If you’re relying on a cash ISA for your savings, then you’re probably still stuck with an interest rate of 1.5%, or even less. That’s not even enough to keep pace with inflation, which is currently running at 2.1%.
Although I think cash savings are necessary for a rainy day fund, I prefer to invest most of my savings in the stock market. The reason for this is simple — shares have the potential to provide much greater returns and a more generous income than cash.
Today, I want to look at two dividend stocks from the mid-cap FTSE 250 index which I think could be good long-term buys.
A family firm that’s out of favour
Family-owned consumer goods firm PZ Cussons (LSE: PZC) has fallen by almost 50% over the last 18 months. This may sound like bad news, but I’m starting to think the problems facing the company are now more fairly reflected in its valuation.
Today’s half-year results have knocked another 10% of PZ Cussons’ share price, after the company said adjusted pre-tax profit is likely to fall from £80m to £70m this year.
The main problem is Africa, where sales are weak and costs are rising. Severe port disruption in Nigeria is expected to cost £5.5m this year. The firm says that consumer spending and exchange rate changes are also a concern.
There is some good news
Luckily, PZ Cussons doesn’t just operate in Africa. In Asia, adjusted operating profit rose by 20.1% to £9.6m during the half-year period. In Europe, profit was 1.7% higher, at £24.6m.
This company’s 135-year history and family ownership suggest to me that it will continue to be run with a long-term view. I suspect conditions in Africa will improve in due course. Management intends to hold the dividend at 8.3p per share, which looks affordable to me. This gives the stock an attractive 4.4% dividend yield. I’d rate PZ Cussons as a long-term buy and have added the shares to my own watch list.
A high street winner
This £600m firm continues to expand and enjoy stable sales from its existing stores. This may not sound exciting, but Card Factory’s policy of designing and producing all its own cards has made it a surprisingly profitable business. For example, last year’s results showed an operating profit margin of 17.9%.
For shareholders, this means that this retailer is something of a dividend heavyweight. At current levels, the stock offers a forecast dividend yield of 8% this year.
What’s the catch?
Card Factory’s share price has performed poorly in recent years, falling by more than 40% since January 2016. But the firm’s financial performance has been much more stable. Sales have risen from £326.9m in 2014 to £422m last year. Profits haven’t quite kept pace with this growth, but given the firm’s high margins, I think that’s acceptable.
I’ve been watching this stock drift lower for some time now. I’m starting to consider a purchase. I’m confident this discount retailer will be a high street survivor. And with the shares trading on 10 times forecast earnings, and offering an 8% dividend yield, the risks seem acceptable to me.
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Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of Card Factory and PZ Cussons. 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.