2 FTSE 250 dividend stocks yielding 7% I’d buy right now

After recent declines, these undervalued FTSE 250 income stocks now support dividend yields of 7% and could be worth buying, says Rupert Hargreaves.

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If you’re looking for cheap dividend stocks to buy in the current market environment, there are plenty of opportunities out there. One of these opportunities is retailer Marks & Spencer (LSE: MKS).

Dividend stocks to buy

I’ll admit that I’ve not always been a fan of M&S. The company has made numerous mistakes over the past few years. It always seems to be in the process of trying to turn itself around, without any success.

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What’s more, it seems the company’s core customer base has deserted it. That’s not good news for any business.

However, after recent market declines, Marks & Spencer is starting to look attractive from a valuation perspective. Even though analysts are forecasting a 42% decline in earnings per share this year, the stock is currently dealing at a price-to-earnings (P/E) ratio of 7.2. That’s compared to the sector average of around 10. The shares are also trading at a price-to-book value of 0.8.

On top of this, the stock supports a dividend yield of 8.3%. That makes the company one of the FTSE 250’s top dividend stocks.

Still, as of yet, it’s difficult to tell what impacts the coronavirus outbreak will have on Marks & Spencer’s operations. If the epidemic drags on for several months, the retailer’s earnings could drop substantially, although its food business should offer some cushion.

Nonetheless, from a long-run perspective, the stock looks attractive. When the economy recovers from its current setback, consumers will start shopping anew. As one of the biggest retailers in the country, this means Marks & Spencer’s tills will start ringing again.

As such, it might be best to look past the near-term uncertainty and buy this stock for the long run.

Revenue certainty

The best dividend stocks are those companies that have a regular, steady income stream from a defensive market. Stagecoach (LSE: SCG) is one of those. As one of the largest public transport businesses in the UK, the company’s services are essential for tens of thousands of people across the country.

Therefore, while this business will undoubtedly be impacted by the virus outbreak, over the long run, it will continue to be a vital part of people’s lives.

This suggests now could be a great time to snap up some shares in this business at an attractive multiple. The stock is currently dealing at a P/E ratio of 8.5, significantly below its long-run average. Only five years ago, investors were willing to pay 16 times earnings to invest in the business.

On top of this, Stagecoach offers a dividend yield of 7.3%. The dividend payout is covered nearly twice by earnings per share.

This makes the company one of the best dividend stocks in the FTSE 250. It might be worth trying to make the most of this opportunity before it disappears.

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Rupert Hargreaves has no position in any of the shares 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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