There may be with expectations that the Bank of England could raise interest rates in a few weeks, but the income I’m making on my savings account is — and will remain — minimal. I don’t see this changing for at least a year or more. Instead, I can look to park some of my spare cash in FTSE 250 dividend stocks that offer me an attractive yield. Here are two companies that currently have yields above 10%.
An undervalued dividend stock
The first FTSE 250 dividend stock I’m considering is Ferrexpo (LSE:FXPO). The iron ore miner has operations in central Ukraine but processes and sells globally. To this end, it’s the third largest iron ore pellet exporter for the steel industry in the world.
Over the past year, the share price is up 88%. However, over a shorter period, the price has been falling. This is one element that has helped to push the dividend yield higher. For example, over three months the share price is down almost 25%. The current dividend yield sits at 11.95%, making it one of the highest in the FTSE 250.
One of the main reasons for the slump in the short run has been issues with China. The country is one of the largest steel consumers in the world. Demand for iron ore is directly linked to the economic growth of China. In recent months, this growth has been questioned. Caution around a slowdown, along with a crackdown in certain sectors, has seen iron ore prices fall considerably. For example, in July it was trading at $220/T. Now it’s at $115/T.
This is the main risk I see for the FTSE 250 dividend stock going forward. However, the reward here could be large. As my colleague Zaven Boyrazian mentioned last week, the P/E ratio is just 2.4. This could indicate that the company is undervalued.
Recent half-year results in August showed revenue up 74% versus H1 2020. It also increased capital investment by 48%. I think this investment should help the business in the long run, even if iron ore prices remain low.
Looking for trading volatility
The second FTSE 250 dividend stock I like is CMC Markets (LSE:CMCX). The business is an online trading company, servicing retail clients like you and I, but also having institutional clients. It offers products like spread betting, that allows me to bet on the direction of a stock, currency, bond and more.
Over one year, the share price is down 16%. In a similar way to Ferrexpo, the dividend yield has shot up recently due to the share price being down 35% in three months. This has pushed the dividend yield up to 11.06%.
The main reason for the fall was a trading update released in early September. It shifted the tone from previously being very bullish to much more conservative. For example, it commented that “overall market activity has remained subdued through July and August”.
However, I think this is just a blip. The business has performed very well during the boom in retail trading since the start of the pandemic. Even if activity is lower right now, it has built up a large client base so that when volatility rises, it can capitalise again.
I think both FTSE 250 dividend stocks warrant a small investment for my portfolio at the moment.
