The Motley Fool

Two FTSE 250 income stocks yielding 5%+ I’d buy for a second income

Shares in homebuilder Crest Nicholson (LSE: CRST) ticked lower in early deals this morning after the firm reported a decline in profit for the first half of its financial year.

According to is its earnings release, profit before tax declined by 11% to £64.4m in the six months ended 30 April, even though revenue increased 7% to £501.9m.

Sign up for FREE issues of The Motley Fool Collective. Do you want straightforward views on what’s happening with the stock market, direct to your inbox? Help yourself with our FREE email newsletter designed to help you protect and grow your portfolio. Click here to get started now — it’s FREE!

Falling property prices have hit Crest in London where its focus has been for the past decade. To work around the property slowdown in the capital, management has tilted the business towards partnerships and joint ventures. While hitting profitability, the move de-risks the group’s balance sheet by ensuring a set number of homes will be sold before completion.

Surrendering some of the profit on each sale as part of these agreements also means the firm’s operating profit margin decreased 2.7% during the first half.

A worthwhile trade-off

In my view, this is a worthwhile trade-off. Giving up some profit in return for guaranteed sales might not be good for profit margins in the short term, but over the long term, the deals should help the business ride out the peaks and troughs of the cyclical property market.

On top of this, Crest is well financed and highly profitable. Management believes the group will have a net cash balance after payment of dividends to investors at the end of its 2019 financial year.

All of the above leads me to conclude that Crest’s dividend is here to stay for the foreseeable future. With the stock currently yielding 9.2%, it looks to me to be one of the best income plays in the FTSE 250 right now. If you’re looking to build a second income from dividend shares, this company should be on your watchlist.

Booming demand

Another investment I think you should consider if you are looking to build a second income with dividend stocks is Bellway (LSE: BWY).

Like Crest, Bellway is benefiting from the chronic housing shortage in the UK. The group has seen an increase in sale reservations of 4.7% year-on-year to 244 per week, up from 233 a week in the same period last year. The number of people cancelling reservations has also declined, falling to 12% between August and February 2019, from 13% in March last year.

Off the back of these market trends, in a trading update published today, management confirmed it’s on track to hit growth forecasts for 2019. For its part, the City is expecting the group to report earnings per share of 438p on a net profit of £537m. If Bellway achieves these targets, then the stock is currently dealing at a bargain basement forward P/E of just 6.5. On top of this, the shares support a dividend yield of 5.2%, and the distribution is covered nearly three times by earnings per share.

Once again, these metrics give me the confidence to say I believe you should consider Bellway as an investment if you’re looking to build a second income stream with dividends.

Want To Boost Your Savings?

Do you want to retire early and give up the rat race to enjoy the rest of your life? Of course you do, and to help you accomplish this goal, the Motley Fool has put together this free report titled "The Foolish Guide To Financial Independence", which is packed full of wealth-creating tips as well as ideas for your money.

The report is entirely free and available for download today, so if you're interested in exiting the rat race and achieving financial independence, click here to download the report. What have you got to lose?

Rupert Hargreaves owns no share mentioned. 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.