the same period from the prior year.

In fact, the company is forecast to report a rise in its bottom line of 50% in the current year. This would be an impressive performance given the uncertainty which surrounds the UK economy at the present time. Consumer confidence is deteriorating, but Games Workshop does not appear to be feeling any ill-effects.

With a price-to-earnings growth (PEG) ratio of just 0.3, the company appears to have capital growth potential. However, it is its income prospects which may hold the greatest appeal to investors. Its dividends are covered 1.4 times by profit, which suggests that they could rise rapidly over the medium term. This could increase the dividend yield of 4.6% at a fast pace in future years. As such, now could be the perfect time to buy it.

Improving outlook

Also offering high dividend growth potential is convenience store operator McColl’s (LSE: MCLS). The company is expected to record significantly improved performance over the next couple of years, with its bottom line due to rise by 8% this year and by a further 29% next year.

This could help to boost its dividend growth rate. Currently, the company has a dividend yield of 3.8%. However, dividends are set to be covered more than twice in the next financial year. This suggests that they could rise at a rapid rate in future years – especially since the convenience store sector is continuing to see relatively strong demand.

As well as its dividend outlook, McColl’s also has investment potential because of its valuation. Despite strong earnings growth forecasts, it trades on a PEG ratio of just 0.4. This suggests that it could post high share price returns even after it has risen by over 50% in the last year. Certainly, consumer confidence is weak as Brexit talks continue. But with a wide margin of safety and a bright income future, the company seems to be a strong buy right now.

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Peter Stephens owns shares of McColl’s. 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.