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Have £1,000 to invest? Petrofac isn’t the only FTSE 250 dividend stock I’d buy for my pension

With inflation rising to 2.7% last month, dividend shares could become increasingly important to investors who are seeking to generate a real return on their assets. Fortunately, the FTSE 250 contains a number of shares with dividend yields that are significantly higher than the rate of inflation.

One example is oil and gas support services company Petrofac (LSE: PFC). It currently offers an impressive income return. But it’s not the only FTSE 250 dividend share which could boost your retirement savings.

Improving outlook

Reporting on Thursday was online trading company IG Group (LSE: IGG). It provided an update on its first quarter revenue, coming in 5% lower than in the same period of the prior year, at £128.9m. It was down as a result of lower volatility in its markets, leading to a lower level of client activity.

The company has continued to make progress with the process of offering retail clients the opportunity to become categorised as elected professional clients. The proportion of UK and EU revenue generated by clients who were categorised as professional was over 50% in the first quarter of the year. This is in line with previous guidance.

Looking ahead, IG Group is expected to report a rise in earnings of 6% in the next financial year. This means that its dividend is due to be covered 1.3 times by profit in the next financial year. With it having a dividend yield of 4.9% at the present, and seeming to be performing in line with expectations, it could offer an impressive income investing outlook for the long term.

Turnaround potential

Petrofac’s financial performance could receive a boost from the increased activity levels which are starting to become present in the oil and gas industry. A higher oil price is driving demand for a variety of services, with confidence across the industry beginning to return after a period of significant disappointment.

As such, the company’s disappointing earnings growth outlook over the next couple of years may not last over the medium term. The stock is expected to report a decline in earnings of 7% this year and 15% next year, but improved operating conditions could be the catalyst to turn this performance around.

With Petrofac’s dividend being covered 2.4 times by profit, it appears to be sustainable. Its price-to-earnings (P/E) ratio of around 10, and its dividend yield of 4.8%, indicate that it could offer good value for money, as well as high total return potential over the coming years.

Certainly, the company faces a number of risks. Regulatory risks remain in place, while the oil price could experience a period of heightened volatility. But with a wide margin of safety and a high dividend yield, the stock’s income investing potential seems to be high relative to many of its FTSE 250 peers. As such, now could be the right time to buy it for the long term.

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Peter Stephens owns shares of Petrofac. 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.