2 FTSE 250 dividend stocks I’d buy and hold for my retirement

The FTSE 250 (INDEXFTSE: MCX) could be hiding some seriously undervalued stocks right now. Here are two that could be set for a rebound.

| 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.

After the spectacular collapse of Carillion in January, who’d go near the outsourcing sector? Well, I would.

Rock bottom?

I’ve actually been pretty scathing about Capita (LSE: CPI) after tough trading conditions led to a price collapse, and I’d been fearing further bad news which could make things even scarier. For years we had a company paying out around half of its earnings as dividends while shouldering big debts, and I reckon that was madness. But I think things are changing.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Firstly, that unwise dividend was eliminated when full-year results were released. But, you might ask, how can I then select it as a dividend stock for retirement? Well, at the time, the firm said it “recognises the importance of regular dividend payments to investors… and will consider the payment of dividends once Capita is generating sufficient sustainable free cash flow.

If Capita can get back to generating that cash, I can see decent dividends being reinstated, and that long-term outlook is what drives my thinking. And I’m starting to think that there’s too much pessimism in the share price just now — even though it has been picking up.

Tuesday’s news of a new MoD contract has pushed the shares up 6% at the time of writing, after the company confirmed it has been chosen to run the UK military’s fire and rescue services. The deal was politically controversial, and it had been narrowed down to Capita or Serco.

The MoD’s apparent assessment that Capita is financially sound is welcome, and though there are still a couple of tough years ahead, I think the turnaround point could have been reached. I think Capita shares are now worth the risk.

Growth and dividends

Kier Group (LSE: KIE) is another in the sector whose shares have been hit hard, but forecasts are still looking pretty decent, there’s still a big dividend on the cards, and valuations appear very low.

In fact, we’re looking at forecast P/E multiples of only around 8.5 this year, dropping to 7.7 by 2019. With EPS expected to grow by around 10% per year, that gives us PEG ratios of 0.9 and 0.7, which are attractive by growth standards.

On top of that, dividends are predicted to yield 7% per year and would be around 1.8 times covered by earnings. What’s not to like about that?

Actually, we again have the issue of a company paying big dividends while shouldering a fair bit of debt. In this case, Kier reported net debt of £239m at 31 December 2017, up from £179m a year previously. But at least the company reckoned it should be reduced to less than one year’s EBITDA by 30 June, and that’s a figure that really shouldn’t cause any big trouble. Kier’s pension deficit was reduced to £19m too, which looks fine.

Having said that, I still can’t quite square the idea of paying very big dividends while holding high debt, and I’d prefer to see Kier reduce its dividend yield, perhaps to around 5%, for a few years and use the difference to pay down some debt. That, I think, could restore some of the confidence that has been lost.

Kier shares look good long-term value to me.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Alan Oscroft 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.

More on Investing Articles

macro shot of computer monitor with FTSE 100 stock market data in trading application
Investing Articles

Here’s a FTSE 250 stock to buy to benefit from the construction boom!

Jabran Khan details a FTSE 250 stock that could be primed to benefit from the infrastructure and construction boom.

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Is the Royal Mail share price a buying opportunity?

With a 6% dividend yield and a price-to-earnings ratio of 3, is the Royal Mail share price in buying territory?…

Read more »

Scene depicting the City of London, home of the FTSE 100
Investing Articles

3 FTSE 100 shares! Should I buy them?

I'm searching for the best FTSE 100 stocks to buy following recent market volatility. Are these blue-chip UK shares too…

Read more »

macro shot of computer monitor with FTSE 100 stock market data in trading application
Investing Articles

Should I buy one of the cheapest shares on the FTSE 100 index?

This Fool explores one of the cheapest stocks on the FTSE 100 index by share price and decides if he…

Read more »

Asian Indian male white collar worker on wheelchair having video conference with his business partners
Investing Articles

With trading suspended, where could the Eurasia Mining (LON:EUA) share price go next?

This morning, the EUA share price was suspended pending an announcement - so could improving sales send the share price…

Read more »

Asian Indian male white collar worker on wheelchair having video conference with his business partners
Investing Articles

Are the FTSE 100’s top income stocks a bargain?

The FTSE 100 is renowned for its value and dividend stocks. So, are the index's top income stocks worth a…

Read more »

Compass pointing towards 'best price'
Investing Articles

Scottish Mortgage shares have slumped 40%. Time to buy now?

Scottish Mortgage Investment Trust (LON: SMT) shares have rewarded shareholders well in recent years. I'm thinking of buying now they're…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

3 recession stocks I’d buy in a hurry

With the economic outlook getting worse, our writer highlights a trio of recession stocks he would consider buying for his…

Read more »