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.

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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.

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