2 FTSE 250 dividend stocks I’d buy for my ISA today

I think FTSE 250 (INDEXFTSE: MCX) dividend stocks are being overlooked these days. Here are two I really like, with strong cash generation.

| 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.

I’m increasingly convinced that the best investments are in companies that do boring stuff well. I don’t want excitement from an investment, I just want solid, dull, plodding cash.

IMI (LSE: IMI) is an engineering firm that makes equipment for controlling the flow and dispensing of fluids… a description that could even send me to sleep before the end of the sentence.

It manages to get cash flowing nicely too, paying a steadily progressive dividend that’s yielding around 4.3%. This year’s dividend is predicted to grow by 2.1%, so just a little ahead of inflation, as it has been in recent years. At yields above 4%, inflationary rises every year are just fine by me.

Steady

The current year is expected to be flat, earnings-wise, and that was reinforced by Friday’s first-half figures — revenue down 1%, pre-tax profit down 3%, EPS down 2%, and the dividend raised by 2%.

While the company expects organic revenue to decline a little in the second half too, chief executive Roy Twite said that “second half profits are expected to be similar to last year, supported by the business improvement initiatives pursued by each of the three divisions.”

Net debt picked up a little, from £459m to £516m, and that’s something I’ll want to keep an eye on for the full year. But with IMI having a market-cap of £2.8bn, it doesn’t count for a lot of its valuation. Forecast P/E multiples of 13.7 for this year, and dropping to 13 next, look reasonable to me. Not screaming bargain territory, but I think attractive for a company with such well-covered and apparently sustainable dividends.

IMI is a firm candidate for a FTSE 250 income investment for me.

Oversold?

Shares in specialist recruitment firm Hays (LSE: HAS) slumped in October last year, after an update revealed a slowdown in net fee income, blamed on Brexit concerns.

Prior to that, Hays looked to be on a bit of a growth valuation, with P/E multiples getting up around 16 to 17. Annual EPS growth coming in between 14% and 21% over the previous few years lent support for that, but since then we’ve seen forecasts pared back.

The City is now expecting a flat earnings year for the year just ended in June (with results due 29 August), and a modest single-digit rise in 2020. A final quarter update earlier in July reinforced that, showing flat overall net fees — down a couple of percent in the UK & Ireland and Australia & New Zealand regions, up a couple of percent in Germany and Rest of the World.

Free cash

One thing I like about Hays is that it doesn’t have a lot of demand for capital expenditure, leaving it free to return spare capital to shareholders in the form of special dividends. 

This year’s ordinary dividend is expected to provide a 2.5% yield, and the City’s analysts are suggesting that will be boosted to above 6% by specials. I like the strategy of paying modest ordinary dividends and making extra special returns when the cash is there. It helps avoid the over-stretching that can happen when a company tries to commit itself to big ordinary dividends.

Considering Hays’ strong cash flow, resilient business and dividend policy, it also makes it into my list of top FTSE 250 income opportunities.

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.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended IMI. 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

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Labour winning the general election would be positive for UK stocks, says JP Morgan

One mega-bank thinks certain UK stocks could benefit following the 4 July election. This writer considers a FTSE share that…

Read more »

Older couple walking in park
Investing Articles

No savings at 40? Here’s how I’d aim to retire comfortably with FTSE 100 stocks

It's never too late to begin investing in FTSE 100 stocks for retirement. Royston Wild reveals three steps to help…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Down 17%, is National Grid’s share price a FTSE 100 bargain?

National Grid's share price has taken a battering following a multi-billion-pound rights issue and dividend rebasement. Is it now too…

Read more »

Environmental technology concept
Investing Articles

Up 150% this year! Can NVIDIA stock keep on soaring?

Christopher Ruane explains why NVIDIA stock has soared over 150% already this year, where it might be going -- and…

Read more »

Investing Articles

Down 44% in a year, here’s why the Aston Martin share price could keep struggling

Not only has the Aston Martin share price collapsed in recent years, our writer sees its current business performance as…

Read more »

Investing Articles

I’m considering these 2 high-growth stocks to buy as a technology investor

Our author thinks Kainos and Softcat could be two of Britain's best tech investments. He thinks the risks in the…

Read more »

Abstract 3d arrows with rocket
Investing Articles

A once-in-a-decade opportunity to buy these FTSE 100 growth shares before they rocket?

Our writer highlights two FTSE 100 growth stocks he thinks could seriously outperform as interest rates are cut and economic…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing For Beginners

Down 14% in a month, is this the FTSE 100’s biggest bargain right now?

Jon Smith mulls over whether he should buy one of the worst-performing FTSE 100 stocks based on it being an…

Read more »