3 top FTSE 250 dividend stocks I’d buy right now

These FTSE 250 (INDEXFTSE:MCX) stocks offer a tempting mix of income and growth, says Roland Head.

| 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.

If you’re looking for companies that offer a useful income plus decent growth potential, then I believe the FTSE 250 mid-cap index is the best place to start.

Many of these medium-sized firms boast long and profitable trading histories, but are still expanding. Today I’m going to look at three dividend growth stocks from the FTSE 250 that I’ve been eyeballing for my own portfolio.

Smooth flying

Shares in engineering group Meggitt (LSE: MGGT) edged higher this morning after the firm reported underlying revenue growth of 9% for the first quarter. The firm’s business is split into three divisions, civil aerospace, defence and energy.

The largest of these is aerospace, which accounts for 54% of group revenue. The firm has operated in this sector for more than 80 years and says that “almost every jet airliner, regional aircraft and business jet in service” carries some of its equipment.

This dominant market share is a key attraction for me, especially as the firm’s defence business enjoys similar characteristics.

Although management warned today that air traffic growth could slow this year, it remains confident of delivering “strong revenue growth” with stable profit margins. The shares trade on about 15 times forecast earnings with a 3.4% dividend yield. That seems fair to me, given the group’s steady growth.

I suspect Meggitt will end up in the FTSE 100 in a few years. I see the shares as a long-term buy.

Recruitment success

Another FTSE 250 firm that’s impressed me recently is international recruitment group Hays (LSE: HAS). Its net fee income rose by 6% during the three months to 31 March, with like-for-like growth in all regions including the UK.

Chief executive Alistair Cox reported a “mixed economic backdrop across Europe” but said that the group’s main market of Germany grew by 6%. Elsewhere, Hays’ Australia and New Zealand business reported its 19th quarter of growth.

Although the future is uncertain, I think Hays’ size and geographical diversity should mean that it’s in a good position to cope with any regional slowdowns. In the meantime, profit margins are stable and cash generation remains very strong. Analysts expect earnings growth of 4%-6% per year in 2019 and 2020. With the shares offering a forecast yield of 4.6%, I think Hays remains worth buying.

A better buy than utilities?

Traditional utility stocks have been a poor investment in recent years. Several big names have cut their dividends and share price performance has been poor. The risk that utilities might be renationalised by a Labour government is also a concern.

If you’d like to invest in utilities but are looking for a safer choice, one company I’d consider is Telecom Plus (LSE: TEP), which trades under the Utility Warehouse brand. This business is a buying club that secures bulk-buy deals on energy, broadband and mobile which it resells to members.

Businesses of this kind aren’t always great investments. But Telecom Plus has been in business for more than 20 years and famously never advertises, relying on word-of-mouth and a network of agents. This approach has served the firm well. Sales have risen by 20% over the last five years. The group’s dividend has risen by 43% over the same period.

This business generates a lot of spare cash, most of which is returned to shareholders. The current dividend yield of 3.6% could be a good starting point. I’d buy.

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.

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

5 FTSE 100 shares to consider buying for passive income right now

The FTSE 100 is having its best start to the year for ages, and that's pushing the top dividend yields…

Read more »

Investing Articles

One overlooked cheap share to tap into the year’s hottest theme?

This Fool describes the key things to think about when investing in copper stocks and analyses one cheap share to…

Read more »

Investing Articles

A cheap FTSE 100 stock that’s ready for a dividend hike in 2024

This banking giant is one of the FTSE 100's greatest dividend stocks. And at current prices, our writer Royston Wild…

Read more »

Growth Shares

Is the BP share price set to soar after Michael Burry invests in the firm?

Jon Smith takes note of a recent purchase from the famous investor behind The Big Short and explains his view…

Read more »

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

I’d focus on Kingfisher now after the Q1 report leaves the share price unmoved

With the share price near 262p, is the FTSE 100’s Kingfisher a decent investment now for dividends and business recovery?

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

£500 buys me 493 shares in this 7.4% yielding dividend stock!

The renewable energy sector remains out of favour. As a result, there are some high-yielders around, including this dividend stock.

Read more »

Road trip. Father and son travelling together by car
Investing Articles

If I’d put £10k into Tesla stock 2 years ago, here’s what I’d have now

Tesla stock has fallen in the past few years. But the valuation looks temptingly low now, as we approach a…

Read more »

Google office headquarters
Investing Articles

Up 41.5% in a year, here’s why Alphabet is one of my top stocks to buy

Our author thinks Alphabet is one of the best stocks to buy. He says its undervalued, highly profitable and has…

Read more »