The best flexible Cash ISA interest rate on the market at the moment is just 1.3%. This tiny rate doesn’t even cover the rate of inflation. However, following recent market declines, some fantastic income bargains have emerged in the FTSE 250.
Many of these companies offer dividend yields several times higher than the best Cash ISA rate, which could make them a better investment over the long run.
With that in mind, here are two FTSE 250 dividend champions that currently yield more than 8%.
Brewer, pubs and hotels group Marston’s (LSE: MARS) has been proving its doubters wrong for the past six years. Despite rising costs and razor-thin margins, the business has gone from strength to strength since 2014. Revenues have increased at a compound annual rate of 8.3% during this period, and operating profit has increased five-fold.
The future looks bright for the business as well. Analysts are expecting net profit and earnings per share to continue growing over the next two years. What’s more, over the longer run, the company’s revenues should continue to expand at least in line with inflation as it increases prices charged to customers.
Today, investors can snap a share in this well-run operation for just 6.7 times earnings. That suggests the stock offers a wide margin of safety and current levels. Indeed, the rest of the hotel industry is trading at mid-teens earnings multiple, implying Marston’s is undervalued by around 100%.
On top of this attractive valuation, the stock also supports a dividend yield of 8.7%. Unfortunately, the dividend hasn’t been increased since 2016. Nevertheless, it’s covered 1.7 times by earnings, which suggests it’s entirely secure for the time being.
Sub-prime lender Provident Financial (LSE: PFG) has had a rough time of it over the past three years. Still, it now looks as if the business is finally starting to get back on its feet.
Recent trading updates show profits are starting to grow again, and customer receivables — the amount of money the company has lent to borrowers but has not yet reclaimed — declined by nearly 10% in 2019. New customer numbers also increased last year by 1%.
These figures suggest the group is moving in the right direction. Over the next few years, management is planning to reduce costs and improve the group’s return on equity, a key measure of profitability for every £1 invested in the business.
Provident should also be able to capitalise on the collapse of other high-cost lenders in the past few years. It can use its reputation and scale to grab new business from the former customers of these operations.
Despite its growth potential, shares in the company are currently trading at a price-to-earnings ratio of just 8. In addition, the stock offers a dividend yield of 7.6%, more than twice the market average.
Therefore, now could be the time to snap a share of this recovered lender as it moves from the recovery to the growth stage of its comeback.
Rupert Hargreaves has no position in any of the shares 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.