Forget the Cash ISA! I think this FTSE 250 stock yielding 6.2% is all you need

Here’s just one FTSE 250 (INDEXFTSE:MCX) stock that offers a better return than most Cash ISAs today.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

At the time of writing, the best interest rate available on a Cash ISA is just 1.5%. This dismal rate of interest doesn’t even match the current rate of inflation, meaning the purchasing power of any money deposited will decline steadily over time.

With this being the case, I’m on the hunt for income stocks that might offer a better place to invest your money in the current interest rate environment. One of the companies I believe could be an attractive addition to your portfolio is pub group Marston’s (LSE: MARS)

Slow and steady

Marston’s might not have the appeal of a hot tech stock, but over the past few decades (the company went public in 1986) the business has proven it can produce steady, attractive returns for investors.

During the past 10 years, the stock has returned 8% per annum, including dividends, turning every £1,000 invested into £2,160. If you’d deposited the same amount of money in a Cash ISA, your £1,000 investment would be worth just £1,160 today. 

So, what does the future hold for this enterprise? Well, despite Brexit uncertainty, the UK consumer still seems happy to spend money in Marston’s establishments.

According to a trading update today, covering the 42 weeks to 20 July, like-for-like managed and franchised pub sales increased by 0.5%, although growth tailed off in the second half of the reported period due to the tough year-on-year comparison. Last year, the World Cup and an unusually hot summer helped push the group to a record performance. 

Improving free cash flow 

As well as growing the business, management is also focused on strengthening Marston’s balance sheet. In January, the company announced it would “reduce net debt by £200m in the period 2020 to 2023 through reduced capital expenditure, £120m of disposals and a reduction in interest and pension costs.” The new plan is to hit this target in a shorter time frame.

To this effect, Marston’s is putting £70m of capital spending on new pubs on ice, reinvesting the money into existing establishments, which “are generating significantly higher returns.” Management believes this new strategy will “generate an additional £40m to £50m of cash flow over the next three years.

Lower capital spending and more cash flow is excellent news for shareholders. Marston’s already supports a dividend yield of 6.2%, and with free cash flow set to increase over the next few years, the company will have scope to hike its payout further. A stronger balance sheet is also a bonus. 

The bottom line

It looks to me as if Marston’s is firing on all cylinders and powering ahead and, right now, you can snap up shares in this pub operator for just 8.6 times forward earnings.

This valuation makes the firm one of the cheapest pub companies listed in London right now, and I think it dramatically undervalues the firm. That’s why I’d put my money in Marston’s over a Cash ISA any day. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »