2 cheap FTSE 250 dividend shares I’ll avoid like the plague in July!

Both of these FTSE 250 shares carry enormous dividend yields. But Royston Wild thinks the risks of ownership are too great right now.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Asian man looking concerned while studying paperwork at his desk in an office

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

After years of underperformance, many top FTSE 250 shares trade for next to nothing right now. Around 50% of the index’s total earnings come from the UK. Therefore, it’s suffered as economic weakness and political volatility on these shores have seen investors look elsewhere.

Bargain hunters need to exercise caution when searching for stocks to buy. Although some cheap shares have historically yielded excellent returns, their low valuations today indicate huge challenges going forwards.

With this in mind, here are two FTSE 250 stocks I think savvy investors should consider avoiding this month.

Should you invest £1,000 in Twentyfour Income Fund Limited right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Twentyfour Income Fund Limited made the list?

See the 6 stocks

Energean

Created with Highcharts 11.4.3Energean Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

At 995p per share, fossil fuel producer Energean (LSE:ENOG) looks cheap from both an earnings and income perspective.

Its forward price-to-earnings (P/E) ratio sits at 4.4 times. Its dividend yield for this year, meanwhile, is an astonishing 10.4%.

But I’ve no plans to buy the company for my portfolio. First and foremost, Energean produces most of its natural gas from Israel, a fact which exposes investors to significant geopolitical risk.

Furthermore, its dependence on this volatile region will be even higher when the firm sells its Italian, Croatian and Egyptian assets to Carlyle Group for up to $945m.

I’m also concerned about the company’s future profits as countries step up their net zero ambitions. Oil and gas companies like this face massive uncertainty as renewable and nuclear energy sources become more popular.

On the plus side, Energean’s operational performance has been highly impressive of late. Fossil fuel production soared 49% in the first quarter, which consequently pushed revenues 43% higher. More solid news could help the company break out of its recent share price downturn.

But on balance, I think investing here remains too risky.

Diversified Energy Company

Created with Highcharts 11.4.3Diversified Energy Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Diversified Energy Company (LSE:DEC) is another energy share I’m keen to avoid for similar reasons. But this is not my only worry about investing here.

As of December, the company had a debt mountain of $1.3bn. And to try and get this down, Diversified announced plans to slash dividends by two-thirds. More severe action could come down the tracks too if oil prices experience fresh turbulence.

However, it’s not all bad news on the dividend front. The 8.4% forward yield on Diversifed Energy shares still smashes the 3.4% average for FTSE 250 shares.

In addition, the dividend rebase will give it more capital to make acquisitions to drive earnings growth.

That said, I still believe the risks of owning the company’s shares today outweigh the potential benefits. I’m not alone in fearing for Diversified Energy either. According to shorttracker.co.uk, it’s currently the second most shorted stock on the London Stock Exchange right now.

It has short interest of 8.1%, with nine hedge funds betting against it. Funds and institutional investors are sometimes mistaken. But they tend to get it right far more often. So this vote of no confidence is a big red flag to me.

Diversified Energy’s dividend yield suggests good value. But I think there are more sensible ways to source a market-beating passive income right now,

Of course, there are plenty of other passive income opportunities to explore. And these may be even more lucrative:

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Our best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »