If you’re looking for growth stocks as the foundation of a long-term portfolio, then I wouldn’t look any further than the following two companies. These two businesses have established themselves as growth stocks that continually perform above what is expected of them.
Home furnishings giant Dunelm (LSE: DNLM) is a business that continues to defy expectations and to outperform predictions. The share price is an impressive 82% higher than it was at this time last year, but at 962p, I believe it’s still reasonably priced. The current dividend yield is fairly modest at 2.8% but with dividend cover of 1.6, it’s well covered and I believe that it could be set to rise in the future.
Dunelm has been a standout performer in the FTSE 250 this year and its pre-tax profits forecast has been increased to £125m for the year ending in June, up 4% from the previous prediction of £120m. The less-than-perfect summer weather may be blamed by many retailers for their problems but it has proved to be positive for this business, as more people seem to be focused on home furnishings than they would be in a heatwave. The focus on its online ops means it easier than ever for consumers to buy its products, another sign that the company has adapted well to changing customer behaviours and it really is showing in its results.
With on-going strong sales throughout the year and the stock gaining over 8% in the past couple of weeks, I feel that my long-held belief in the company as a worthy target for my investment cash is paying off. I believe that this will be a long-term investment, with dividends hopefully set to increase in the near future.
Warehouse success Segro (LSE: SGRO) is a warehouse property investment and development company that I think could be one of the best in the UK to invest in thanks to its success this year and the minimal impact Brexit should have on the company. The fact that Segro deals in warehouses supports a consistent and reliable profit margin that will not be affected by the changes in the wider property market. The stock has risen over 20% this year and is currently priced at around 734p with a P/E ratio of 7, which may be low but it gives me confidence that this share is a bargain. The low P/E seems to be a result of the scepticism surrounding property companies due to Brexit changing and challenging the industry.
The current dividend yield is only 2.5%, which isn’t the most exciting payout among UK stocks, but it beats inflation and the firm is still consistently putting money back into investors’ pockets. And there’s clearly a dividend growth focus from the board. Segro’s payout to shareholders has increased by 60% in the past few years and if this continues, we could be looking at a very attractive dividend in another few years.
I see SGRO as another long-term investment that could give shareholders great rewards in the future. The huge shift towards online shopping has really benefitted it in recent years and demand for warehouses is still rising. Segro is reaping the rewards of its involvement in this sector and its progress looks unlikely to slow down any time soon.
fional owns shares of Dunelm Group. 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.
Motley Fool UK 2019