The FTSE 250 index is home to some decent stocks. And if I had the funds to invest, I’d consider researching and buying these two in February for the long term.
The first is specialist engineering and manufacturing company IMI (LSE: IMI). The business makes products that control the precise movement of fluids, such as valves and actuators. And the November 2022 interim management statement was upbeat. The directors reported strong momentum and raised their guidance for earnings.
Consistent earnings record
City analysts expect single-digit percentage increases for both earnings and the shareholder dividend in 2023. And those rises will come after a multi-year run of steady rises for earnings.
However, the dividend reduced in 2020 when the pandemic struck and rebased lower after that. But it’s been rising every year since. And it looks set to continue because the business seems to be executing its operations well.
In December, IMI announced the acquisition of Heatmiser, a company the directors described as a “leading” UK smart thermostatic control manufacturer. The move aims to target “significant growth opportunities in the UK and in Europe”.
And although there’s no guarantee the firm can realise the growth it’s targeting, I’m optimistic IMI will perform well in the years ahead.
Meanwhile, with the share price in the ballpark of 1,550p, the forward-looking earnings multiple is just over 14. And I see that valuation as fair for a business that stands up well against quality indicators.
However, the directors’ move to trim and rebase the dividend lower in 2020 is not ideal. And it has led to a lower dividend yield now, at just under 1.9% for 2023. Nevertheless, debt seems to be under control. And the business is trading and growing well.
So I’d be prepared to give the firm the benefit of the doubt and dig in with deeper research. My aim would be to hold the stock for the long term as the underlying growth in the business rolls out.
Good for dividends
But I’m also keen on IG Group (LSE: IGG), the financial technology company and trading platform provider. It was once viewed by investors as a fast-growing operation. But these days it’s more of a steady cash generator. And that’s good for servicing the stream of shareholder dividends.
January’s half-year results report recorded what the firm described as a “strong” financial performance. Revenue rose by around 10% year on year, but rising costs pushed profits down a little.
Nevertheless, City analysts expect a modest single-digit rise in earnings for the full trading year to May. And they predict a similar increase the following year.
Meanwhile, the dividend looks set to go up a little each time along with those earnings. And that expectation will add to a multi-year record of consistent payments. In fact, IG was one of those companies that kept up full dividend payments right through the pandemic.
It’s always possible for the steady performance of the business to decline. And I could even lose money on the stock. But with the share price around 810p, the forward-looking dividend yield for the current trading year is around 5.7%. And that tempts me.
