The Motley Fool

Forget the Royal Mail share price. I’d buy this FTSE 250 9% yielder today

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.

Close-up Of A Piggybank With Eyeglasses And Calculator On Desk
Image source: Getty Images

The Royal Mail share price has fallen by 55% in one year and the stock now offers a forecast dividend yield of 9.5%. I share my colleague Harvey Jones’ view that the outlook remains uncertain for this 500-year old firm.

I can see better opportunities elsewhere in the FTSE 250. Today I want to look at another 9% dividend stock that I rate much more highly.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Bovis is bouncing back

FTSE 250 housebuilder Bovis Homes Group (LSE: BVS) has delivered a textbook recovery over the last couple of years. Since taking charge in April 2017, chief executive Greg Fitzgerald has lifted pre-tax profit from £114m to £168m.

Mr Fitzgerald has also fixed the company’s reputation for sloppy finishing. Bovis’s HBF customer satisfaction rating has risen from two stars in 2017 to four stars for 2018. Despite this investment in quality, operating profit margins have risen from 12.5% in 2017 to 16.4% in 2018.

Further gains are expected in 2019, and Mr Fitzgerald expects the group’s strong cash generation to continue. For shareholders, this is expected to result in a total dividend of 102.2p per share for 2019, giving a yield of 9.5%. A similar payout is expected in 2020.

Too good to last?

I don’t expect Bovis to be able to sustain such generous special dividends forever. But with earnings expected to rise by 6% this year and by 10% in 2020, I expect the dividend yield to remain above 5% unless market conditions get much worse.

Housing always carries some cyclical risk. But I see Bovis as attractively priced and operating well. I’d buy.

Profit from the silver pound?

Building retirement homes for wealthy retirees should be a profitable business. At least, that’s probably what investors thought when they bought shares in McCarthy & Stone (LSE: MCS) shortly after its 2015 flotation.

Unfortunately, things haven’t turned out that way. The shares now trade about 40% below their IPO price and the dividend hasn’t risen since 2017. Worse still, figures released today show that the group’s adjusted operating profit margin of 7.6% is less than half the 16% figure being achieved by Bovis Homes.

Are things getting better?

Today’s half-year results are a mixed bag, in my view.

The good news is that completions rose by 11% to 845 units during the first half of the year, while the average selling price climbed 7% to £319k. These gains lifted half-year revenue by 17% to £280.5m and boosted underlying operating profit from £14.5m to £21.3m.

On the other hand, the group admits that it’s having to use “discounts and incentives, particularly part-exchange”, due to challenging conditions in the wider housing market.

What could go wrong?

On average, the company says that £27.2m was tied up in part-exchange properties during the first half of the year. This figure is expected to rise to 10% of net assets — or about £74m — during the second half, according to today’s results.

In my view, that’s too much. The figure for Bovis was just 1.6% of net assets at the end of 2018. Although McCarthy shares now trade in line with their tangible net asset value of 126p, I’d want a discount before I’d take on this level of risk.

With the stock yielding just 4.2% and profit margins under pressure, I see better value elsewhere. I’d avoid.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Roland Head owns shares of Bovis Homes Group and Royal Mail. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.