2 stunning FTSE dividend growth shares down 25% and 27% I’ll buy and hold forever

I love buying top FTSE 100 growth shares when they’ve fallen out of favour and are trading at a discounted price. This means that all the growth I will hopefully generate in future starts from a much lower base. 

If a stock trades at £1 and I bought it for 50p, I’m sitting on a 100% gain. But if I paid 25p, my gain is 300%.

There’s another benefit. When a share price falls, the dividend yield rises. It’s pure mathematics. This way I get a higher income stream too.

Recovery stocks

I’ve been keeping a beady eye on pest control specialist Rentokil (LSE: RTO). It has a big presence in North America, which should be a plus, but lately it’s been a minus as performance has slipped stateside.

I thought I’d missed my opportunity in March, when the stock jumped almost 15% in a day after full-year 2023 preliminary results showed adjusted pre-tax profit up 43.8% to £766m.

Yet it has since idled as the US economy slows. The Rentokil share price is down 29.07% over one year.

North American organic revenues edged up 1.5% in the first quarter, but there’s still a way to go. Having successfully integrated $6.7bn acquisition Terminix, it continues to grow through mergers, putting it on track to meet full-year expectations.

One thing is holding me back. Rentokil trades at 19.72 times trailing earnings. That’s a little steep. Also, the yield is a lowly 1.94%. It’s progressive though, the board hiking the 2023 dividend per share by 15% to 8.68p today, helped by a 33.7% rise in free cash flow to £500m.

However, I still think this is a solid, defensive long-term dividend and growth opportunity.

Consumer goods giant Reckitt Benckiser (LSE: RKT) is another defensive stock that’s unexpectedly struggling, down 25.07% over one year and 33.3% over five.

It’s still the same company, with a host of global brands including Air Wick, Calgon, Cillit Bang, Finish, Harpic, Nurofen and Vanish. Yet the cost-of-living crisis has hit sales, while rising costs have squeezed margins.

Stormy economic weather

Even the elements seem to be conspiring against it, with a key warehouse for its Mead Johnson Nutrition business smashed by a tornado earlier this month.

The real storm landed in February, when the Reckitt share price crashed after Q4 revenues fell 1.2%, with weak performance across the board. While full-year group revenues rose by 3.5% on a like-for-like basis to £14.6bn, full-year operating profits fell 22% to £2.5bn.

Today, I’d get a generous income of 4.38% a year. The payout is progressive however, the full-year dividend rising 5% to 192.5p per share.

Q1 sales picked up slightly and the board reckons it’s on track to deliver its full-year targets. However, it’s the long run that matters to me and today’s valuation of 13.52 trailing earnings is very tempting. For years, it was more than 20 times.

I’ll therefore buy Reckitt first, then pounce on Rentokil when the time is right. Once I’ve done that, I’ll leave them be and leave my shares and dividends to roll up for years and if all goes well, decades.

The post 2 stunning FTSE dividend growth shares down 25% and 27% I’ll buy and hold forever appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Reckitt Benckiser Group Plc. 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.