2 top picks from the FTSE 250 to buy after Wednesday’s news?

The FTSE 250 can be a profitable hunting ground for investors looking for proven businesses, with real growth potential.

Among the companies that issued results on Wednesday were FTSE 250 services group Carillion (LSE: CLLN) and gold miner Polymetal International (LSE: POLY). Does either stock look a compelling buy following these updates?

This dividend deserves respect

Carillion’s revenue rose by 10% to £2.5bn during the first half of the year, but lower profit margins meant that the group’s underlying pre-tax profits remained stubbornly flat, at £84.5m.

Lower profit margins in the group’s construction business are to blame, but luckily Carillion’s support services business is doing much better. Revenue from support services rose by 8% to £1,336m during the first half, while underlying operating profit rocketed 30% higher to £75.9m.

Carillion’s order book remained flat at £17.4bn during the first half, but order intake was strong. The group generated £2.5bn of confirmed and probable orders during the first half, up from £1.5bn during the same period last year.

The interim dividend has been increased by 2% to 5.8p, suggesting that forecasts for a full-year payout of 18.9p are about right. Carillion’s dividend is a key attraction of this stock. The shares currently offer a forecast yield of 6.4% and look very attractive for income.

One risk is that the construction and support services sector has a reputation for delivering slim profit margins and periodic profit warnings. However, Carillion has largely avoided this fate.

The group’s dividend has risen for 17 consecutive years since 1999. During that time the payout has been increased from 4p per share to 18.25p per share.

Carillion isn’t without risk, but the group’s history of unbroken dividends suggests to me that it could be a good income buy. The shares currently trade on a 2016 forecast P/E of 8.6, which seems reasonable.

Gold profits rocket higher

Underlying net profits at Russian gold miner Polymetal International rose by 6% to $124m during the first half of the year. The gains came despite a planned reduction in mining volumes.

Polymetal’s share price was flat following today’s news, but has risen by 145% over the last year as the gold recovery has gathered pace.

Today’s results highlight Polymetal’s low production costs. The group’s all-in sustaining cost of mining fell to $754 per gold equivalent ounce. That compares well to the current gold price of $1,337 per ounce.

The group announced an interim dividend of $0.09 per share this morning. Current consensus forecasts suggest that the full-year payout will be $0.44 per share, giving a prospective yield of 2.9%.

However, Polymetal’s dividend isn’t as safe as you might expect, given the price of gold. The group’s net debt rose to $1,436m during the first half due to investment in new projects and seasonal effects. Debt levels are expected to fall during the second half, when cash flow from gold sales should be stronger.

Polymetal shares now trade on 13 times forecast earnings. Given the group’s debt burden, I’d say this is high enough. Investors who caught the share price near its lows earlier this year may want to hold, but at current prices I believe there are better buys elsewhere in the gold market.

Don't ignore this income pick!

As interest rates hit new lows, finding reliable dividend stocks is more important than ever.

Here at the Motley Fool, our expert analysts believe they've identified a dividend stock that could be significantly undervalued at current levels.

The company concerned offers a tasty dividend yield and the potential for significant capital gains.

You can find all the details in A Top Income Share From The Motley Fool. This exclusive FREE report carries no obligation, but availability is limited.

To download your copy today, simply click here now.

Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.