The FTSE 250 is packed with top-quality cheap shares at the moment. Here are two with low earnings multiples and huge dividend yields that make them top buys for value investors.
Springfield Properties
A combination of rising interest rates and weak economic conditions pose a continued threat to homebuyer demand. In theory, the danger has intensified following news this week that core inflation remains stubbornly high. Expect more Bank of England rates hikes in the months ahead.
However, a slew of recent updates from the housing market suggest conditions are actually stabilising. Property listings business Rightmove has just said that average home values rose 1.8% month on month in May. This was 0.8% higher than the rate of growth usually recorded at this time of year.
This comes amid a series of encouraging trading statements from the housebuilders themselves. In its most recent market release, Springfield Properties (LSE:SPR), for instance, said it is “encouraged by the reservation levels experienced across [our] private housing business” during the first two months of the year.
I’m considering adding this particular FTSE 250 builder to my portfolio today. A low forward price-to-earnings (P/E) ratio of 6.2 times leaves scope for meaty share price gains should the market keep recovering. As a value investor, I’m also pulled in by its large 6.6% dividend yield.
I think the business will deliver strong earnings over the long term as weak housebuilding rates persist. This means the gigantic homes shortage that has driven property prices skywards in recent decades will remain in place.
Fresh data from the Home Builders Federation showed the number of planning permissions drop below 3,000 between October and December. This was the weakest number since records began in 2006. And the body predicted that the number “will plunge further” due to planning restrictions.
Tritax Eurobox
Purchasing European property stocks could be a good addition to my portfolio, too. This would provide added geographic diversification to my portfolio and reduce my reliance on a strong UK economy.
Warehouse and logistics hub owner Tritax Eurobox (LSE:EBOX) is one such share on my radar. And at current prices it also looks highly attractive. The business trades on a forward P/E ratio of just 10.3 times. It also carries a traffic-stopping 9.7% dividend yield.
This business owns a growing portfolio of assets in Mainland European territories including Germany, Poland, and Belgium. As businesses invest heavily in automation and e-commerce grows, demand for these properties is also tipped to outstrip supply growth, pushing rents steadily higher.
I’m conscious that earnings growth here could be compromised in the near term by tough economic conditions. Data today showed Germany sink into surprise inflation, a bad omen for Tritax’s core market and its surrounding regions.
But I’m heartened by the strength of trading here despite ongoing tough conditions. Latest financials showed like-for-like rents rise 5.8% during the six months to March.
I think Springfield Properties, like Tritax Eurobox, should deliver excellent returns over the next decade.
