Investors on the hunt for brilliant FTSE 250 dividend stocks can be forgiven for feeling stuck between a rock and a hard place right now.
Companies are slashing their dividends left, right, and centre in a desperate bid to conserve cash. But at the same time, sharp bouts of persistent selling leave many UK stocks carrying some truly mighty yields, leaving investors to endure the dreaded FOMO (or the ‘fear of missing out’).
Rank Group (LSE: RNK) is one share whose yields have marched northwards of late. This company owns and operates casinos and bingo halls and has online gambling operations, too. While moving off recent 10-year lows around 85p per share, at current prices the engineer still boasts a bumper 8.1% dividend yield for the current financial year (to June 2020).
You should forget about going bargain hunting with Rank, though. City analysts are expecting dividends to keep rising over the next couple of years, sure. But I can’t help but fear that swingeing payout cuts could be in the offing.
The impact of the coronavirus outbreak on Rank’s operations was made apparent in its latest mid-March market update. Then Rank said that it had “traded well” since the turn of January, though it noted that trading has slowed during the most recent three weeks. It added that it had endured “a sharper decline” in more recent days, too, a trend which would reflect intensifying lockdown demands from the UK government.
The gambling giant unveiled the colossal financial impact that social distancing will cause to its bottom line, too. It said that it would endure monthly net cash costs of £17m including mitigating actions (or £25m without).
The dividend stock’s operations in Spain and Belgium have also been shuttered, of course. The only plus point is that online trading has remained unmoved.
So should you buy this FTSE 250 dividend stock?
City analysts are expecting Rank Group to record a 39% earnings rise in fiscal 2020. Unsurprisingly they expect the annual dividend to keep marching higher, too. A 10p per share reward is expected, up from 7.65p last year. The covid-19 crisis has clearly changed the game, though and I reckon a scramble to conserve cash could ensue.
It’s not only the prospect of its betting venues being closed up until the end of June which could cause dividend forecasts to fall, though. Rank also has a whopping £40m worth of tax and duty payments coming this month.
Rank has lauded the strength of its balance sheet. It has revolving credit facilities of £85m, and cash and facilities after client deposits of £163m. It also has £32m of net debt on the books, though. And it will likely need to be prudent given the possibility that its bingo halls and casinos will remain closed for many months to come. Avoid this particular income share, I say, and put your hard-earned investment cash to work elsewhere.
Royston Wild 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.