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2 dirt cheap FTSE 250 income stocks I’d add to my Stocks and Shares ISA today

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Over the past few years, OneSavings Bank (LSE: OSB) has firmly established itself as one of the UK’s top so-called challenger banks. While other challengers have run into problems and larger competitors have acquired others, OneSavings has carved out a niche for itself in the specialist lending and retail savings market, and it is currently seeking to expand its footprint by acquiring peer Charter Court Financial Services

In my opinion, the merger with Charter Court should only solidify its position in the market as the company’s bigger scale will allow it to compete more effectively with the mainstream banks, attracting savers and borrowers. That’s not to say the bank is having trouble attracting customers already.

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Loan book growth

During the first three months of the year, OneSavings’ loan book grew 5% with net loans and advances growing by £448m to £9.4bn during the quarter. Organic originations i.e. advances made to customers directly from the bank (rather than through a third party) hit £799m, up nearly £100m year-on-year.

However, despite this growth, shares in the bank are changing hands today at just 7 times forward earnings, and they also support a dividend yield of 3.9%. As the payout is covered 3.7 times by earnings per share, there’s also plenty of room for this distribution to grow in the years ahead in my view.

I think this combination of income, growth and OneSavings’s current valuation, is too good to miss and I highly recommend considering adding this bank to your stocks and shares portfolio today.

Revitalising the business 

Another dirt-cheap FTSE 250 income champion I think is worth adding to your stocks and shares ISA today is Investec (LSE: INVP).

Investec is one of the largest asset managers in the world, with operations around Europe, Africa and Asia. The company has grown steadily over the past five years, with earnings per share up by a compound annual rate of 9.1% since 2013 as the group has capitalised on rising stock markets around the world and the burgeoning middle class in its key markets in Africa and Asia.

However, as the company’s earnings have expanded, Investec’s stock price has gone nowhere. In fact, today the stock is trading at roughly the same level as it was five years ago, even though earnings per share have increased by 69% over this time frame.

The stock’s performance over the past five years seems to suggest that investors don’t trust Investec’s growth, or if they do, they don’t seem to believe it’s going to continue, but I think this is incorrect. Investec is currently in the process of streamlining and simplifying its operations, building operations where the company is most active and selling off non-core businesses.

And the strategy seems to be working. For the financial year ended 31 March 2019, management estimates third-party assets under management increased 5.8% on a currency neutral basis to £163.7bn, and customer deposits increased 8.1% to £31.3bn on a currency neutral basis.

In other words, it doesn’t look as if the company is struggling to grow and with this being the case, I think it could be worth snapping up shares in this financial services business today as they are trading at only 9 times forward earnings. For income seekers, there’s also a dividend yield of 5.1% on offer. 

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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.

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