While capital growth is a worthwhile pursuit for investors, the reality is that the compounding of dividends could have a much greater impact on your portfolio’s long-term performance. Various studies have shown that dividends really do matter when it comes to building a nest egg for retirement. And with a number of the Footsie’s shares offering high yields, now could be a good time to buy.
With that in mind, here are two stocks that seem to offer a mix of improving financial outlooks, rising dividends and strong growth potential. As such, they could be worth buying today.
Long-term growth
While the performance of the Imperial Brands (LSE: IMB) share price has been disappointing in recent months, its latest update showed that it is performing in line with expectations. In fact, it was able to increase its interim dividend by 10% as it sees growth potential within ‘next generation’ products. This could catalyse its earnings growth outlook, which seems to be relatively modest at the present time.
With net profit due to flatline over the next two financial years, Imperial Brands may lack a clear growth catalyst in the near term. However, with it having the financial firepower to invest in heated tobacco and vapour products, its long-term growth outlook could be impressive.
Since the stock has a dividend yield of 6.9% from a payout which is covered 1.4 times by profit, it seems to have an appealing income outlook. A track record of high dividend growth means that further income growth could be on the cards.
Although the tobacco sector is undergoing a transitional period as consumers move from tobacco to next generation products, a wide margin of safety means that this could be a period of significant opportunity for investors.
A period of change
Also experiencing a period of change at the present time is Whitbread (LSE: WTB). The company recently announced that it will be demerging its Costa chain as it seeks to become an increasingly international-focused business. This could be a sound move and may create two more efficient businesses over the medium term which can better put into action their respective growth strategies.
With a dividend yield of 2.5%, Whitbread’s income appeal may not be obvious at first glance. However, with the company’s shareholder payout being covered 2.6 times by profit and dividends per share expected to rise by 5.7% per annum over the next two years, its income potential in the long run appears to be relatively sound.
Furthermore, with earnings growth expected to rise to 8% next year and the company having reduced costs in order to offset inflation to some degree over the next couple of years, it seems to have an improving outlook. As such, now could be the right time to buy it, with it having the potential to perform well over a sustained period of time.