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These 2 FTSE 250 dividend stocks could make great turnaround plays. If you’re patient

These are tough times in the oil services industry, as supply remains strong and a barrel of crude hovers around $60.

The following two FTSE 250 companies both operate in the sector and recent share price performance has been poor. At some point they will recover, but you may need to show a bit of patience with these two. 

Weir Group

Glasgow-based engineer and hydraulic pump maker Weir Group (LSE: WEIR) gives you exposure to global oil, gas, mining and energy markets, with 15,000 staff operating in more than 50 countries. Investors have been served less well than its customers, with the share price trading 40% lower than five years ago, and down 15% in the last year.

Today’s positive interim statement nudged the share price up by 3%, as it reported Q3 growth was underpinned by its expanded mining equipment offering. Chief executive Jon Stanton said the highlight was the record £100m order for an industry-leading crushing solution for the Iron Bridge Magnetite Project in Australia, which reflects the group’s “growing technology offering and focus on making mining smarter, more efficient and sustainable”.

Weir’s project pipeline in mining remains “encouraging”, despite deferred projects “due to negative macro sentiment”, while the group has been forced into a £30m cost reduction programme due to falling demand from its North American oil and gas markets.

Stanton said full-year 2019 operating profits are below previous guidance in its Oil & Gas division, while both Minerals and the recently acquired ESCO division remain unchanged. The £3bn turbine and valve maker currently trades at 15 times earnings, despite its recent share price disappointments and lower earnings projection growth estimates. The forecast yield is a steady 3.4%, with cover of 1.9. With no sign of an immediate oil sector resurgence, I’m in no rush to buy it today.

Petrofac

Investors in oilfield service provider Petrofac (LSE: PFC) have had an even bumpier ride, with the stock down 65% over five years, and 33% over 12 months. As well as the oil sector slowdown it has also been hit by a Serious Fraud Office (SFO) investigation into Middle East bribery allegations, which is still ongoing. This means prospective buyers have no idea what the ultimate cost will be in terms of fines, penalties and market reaction.

Risk takers might want to take advantage of the uncertainty, which leaves the Petrofac share price trading at just 6.1 times forward earnings. The forecast yield is a whopping 7.4%, generously covered 2.1 times.

Petrofac is a “capital-light business”, especially since the recent $276m sale of its remaining interest in its Mexican operations to Perenco International, with the proceeds used to reduce gross debt. I can’t say the £1.4bn group looks particularly tempting today, with earnings forecast to fall 22% this year and 7% in 2020. Although by then the dividend will be a thumping 7.9%.

If you are a contrarian investor who is bullishly expecting an oil price recovery and doesn’t mind the bribery investigation, then Petrofac could be a good way to play it. If so, good luck, because I won’t be joining you.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Weir. 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.