A cheap dividend growth stock I’d buy for my Stocks & Shares ISA!

Buying UK dividend stocks is an effective way for investors to build long-term income. Past performance is no guarantee of future returns, but buying cheap income shares in my Stocks and Shares ISA is a cornerstone of my own investment strategy.

Even as the global economy spluttered, dividends from British stocks continued rising last year. They increased 5.4% (excluding special dividends) in 2023, to £88.5bn. That’s according to stock transfer company Computershare.

Shareholder payouts are expected to keep rising in 2024, too, albeit at a slower rate of 2% (to £89.8bn). I think I can do better than this, though, so have been building a list of the best dividend growth stocks to buy for the short term and beyond.

Here is one top income share tipped to deliver market-beating dividend growth. Let me explain why I’m hoping to buy it for my own ISA at the next opportunity.

Bank on growing dividends

The banking sector was one of the main reasons why total dividends from British shares rose in 2023. According to Computershare, “banks became the UK’s largest-paying sector for the first time since 2007“.

This was thanks largely to the boost that higher interest rates provided to bank profits. The outlook for 2024 is far muggier for high street operators and dividend favourites like Lloyds, however, amid predictions of rate cuts from the spring and signs of weak economic growth in the UK.

That’s not to say I’m avoiding the banks, though. I think TBC Bank Group (LSE:TBCG) will remain a solid banking stock to buy, for instance.

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Dividends have risen at blistering pace following the end of the pandemic, as the chart above shows. And analysts are expecting this trend to continue through to the end of 2024 at least, resulting in a large 7.4% dividend yield. City analysts reckon the FTSE 250 firm to grow the annual ordinary dividend 15% this year.

That’s far ahead of the 2% that Computershare are predicting for London Stock Exchange shares.

TBC Bank looks in great shape to meet current dividend forecasts, too. The predicted payout is covered 3.3 times by expected earnings, providing a wide margin of error. The company also has a strong balance sheet to help it grow dividends in line with City estimates. Its CET1 capital ratio, a measure of solvency, was 17.5% as of September.

Stunning value

The Georgia-based bank has two huge advantages over UK-focused banks. Product penetration is extremely low. And the economy there is growing rapidly. These factors drove group operating profit 18.3% higher during the first nine months of 2023.

On the downside, Georgia’s proximity to Russia creates some risk to TBC Bank’s profits. Economic growth in the Eurasian country could suffer if the geopolitical landscape in the region changes for the worse.

But I believe this threat is more than reflected in the company’s rock-bottom valuation. City analysts think group earnings will rise 14% in 2024. This leaves TBC Bank trading on a price-to-earnings (P/E) ratio of four times.

There are plenty of top dividend stocks that are trading below value right now. I think this FTSE 250 share may be one of the best.