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2 FTSE 250 dividend stocks I’d buy for my ISA with £5,000 today

In my experience, the FTSE 250 is often a rich hunting ground for profitable, dividend-paying businesses with decent growth potential. Two companies I’m looking here are, I think, good examples. Neither is without risk, but I feel both could be profitable investments for investors with a long-term view.

A gold star?

FTSE 250 gold miner Polymetal International (LSE: POLY) is knocking on the door of the FTSE 100, with a market-cap of £4.1bn. The latest news from the firm suggests to me that it may not be long until this company joins the big-cap index.

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Revenue from the group’s gold mines in Russia and Kazakhstan rose by 4% to $1,882m in 2018, while net after-tax earnings rose by 8% to $394m, excluding the impact of currency exchange rates. Production rose by 9% to 1,562,000 gold equivalent ounces.

Rising reserves

Mining profits can vary with gold prices. In my view, a company’s reserves can be a better guide to long-term value. Polymetal’s proven and probable gold reserves rose by 21% to 22.3m ounces last year.

The company also logged a 44% increase in mineral resources, which rose to 26.3m ounces. Some of these should be converted to commercial reserves in the future, as the firm completes appraisal and development work.

Profits to rise in 2019?

Production is expected to be flat in 2019, as new production is offset by the sale of older, less profitable mines. But analysts expect this focus on cost to help lift the group’s profit margins.

Underlying earnings are expected to rise by 11% to $1.11 per share in 2019. This puts the stock on an undemanding forecast price/earnings multiple of 10.1, with a 4.8% dividend yield.

Production is set to rise from 2020, and this firm has delivered solid results in recent years. I rate the shares as a long-term buy.

A contrarian play

Oil services group Petrofac Limited (LSE: PFC) is unloved by the market at the moment. It’s the subject of a long-running Serious Fraud Office bribery investigation which started in 2017, which has yet to reach a conclusion.

So far, one former employee has admitted bribery and investors have no idea how the remainder of the SFO investigation will turn out.

For shareholders like me, the big risk seems to be that the company itself may still be prosecuted, resulting in financial pressure and reputational damage.

Petrofac has done what it can to protect against this. The group ended last year with a net cash balance of $90m and says it has changed its business arrangements in some countries to reduce the use of third-party agents.

My verdict

In my view, Petrofac is likely to have the financial resources needed survive a prosecution without any lasting damage. On a five-year view, I think the shares are probably cheap at current levels.

Trading on 6.6 times forecast earnings and with a 6.8% yield, I believe a fair amount of bad news is already reflected in the share price. I rate the shares as a special situation buy.

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Roland Head 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.