The Motley Fool

Have £3k to spend? I think these FTSE 250 dividend stocks are trading far too cheaply

In this article I’m discussing two FTSE 250 stocks worthy of serious attention from dividend investors. A word of warning though as my first income pick isn’t for the faint of heart.

PZ Cussons (LSE: PZC) is a former dividend aristocrat that had raised the dividend for a staggering 44 years before persistent trading troubles in Nigeria and consequent profits drops forced it to axe its progressive policy last year and freeze the annual payout.

Those hoping for an immediate return to dividend growth are likely to be disappointed as conditions in Africa remain ultra-challenging. Last month Cussons’ share price plunged again after it warned that profits were likely to fall again in fiscal 2019 as the “weak consumer environment, higher supply chain costs and lower exchange rate” in its African territory are offsetting good performances in Europe and profits improvements in Asia.

Accordingly City analysts expect the household goods leviathan to pay an 8.28p per share reward for a third successive year. The good news is that this projection still yields a pretty-mighty 4.2%.

Poised to bounce back?

Just as cheery is news that the number crunchers expect its profits, and therefore dividends, to start growing again from next year.

Why, you may well ask? Well recent economic data from Nigeria has suggested that a turnaround in the FTSE 250 firm’s fortunes here could be around the corner — gross domestic product in Africa’s largest economy sped up markedly in the final quarter of 2018, to 2.4% from 1.8% in the prior three-month period, and raised hopes that Nigeria is finally emerging from the crushing recession of three years ago.

I’ve long lauded the evergreen appeal of Cussons’ heavyweight brands like Imperial Leather soaps and shower gels, and trading data from its non-African regions illustrates just how beloved they remain with global consumers, with sales helped by a flurry of innovations across these labels and new product launches. And I’m confident that they will push the company’s profits column back on the road to strong and sustained growth sooner rather than later.

At current prices Cussons sports a forward P/E ratio of 16.3 times, way, way below its historical average. And this is a particularly attractive point at which to jump in given the signs of improvement in its key African marketplace.  

New business is booming

Another great income bet from the FTSE 250 is Just Group (LSE: JUST).

A projected 3.8p per share dividend for the current fiscal year would yield a mighty 3.8%, and I am confident that payouts can continue rising beyond the near term and that profits can take off. Indeed, latest financials from the retirement products provider this month reinforced my positive take when they showed that new business sales boomed 15% in 2018 to £2.83bn as companies passed on the risks related to their defined benefit pension schemes.

At current share prices Just Group trades on a forward P/E multiple of 5 times, well inside the accepted bargain-basement benchmark of 10 times (and below). This is a steal given the company’s solid sales momentum, and could lay the foundation for exceptional share price growth in 2019 and beyond, in my opinion.

High-Yield Hidden Star?

Discover the name of a Top Income Share with a juicy current dividend yield of around 6% that has got our Motley Fool UK analyst champing at the bit! Find out why he thinks “the stock’s current weakness may offer us the chance to buy a proven dividend performer at what could be a bargain price”. Click here to claim your copy of this special report now — free of charge!

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