I’d ditch a Cash ISA and buy these 7%+ yielding FTSE 250 dividend stocks

With dividend yields of 7% and more, these FTSE 250 (INDEXFTSE:MCX) income stocks are a much better buy than a Cash ISA writes Rupert Hargreaves.

| 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.

According to my research, the best instant access Cash ISA rate available on the market today is just 1.47%. This dismal rate of interest does not even compensate for the rate of inflation, which is currently 1.9% per annum.

With this being the case, I highly recommend ditching cash and investing your money in dividend stocks instead. Here are three FTSE 250 dividend stocks I’ve got my eye on today.

Property income

NewRiver Reit (LSE: NRR) saw its shares crash to a five-year low last year as investors rushed to dump any investments with significant exposure to the UK high street.

As one of the largest publicly traded retail and leisure property investors in London, NewRiver has more exposure to retail bankruptcies than most, but despite its retail exposure, the company is holding up relatively well.

It has relatively limited exposure to the most significant failures, such as Debenhams. Its total exposure to the struggling department store is just 0.1% of its gross rent roll, meaning that the company’s collapse is likely to have a minimal impact on the firm.

In January, it reported occupancy of its retail portfolio of 95.5% and pub occupancy of 98.9% — robust metrics considering the state of the high street.

These occupancy figures, coupled with the company’s low level of gearing (35% loan to value) lead me to conclude that investors can rely on NewRiver’s 9.4% dividend yield.

Market leader

Another FTSE 250 high-yield stock that’s on my radar is Hastings Group (LSE: HSTG).

Hastings is taking on the UK’s car insurance market by using technology to deliver better outcomes. This approach has helped the firm increase profits from £41m to £128m over the past six years. Revenues have risen from £252m to £814m over the same period.

Despite this impressive growth, the stock recently dived after the firm warned that profits growth would slow this year as claims inflation has been outpacing insurance premium growth. Following the update, analysts are now forecasting flat earnings for 2019, which is disappointing, but I see these as temporary headwinds.

The whole UK car insurance industry is facing the same issues, and this should mean premiums start to grow over the next 12 months to reflect the higher level of claims. With that in mind, I reckon now could be an excellent time to snap up the shares at a historically low valuation of just 9.6 times forward earnings. The dividend yield of 7.3% looks pretty safe as well.

Consumer retail

My last FTSE 250 income pick is Dixons Carphone (LSE: DC). Another company that has fallen out of favour with investors recently, Dixons is still the first point of call for many shoppers looking for electricals on the high street.

Analysts have pencilled in a decline in earnings of 23% for 2019, the second straight year of declining profits. However, stability is projected to return next year, and I think this could be a catalyst for the stock. Moreover, the shares are changing hands at just 7.3 times forward earnings, 37% below the sector average, implying there’s a near 40% upside for investors when confidence returns.

In addition to capital growth, there’s also the 5% dividend on offer, although, with the payout now covered 2.8 times by earnings per share, I think there’s a good chance the yield could jump back to its historic level of 7% during the next year or two.

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

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 »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »