A cheap dividend growth stock I’d invest £500 in today!

I’m searching for the best cheap stocks to buy for my shares portfolio in 2022. There are many top low-cost British stocks for me to choose from but this one has really caught my eye. I think it could deliver striking profits and dividend growth over the medium-to-long term.

Earnings are tipped to soar

Commercial transport business Wincanton faces some significant headwinds in the near term as fuel costs rise. Petrol and diesel prices in the UK have just hit record highs and they could keep soaring too as oil supply shortages could persist for some time.

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As a long-term investor I’m still thinking of buying Wincanton today however. City analysts believe the business should grow earnings 18% in this fiscal year (to March) and by mid-to-high single digits in the following two years too. These predictions reflect expectations of rising demand for logistics services as the economy bounces back and the continued support led by e-commerce growth.

A cheap stock for the e-commerce boom

In fact, it’s my opinion that the threat posed by increasing fuel costs are baked into Wincanton’s low share price. At 385p per share, the transport titan trades on a forward P/E ratio of just 9.4 times.

I’m actually encouraged by the small-cap’s ability to thrive despite the sharp rise in fuel prices that dates back to last summer. Indeed, Wincanton actually raised its full-year profit forecasts last month, thanks to strong trading across all of its divisions.

I’m particularly impressed by Wincanton’s ability to exploit the online shopping boom. And I think this could be the catalyst for strong long-term sales growth. Revenues at its Digital and eFulfilment division leapt 51% in the three months to December, latest financials showed.

Wincanton bought supply chain business Cygnia last autumn for £23.9m to boost its exposure to the e-commerce revolution. But even without the contribution of the new unit, group sales still soared in the third quarter (rising 22% year-on-year).

Rapid dividend growth

Wincanton’s not just a great buy from a growth perspective, however. I’m also thinking of buying the logistics business because of the bright outlook for its dividends. City forecasters think last year’s total payout will rise 16% to 12.03p per share in the current period. This creates a handy 3% dividend yield.

Dividends are tipped to continue rising strongly in the medium term as well. Full-year dividends of 13.57p and 14.3p per share are predicted for financial 2023 and 2024 respectively. Consequently, the yield rises to 3.4% and 3.6% for these years.

Finally, I also like Wincanton as an income share because current dividend projections seem pretty secure, based on expected profits. Those dividends the City anticipates are covered around 3 times by anticipated earnings. This figure is well above the widely-regarded security benchmark of 2 times.

I believe Wincanton offers brilliant growth and income potential right now. And at current prices I think it could be too cheap for me to miss.

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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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