I once overlooked the FTSE 250 as a hunting ground for dividend-paying stocks. Not any more. FTSE 250 index companies are, obviously, smaller than the FTSE 100 ones. Thus, they might be considered less stable and riskier. But pick the right ones, and the potential for growth in both dividends and share prices tends to be higher than in the mature, blue-chip stocks that make up the FTSE 100.
With that in mind, here are two FTSE 250 dividend stocks that I’d buy right now.
FTSE 250 branded goods
Consumer products company PZ Cussons (LSE: PZC) has had a mixed year. The Covid-19 pandemic boosted sales for its hygiene brands but hurt most of its product portfolio. The company recorded impairment charges against assets because of the gloomy economic outlook. However, PZ Cussons still reported a profit for the year ended 31 May 2020, but it was down 16.1% year-on-year on an adjusted basis.
Shareholders, like myself, will have been disappointed by the full-year 2020 dividend being cut from 8.28p to 5.8p per share. But, that was a necessary step to shore up the balance sheet. Selling off non-core brands as part of a strategy that predated the pandemic also raised cash. Net debt fell from £158.8m in 2019 to £49.2m in the full-year accounts made up to 31 May 2020.
The first quarter of 2021 (which ended 31 August 2020) has gone well for the firm. Revenues are up by 19% year-on-year, with markets in Europe and the Americas performing particularly strongly. The second and third quarters of 2021, however, might not be as rosy. But the company has lower debt, credit on tap, and more cash from disposals incoming. PZ Cussons should survive the next couple of quarters and be in good shape. The end of the pandemic will hopefully then not be far off and the company, with a refocused portfolio of strong brands, is well-positioned to perform well in the long-term.
PZ Cusson’s dividend yield is currently around 2.4%, but I see the potential for dividend and share price growth, and therefore I think its a FTSE 250 dividend stock that’s worth buying.
Direct Line (LSE: DLG) is a FTSE 250 dividend stock I’d buy right now. For one thing, the company seems to recognise that dividends are important to its shareholders. After cancelling the final 2019 pay out in April, Direct Line has reinstated an interim 2020 dividend of 7.4p (versus 7.29 for 2019) and a special dividend of 14.4p.
Take the interim and special dividend together, and the dividend yield on Direct Line shares (trading around 300p right now) is about 7.3% for 2020. That’s an attractive dividend yield indeed. The question is, will the yield hold up. Well, Direct Line has so far come through the pandemic in good shape. Falling motor insurance claims as a result of having fewer vehicles on the road had a lot to do with that. Although the pandemic is not yet over, and Brexit could potentially be messy, the consensus estimate for Direct Line’s adjusted earnings per share is 27p. That suggests that paying a yield preserving 21.8p dividend for 2021 would indeed be possible. As a result, I have recently added shares in FTSE 250 member Direct Line to my portfolio.
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James J. McCombie owns shares of PZ Cussons and Direct Line. The Motley Fool UK has recommended PZ Cussons. 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.