2 cheap FTSE 250 dividend stocks I’d buy with £5,000 today

Looking to invest £5,000? You can’t go wrong with these two firms.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Designing software for the gambling business is a specialist industry where reputation counts for everything. That is why Playtech (LSE: PTEC), one of the world’s largest specialist gaming software producers, has been able to grow profit at a rate of 20% per annum for the past six years as sales have expanded at an average rate of 30% per annum.

Today the company reported yet more growth for the year to the end of December. Revenue for the period expanded 14% on a reported basis to €807m and reported net profit increased by 29% €248m. Adjusted diluted earnings per share ticked higher by 14% giving management the confidence to hike the overall dividend by 10%. 

Unfortunately, it looks as if the market is not pleased with these figures as shares in the company have plunged by more than 10% in early deals, but I believe that this could be a great opportunity to buy. 

Cash cow 

As well as its impressive earnings growth, another of Playtech’s attractive qualities is the group’s cash generation. Free cash flow before dividends for the year was €160m and the firm ended the year with a cash balance, excluding client deposits, of €413m. Management is planning to use these funds for bolt-on acquisitions, which is a crucial part of the company’s growth strategy. 

Still, despite Playtech’s impressive record of growth, and robust balance sheet that can fund more deals, the shares look cheap. 

Based on current City forecasts, the shares are trading at a forward P/E of 11 and support a dividend yield of 4.4%, the payout is covered twice by earnings per share and, as mentioned above, is backed up with €413m of cash. This is why I believe that this company could be a starter investment for those looking for a home for their first £5,000. The shares are cheap, Playtech has a record of rapid expansion in a niche industry, and there’s a market-beating dividend yield on offer. What’s not to like? 

Undervalued growth

Playtech isn’t the only company that I believe is suitable for beginner investors. VP (LSE: VP) is another undervalued income and growth play that I believe won’t let you down. 

City analysts have pencilled in big things for this equipment rental business. Earnings per share are expected to expand by 67.3% to 79.4p for fiscal 2018, before rising 18% to 93.7p for fiscal 2019. This sort of explosive growth usually warrants a high valuation but that’s not the case with VP. Indeed, the shares currently trade at a modest forward P/E of only 10.7 falling to 9.1 for 2019. Analysts also expect the firm’s dividend payout to rise in line with earnings growth. On this basis, the shares are set to yield 3.3% by 2019, which is in line with the market average, but this is unlikely to be the case for long with the payout growing at a double-digit rate every year. 

Like Playtech, VP also has a record of explosive profit growth. If the company hits City forecasts for 2018, it will have increased net profit by more than 100% in the space of five years on revenue growth of 50%. Over the same period, the per share dividend payout will have nearly doubled. As long as VP can keep this record up, and I see no reason why it can’t, it could make a great starter investment for your portfolio. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns no stock 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.

More on Investing Articles

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

Investing £5,000 in a Nasdaq 100 index fund 5 years ago would be worth this much now

Zaven Boyrazian looks at the Nasdaq 100 index’s performance since December 2019. Has investing in an index fund been good?

Read more »

Electric cars charging at a charging station
Investing Articles

Why the Tesla share price rocketed 38% in November

Our writer considers the reasons for the recent red-hot Tesla share price performance. Is now a good time for him…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
US Stock

Why NIO stock fell 13% in November

Jon Smith flags up a couple of key factors that he believes contributed to the fall in NIO stock over…

Read more »

Investing Articles

Which of these UK stocks is the better bargain in December?

Stephen Wright thinks Diageo and Senior are very different UK stocks with very similar prospects. But which one offers better…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

Mistakes to avoid when investing in the FTSE 100!

The FTSE 100 offers great near-term valuations and dividend yields, but Dr James Fox believes investors should be wary when…

Read more »

Investing Articles

Here’s why the Scottish Mortgage share price jumped 9.2% in November

The Scottish Mortgage share price has been outperforming indexes over recent weeks. Ben McPoland digs into some reasons why.

Read more »

Investing For Beginners

Why the IAG share price rocketed 24% in November

Jon Smith explains why the IAG share price did so well last month, citing three factors at work that helped…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

I think Tesla stock’s overpriced. So why not short it?

Our author thinks Tesla stock has got ahead of itself since the US election. So why not put his money…

Read more »