FTSE 350 income: screening for top dividend growth opportunities
In my piece last week I showed how a simple screen might be a useful tool to find sustainable high yield stocks in the FTSE 350.
This week I want to approach income from the perspective of strong growth rather than yield. So I’ve created an alternative screen that looks for stocks with strong dividend growth characteristics.
Why would I consider this approach? For me, dividend growth investments fall into two possible categories (sometimes both):
Quality growth stocks: rapid, well-supported dividend growth can be an indicator of a small/mid-cap quality business that’s growing fast. In this scenario, the company’s share price will often rise at a similar or even greater rate than its dividend.
Contemporary examples of this might include Tatton Asset Management (LON:TAM) or Jet2 (LON:JET2). These companies have five-year average dividend growth rates of 13.8% and 7.6% respectively. Both have been multibaggers over the last 10 years:
Cash multibaggers: over longer periods, successful dividend growth investments can reach a point where the cash income received from the shares exceeds the original investment.
In other words, the investment will deliver multibagger returns in cash, not just...