The best flexible Cash ISA on the market at the moment offers an interest rate of just 1.36%. In my opinion, that’s a dismal rate of return for savers.
You can get a higher return from FTSE 250 stocks, some of which currently offer dividend yields approaching 10%. Today, I’m going to take a look at three such companies, all of which support dividend yields of around 7%.
Global champion
Despite regulators’ crackdown on some of the company’s most profitable trading products, shares in financial services group IG (LSE: IGG) have remained a solid investment.
Following the crackdown on CFD and Binary options trading, the group’s earnings declined 30% in fiscal 2019. City analysts expect the pain to continue into the current financial year as well.
However, analysts are also forecasting a return to growth in fiscal 2021, as the company re-focuses its efforts on growth in emerging markets and high-margin clients.
According to analysts projections, this growth should safeguard IG’s dividend, which is not currently covered by earnings per share. Still, a robust net cash balance of £309m at the end of fiscal 2019, tells me the company has the resources to maintain its 6.6% dividend yield for around two years before it runs out of cash.
At the time of writing, the stock is trading at a forward P/E of 16.7, falling to 14.9 for 2021 as growth returns.
Undervalued opportunity
Another FTSE 250 dividend champion I think is worth considering is insurance group Hastings (LSE: HSTG). Shares in this business have come under pressure recently following a warning about claims inflation.
It’s costing more to repair cars after accidents, and this is having an impact on the group’s bottom line. As a result, management believes the company’s loss ratio — the amount an insurer spends on claims compared to how much it earns on premiums — may move above a target range of 75-79%.
This warning’s disappointing, but I’m optimistic about the company’s long term prospects. Insurance is a cyclical business, so if claims costs are rising, it shouldn’t be long before premiums do as well. That should help Hastings return to growth.
It looks as if it could be an excellent time to take advantage of the company’s recent problems. Shares in the group are trading at a 2020 P/E of 10.3 and yield 7.3%. I reckon that’s a price worth paying for this up-and-coming insurance firm.
Turnaround incoming
The third FTSE 250 income champion I’m going to profile is Provident Financial (LSE: PFG). Like the other businesses in this article, Provident has fallen on hard times. Still, I believe that this could be an excellent opportunity to snap up the undervalued stock as the company makes a recovery.
Since 2017, the doorstep lender has struggled to attract customers. But in the third quarter of this year, the group reported a 6% rise in new and returning customers. According to management, this momentum will continue throughout the rest of 2019, which should stabilise the business.
If management’s forecasts come to fruition, City analysts expect earnings to return to growth in fiscal 2020 too. Based on these targets, the stock is dealing at a forward P/E of just 8.2 and analysts have also pencilled in a prospective dividend yield of 7.4% for 2020. These numbers show if Provident’s recovery gathers steam, investors could be well rewarded.
