These 2 FTSE 250 income champions could protect your portfolio from the market slump

As the rest of the market has slumped, these two FTSE 250 (INDEXFTSE: MCX) stocks have held firm.

| 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.

Is a new European crisis brewing? Will Donald Trump’s trade wars spark a global economic collapse? Will Brexit devastate the UK economy? Will the market sell-off continue, or is the worst over? Right now we don’t know the answer to any of these questions. 

However, what we do know is that the best way for investors to protect against uncertainty is to focus on finding good, cheap income stocks. 

So today I’m looking at two stocks in the FTSE 250 index that I believe have fantastic dividend credentials.

Slow and steady

Power plant owner-operator Drax (LSE: DRX) might not be the most exciting company around, but I believe the group’s business makes it immune to market uncertainty. 

To add to its portfolio of power assets, today Drax announced that it is spending £702m to acquire Scottish Power’s portfolio of pumped storage, hydro and gas-fired power generation assets. The portfolio includes the vast Cruachan hydro facility in the Scottish highlands, which should further reduce the group’s exposure to legacy fossil fuel projects. 

This isn’t the only low-carbon initiative the company is pursuing. Over the past few years, Drax has become a UK leader in the supply and use of compressed wood pellets for generating power. These are generally considered to be a more environmentally friendly fuel for power generation. The firm is aiming to have converted all of its coal-fired plants to wood pellets by 2025

As management has pushed through these changes, Drax has struggled to remain profitable, but it looks to me as if the company has now pulled through this challenging period. The City is expecting a net profit of £36m for 2018 rising to £95m for 2019, based on these numbers, the stock is trading at a forward P/E of 15.7. I think this is an appropriate multiple to pay for a business that is as defensive as Drax. 

On top of this, analysts have the company yielding 4.5% in 2019. These numbers all lead me to conclude that there is a buying opportunity here.

Family business

Alongside Drax, I’m also interested in AG Barr (LSE: BAG). It is one of the few companies left on the market where the founding family still owns a percentage of the business and has a hand in the day-to-day running of the enterprise, which in my opinion makes it the perfect investment for long-term defensive investors. 

Research has shown that family firms tend to perform better over the long run because they are not distracted by short-term market changes. These companies invest for the long term, with the desire to achieve the best outcome for the next generation of owners. 

Outside shareholders might not be part of the family, but this does not mean they’re left wanting. For example, AG Barr has one of the best dividend records around. It is debt-free and has grown or held the dividend every year since the late 90s. 

Considering this record of reliable dividend growth, it is no surprise that while the rest of the market fell last week, shares in AG Barr only pushed higher. With a dividend yield of 2.1%, I reckon this drinks business would make a great addition to any 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 share 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

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »