Have £2,000 to invest? Why I think these FTSE 250 dividend stocks could soar after Brexit

Should investors be buying these UK-focused FTSE 250 (INDEXFTSE:MCX) dividend stocks?

| 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.

Big Ben and the Union Jack

Image source: Getty Images.

According to a recent article in the Financial Times, $20bn of cash has been pulled from UK equity funds since the Brexit referendum in 2016. This persistent selling may be one of the reasons why domestic stocks have underperformed during the period.

Right now, institutional investors appear to think that there are better options elsewhere. But if a Brexit deal is settled, cash could start to flow into UK stocks again.

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!

Today I’m going to look at two potential Brexit buys from the FTSE 250. Does either of these stocks deserve a home in my portfolio?

Still motoring ahead

The automotive sector has attracted a lot of attention ahead of Brexit. There are fears for UK car factories and worries that the new car market could be heading for a slump.

One company that is heavily exposed to this sector is auction group BCA Marketplace (LSE: BCA). This £1.8bn firm is no longer simply a collection of large sheds where auctions are held. It’s involved in buying, selling, financing, preparing and delivering more than a million cars each year.

The business seems to be working well at the moment. Sales rose by 22% to £1,429.7m during the first half of this year. Operating profit was 24% higher, at £50.6m. Shareholders will enjoy a 15% pay rise, as the interim dividend rises to 3p.

What could go wrong?

BCA clearly enjoys economies of scale over smaller rivals. The group also benefits from having a huge amount of market data at its disposal.

My concern is that from what I can see, all of its activities benefit from the same factors — strong used car sales, rising volumes and low interest rates. If the market goes into reverse, I suspect profits would fall sharply across all of the group’s activities.

There’s no sign of this happening just yet. But it may be worth noting that executive chairman Avril Palmer-Baunack sold £10.7m of shares in September, reducing her holding by about 35%.

BCA shares now trade on 18 times forecast earnings for the year ending 1 April 2019, with a 4.2% dividend yield. Although this could be a good entry level if growth can be maintained, I’d prefer a greater margin of safety. I won’t be buying at this level.

One I would buy

Consumer spending is also important in the property market, especially for companies such as kitchen supplier Howden Joinery Group (LSE: HWDN). Howden’s share price has failed to break any new ground since mid-2015, and is unchanged so far this year.

However, a trading statement earlier in November showed that revenue rose by 7.5% on a like-for-like basis between 17 June and 3 November. The company says this was due to higher sales volumes and that profit margins were in line with expectations.

I rate this highly

Howden’s locally-focused business model has made it unusually profitable. The company has generated a return on capital employed of 40% or more for at least the last six years. That means that for each £100 invested in the business, it’s generated an annual operating profit of £40. That’s very good indeed.

Earnings growth is expected to be around 7% this year and in 2019. The shares now trade on just 14 times earnings and offer a 2.6% yield. For such a profitable business, this seems cheap to me. Howdens remains on my buy list.

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

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Howden Joinery Group. 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

Social media and digital online concept, woman using smartphone
Investing Articles

Apple stock: Buffett is long, Burry is short. What should I do?

Our author thinks about whether following Warren Buffet into Apple stock might be a good addition to his portfolio –…

Read more »

Close-up of British bank notes
Investing Articles

5 ‘no-brainer’ dividend shares to buy today

Is there an easy way to narrow down the list of FTSE 100 dividend shares? I try one approach, with…

Read more »

Close-up of British bank notes
Investing Articles

£5,000 to invest? 2 dividend-paying penny stocks I’d hold to 2030

I think these high-yielding penny stocks could help cushion the impact of high inflation on my returns. Here's why I'd…

Read more »

Renewable energies concept collage
Investing Articles

2 green stocks that I think are no-brainer buys for the future

Jon Smith explains two of his favourite green stocks at the moment, one for growth and the other for income…

Read more »

An airplane on a runway
Investing Articles

The Rolls-Royce Share price may be set for take-off!

After an upbeat Civil Aerospace Investor Day, here's why I think the Rolls-Royce share price could be set for take-off…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

2 beaten-down growth stocks to buy as inflation rises

Despite inflationary pressures and recession concerns, I am looking at some top growth stocks to solidify my portfolio over the…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Is the IAG share price too good to miss at current levels?

Jabran Khan delves deeper into the current state of play with the IAG share price and decides if now is…

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

5 of the highest-paying income stocks compared! Which one is best for my portfolio?

Income stocks are certainly in vogue right now amid sky-high inflation. But which of these big dividend payers is the…

Read more »