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2 FTSE 250 income stocks I think could double their dividends

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If you’re searching for FTSE 250 income, I highly recommend taking a look at challenger banking group CYBG (LSE: CYBG)

CYBG is the holding company for a collection of small banks, including Virgin Money, which it acquired towards the end of last year, alongside Clydesdale and Yorkshire Bank. For the past few years, the firm has struggled to grow in the UK’s increasingly competitive retail banking industry. But, according to City analysts, the acquisition of Virgin Money last year should change that. 

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Primed for growth

The City has pencilled in revenue growth of more than 60% for the enlarged group in 2019, and a net profit of £355m. If CYBG hits this profit target, the bank will earn 24.4p per share for the year, putting the stock on a forward P/E of 7.6. 

As well as earnings growth, it also looks to me as if shares in CYBG are trading at a deep discount to the tangible net asset value. According to the banking group’s half-year results, tangible net asset value per share was 260.1p at the end of March, 44% above the share price of 180.7p at the time of writing. 

So, it seems to me that whichever metric you use to evaluate shares in CYBG, they look cheap. But what about the company’s dividend? Well, management approved a 3.1p per share payout last year. And with profits set to surge in 2019, analysts are predicting a 7p dividend for 2019, rising to 10p in 2020. According to my calculations, that will leave the stock yielding 5.4% for 2020. That’s why I think this stock could be worth considering for your portfolio if it’s income you’re after. 

Turnaround complete

If CYBG isn’t for you, Balfour Beatty (LSE: BBY) also has attractive income qualities, in my opinion. 

For the past few years, this construction giant has been through a lengthy restructuring process, and it looks as if the hard work is starting to pay off. For 2018, net income hit £135m, up from a total loss of -£206m in 2015. The City is expecting more of the same in 2019. A net income figure of £151m has been plugged into their spreadsheets.

With a contract backlog of £12.6bn, up 11% year-on-year, at the end of 2018, it looks as if Balfour has plenty of scope to continue its recovery. And the group continues to pursue more opportunities to build its order backlog, such as the £1.5bn road maintenance contract with the Texas Department of Transportation, announced today. 

Dividend growth

After cutting its dividend to preserve cash as part of the turnaround plan in 2015, management reinstated the payout in 2016. And now profits have returned to healthy levels, the City reckons Balfour’s distribution will jump 31% to 6.3p in 2019, and then a further 24% to 7.8p in 2020. That’s an increase of 117% on 2017, leaving the stock yielding 3.3% next year.

This income growth, combined with its earnings recovery and attractive valuation (the stock is changing hands at a forward P/E of just 10.3), leads me to the conclusion that Balfour could be worth considering for any income portfolio. 

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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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