Forget buy-to-let: I think these FTSE 250 dividend stocks can help you become an ISA millionaire

Roland Head picks two FTSE 250 (INDEXFTSE: MCX) stocks he’d buy for hassle-free wealth building.

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Buy-to-let property has a reputation for delivering big long-term profits. But this generally relies on rising house prices. These aren’t guaranteed, especially after the housing market boom we’ve seen over the last decade.

If you want to invest your spare cash to become a millionaire, I believe the low-cost, tax-free shelter provided by a Stocks and Shares ISA is a better way to achieve this goal. Today, I want to look at two stocks I’d choose for investors wanting a hassle-free way to build wealth.

A 141-year heritage

FTSE 250 merchant bank Close Brothers (LSE: CBG) can trace its history back to 1878. Today, it’s a modern organisation with specialist expertise in lending, wealth management, and stock broking.

The bank said on Friday its performance has remained stable over the last 12 months, despite “mixed trading conditions.” Total lending has risen by 5.1% to £7.6bn, while bad debts are said to remain low. However, lower fee levels and higher funding costs mean that Close’s net interest margin, a measure of profitability, has fallen from 8% to 7.8%.

The shares have dipped slightly today, and I guess this is a slight disappointment. But it’s worth remembering the big high street banks all have net interest margins of less than 3%. By comparison, Close Brothers remains highly profitable.

Why I’d buy

The companys’ stock has comfortably outperformed the big high street banks in recent years. Dividends have been generous too. Over the last 20 years, the payout has risen fourfold, from 14.4p to 63p. Unlike many financial firms, the dividend wasn’t cut during the financial crisis.

My sums show shareholders have enjoyed a 22% return from dividends over the last five years. Share price gains lift the total return to about 30%. With the stock trading on 10 times forecast earnings and offering a 4.5% dividend yield, I think Close Brothers remains a good buy-and-hold stock.

Simple pleasures

Most of the children I know drank Fruit Shoots when they were younger. Some have since progressed onto drinks such as J2O, Robinsons squash, R Whites and Tango. Many also like Pepsi and 7UP. What all of these brands have in common is that they’re either owned or produced under exclusive licences in the UK by Britvic (LSE: BVIC).

Soft drinks have been popular in the UK since Victorian times, and I don’t see that changing in my lifetime. Britvic’s large product range, track record of growth, and cautious international expansion, suggests to me it’s likely to be a rewarding long-term investment.

The right time to buy?

The group’s financial performance certainly seems to suggest these drinks could be good for shareholders. Its operating margin has been stable at about 11% (or more) since 2014. Return on capital employed, which compares operating profit to the capital invested in the business, has averaged an impressive 18% over the same period.

After a period of heavy investment, Britvic’s net debt looks a little high to me at the moment. But borrowings are expected to fall as cash generation improves. I don’t think shareholders need to be concerned. BVIC stock currently trades on 15 times forecast earnings, with a 3.3% dividend yield. That seems a fair price to me. I’d be happy to add the shares to a long-term portfolio.

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 owns shares of and has recommended Britvic. 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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