One way I’m navigating the economic fallout from the coronavirus pandemic is through buying shares in cheap, dividend-paying UK shares. Although nothing can be guaranteed, this should generate a passive income stream. And, hopefully, capital gains once markets fully recover. With this in mind, here are two stocks from the FTSE 250 I think fit the bill.
Record results
Not every company has suffered at the hands of the coronavirus. For evidence, take a look at today’s record results from online trading platform Plus500 (LSE: PLUS).
Total revenue soared a massive 146% to $872.5m in 2020, thanks to “unprecedented levels of platform usage“. A total of 82 million trades were placed by customers over the period, compared to around 35 million in 2019. This goes some way to highlighting just how popular trading has become over the multiple lockdowns we’ve endured.
Naturally, there’ll come a time when markets and trading activity begin to settle. Indeed, Plus500 said today is expected revenue in 2021 to “grow from more normalised levels” achieved in 2019.
Even so, I think the dividends on offer still make Plus an attractive option for those looking for income. Right now, analysts are predicting it will return 83.6 cents per share (60p) in FY21. That becomes a yield of 4.4% at today’s share price. As well as being far better than the interest rates offered by even the best Cash ISA, this income looks likely to be easily covered by profits.
Naturally, Plus500 won’t be to every investor’s taste. The ongoing threat of regulation in its industry could keep the share price in check, even if the company succeeds in becoming a “multi-asset fintech group“. This may be one reason why the FTSE 250 member’s valuation — at just 9 times forecast earnings — appears low relative to the market as a whole.
For those looking for their dividend fix, but wary of buying Plus at its peak, I think there’s a great alternative in the index.
Quality… on the cheap
Another FTSE 250 stock offering great income right now is price comparison site Moneysupermarket.com (LSE: MONY). In fact, this is one of the reasons I began building a position in the company last year.
Analysts currently have the company returning 11.3p in FY21. That translates to a yield of 4.2%. I think that’s sufficient compensation for being patient while trading recovers. In spite of the foggy earnings outlook, I suspect we could see a big increase in demand for the company’s services from UK holidaymakers looking for travel insurance once restrictions are lifted.
Sure, MONY isn’t without risk. It’s certainly not the only option for those looking to compare prices on financial products. There’s also the opportunity cost of not investing elsewhere to consider. After all, the share price has been stuck in the 200p-400p range for the last six years! To me, this would imply that big capital gains look unlikely in the near term.
Nevertheless, I like the valuation. A forecast price-to-earnings (P/E) ratio of 18 feels reasonable for a company that has the quality hallmarks I look for. These include a good brand, net cash on the balance sheet and high operating margins.
On top of this, MONY also generates great returns on capital employed — a key metric used by fund managers such as Nick Train and Terry Smith to separate the wheat from the chaff.
