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These bargain FTSE 250 income stocks offer yields of 7%

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While many dividend investors prefer to pick large-cap stocks from the FTSE 100 index, I believe that it’s also worth looking at the more domestically-focused FTSE 250 index for dividend opportunities. Today I’m profiling two FTSE 250 stocks that offer investors yields of around 7% at present.

Greene King

Shares in pub owner Greene King (LSE: GNK) have had a torrid run over the last year, falling from 730p to 490p today. That’s a decline of over 30%. The hospitality industry is going through a rough patch right now, with consumers spending cautiously and cost pressures taking their toll on the industry. In Greene King’s case, the group also has a fair chunk of debt, which hasn’t helped sentiment towards the FTSE 250 stock. Yet after a 30% fall, are the shares now oversold?

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A trading update released this morning suggests that the outlook for the company may not be as gloomy as some investors believe it to be. While like-for-like (LFL) sales for the 49 weeks to 8 April did fall 1.8%, the company was naturally impacted by the snow we had in February and March. Stripping out the effects of the snow, like-for-like sales were only down 1.2%. The pub owner advised that trading over Easter was strong with LFL sales up 2.8% against Easter last year, helped by sporting fixtures. The company also stated that its dividend is sustainable and that with its high-quality portfolio of pubs, excellent team and strong balance sheet, it remains “well placed to withstand the external market challenges and deliver long-term value” to shareholders.

The stock has surged around 8% this morning on the back of the update, yet at the current valuation, it still looks very cheap, in my opinion. With analysts expecting earnings of 63.4p per share for the year ending 30 April, the forward-looking P/E is just 7.9.

Greene King has an outstanding dividend track record and has increased its dividend every year since 1997. Last year, the group paid shareholders 33.2p per share, which is a trailing yield of 6.6% at the current share price.

Weighing up the rock-bottom valuation and the high yield which the company insists is sustainable, I believe Greene King offers appeal as an income stock right now.

Crest Nicholson

Another FTSE 250 stock that offers a big yield at the moment is Neil Woodford-owned housebuilder Crest Nicholson (LSE: CRST). Like GNK, its shares have trended downwards over the last year, declining around 15%. That’s pushed the trailing yield up to a high 6.9%. Is the stock worth a look for the dividend?

The stock certainly looks cheap at present. With analysts expecting earnings of 70.3p for FY2018, the forward-looking P/E ratio is a low 6.8. Neil Woodford recently advised that he has been buying more of the stock, taking advantage of the low valuation.

It’s also worth noting that dividend growth over the last three years has been exceptional, with the payout being increased from 14.3p to 33p, a rise of 130%. Looking ahead, analysts expect further increases of 6% this year and 15% next year.

With demand for housing likely to remain robust in the medium term, the investment case here does look interesting. However, investors should be aware that during economic downturns, dividends from this sector can dry up.

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Edward Sheldon owns shares in Greene King. 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.

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