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Have £1,000 to invest? I’d buy these two dirt-cheap FTSE 250 dividend stocks

If you’ve £1,000 to invest and want to put your money to work in one of the market’s most attractive dividend stocks, then I highly recommend taking a closer look at Redrow (LSE: RDW). The homebuilder’s growth has exploded over the past five years, capitalising on the UK’s under-supplied housing market and the government’s Help To Buy programme. 

Earnings per share have grown at a compound annual rate of 42% since 2013, and it doesn’t look as if this trend is going to come to an end anytime soon. In Redrow’s results for the financial year to the end of June, it revealed a 13% year-on-year increase in completions and 10% increase in revenues. Earnings per share increased 8%, and cash generated from operations hit £124m, up from 2018’s £63m.

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Commenting on the firm’s trading performance since the end of the reporting period, CEO John Tutte said: “Since the start of the new financial year, trading has been encouraging, and the demand for our homes is strong with reservations running ahead of last year.

So, it looks as if fiscal 2020 is going to be another year of growth for the group as well. 

Cheap income

Based on the numbers in today’s earnings release, the stock is currently trading at a historical P/E of 6.1. Assuming Redrow’s earnings will grow further in fiscal 2020, we can assume this ratio applies for the current year too. On top of this, the firm announced an additional 20.5p per share dividend this year, taking the full-year cash return to 60.5p, a dividend yield of 9.4% on the current share price. 

I think it’s unlikely investors will see the same kind of cash return in fiscal 2020, but analysts have pencilled in a regular dividend yield of 7.6%. This level of income, coupled with Redow’s discount valuation, makes the stock too good to pass up, in my opinion. 

Cash champion

Another company that I think might also be worth your research time is PayPoint (LSE: PAY). The company, which primarily operates a payments network, helps customers convert cash into electronic payments and provides payment terminals for small shops around the UK.

This business is highly lucrative. Last year, the company reported an operating profit margin of 26% and a return on equity of 79%. There are only a handful of other stocks on the London market that reported returns higher than this. 

With its market-leading profit margins, PayPoint is highly cash generative. Last year the company generated free cash flow per share of 71p. Management is returning the bulk of this cash to investors with regular and special dividends.

City analysts believe the company will distribute 83 per share in dividends for its current financial year, which gives a dividend yield of 8.9% on the current share price. With net cash on the balance sheet of £38m, there’s plenty of capital there to support these special payouts. 

At the time of writing, shares in PayPoint are dealing at a forward P/E of 14.2. That’s not too dear, in my opinion, considering the firm’s healthy profit margins and cash generation. That’s why I think it might be worth taking a closer look at this business today.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of PayPoint. The Motley Fool UK has recommended Redrow. 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.